By: Jared M. Zipparo

Money of one sort or another has been around for many centuries. Archeology has unearthed many ruins of ancient civilizations and discovered evidence that money was used as a medium of exchange. For example, “some of the earliest Babylonian records show a legal distinction between ‘exchangeable goods’, which could be transferred from one person to another with very little formality, and ‘non-exchangeable goods’, for which a formal transfer deed was required. Exchangeable goods included gold, silver, lead, bronze, and copper; honey, sesame, oil, wine, beer, and yeast; wool and leather, papyrus rolls and arms, all of which probably served, in varying degrees, as means of payment.” (Morgan, 11)

Other evidence either consisted of actual coins of different denomination, gold or silver bars of varying sizes, or inscriptions in wall reliefs or manuscripts carved out of mud or papyrus depicting transactions involving money. Before money came to have an important use, the bartering system was widely employed. What is meant by barter is that if you had something I wanted, and I had something you wanted we just sat down and made simple negotiations and then traded the items with each other.

But soon enough this proved to become an ineffective method. For instance, suppose you had something I wanted but I did not have anything that was appealing to you, therefore no trade would take place.

To remedy this problem, nations began to implement the use of money into their daily transactions. The Lydians were among the first people that employed money into their economy followed by the Greeks who were next-door neighbors to the Lydians. “The Greeks were a largely unformed civilization, and their adoption of money propelled them forward, past all the other peoples of the area. Greece was the first civilization to be transformed by money, but in a relatively short time, all cultures followed the Greeks down the same road and underwent the same metamorphosis” (Weatherford, 43). This simplified matters because money became an accepted manner for trading items.

The metals that were most commonly used for trade were gold, silver, copper or bronze. The metals that had more circulation were copper, bronze and silver. The reason why gold had limited use was because of its rarity and it was costly to unearth. But gold was still used, to a limited extent, in trading either for large quantities or high-priced items.

The use of gold to produce coins or other objects for trade came to a halt in around the seventh century of our Common Era, “and after the submersion of the Roman Empire” (Shaw, 1). What was used predominantly in “the nations of mediaeval Europe rested on a silver basis entirely” (Shaw, 1).

Not all nations, during that time stopped using gold for their coins. For example, there was the Moors in Spain who followed Rome’s example of coin making. Another location where gold was continually used was in the Eastern Roman empire specifically in Byzantium its capital city.

As for the nation’s that stopped using gold and began to use silver, they continued to use silver for nearly 500 years. In 1252 C.E., Florence Italy began to use gold again in its minting of the gold florin.  “The new gold coin was (originally) known as the fiorino duro to distinguish it from the silver florins but soon the name florin was to become exclusively associated with the gold coin.” (Chown, 34) Other nations soon followed suit, in Genoviva a gold coin was issued about the same times as the florin.

In 1257 C.E., King Henry III of England minted gold pennies that resembled the florin (cw. Chown, 37); and 27 years later, in 1284, Venice minted gold coinage called the zecchinos. The reason for this sudden change in the demand for gold could be seen by better trade with the rest of the world and a need for a higher value of money.

“By the end of the fourteenth century nearly every country in Europe was using three coinage metals – gold, silver and a base metal such as copper or nickel – often known in contemporary literature as ‘yellow’ ‘white’ and ‘black’ money.” (Chown, 14)

After gold’s reintroduction into the market system a war took place between the two metals. Countries found themselves depleting their supply of gold by varying price rates of both gold and silver between countries. The value of gold in some countries was understated and silver overstated making it difficult for some countries to keep their supply intact.

The effects of this taking place was greatly multiplied by the shortsightedness and manipulation of gold to silver ratios “by the European rulers…and by the inability of the age to understand, or even to perceive, the hidden working of two metals see-sawing against each other” (Shaw, 56-60). This war you could say lasted until 1493 C.E. when Columbus discovered the America’s.

The demand for gold in Europe could be seen at the onset when Columbus set foot on the newly discovered “island of Hispaniola” when “he asked the wandering natives for gold” (Del Mar, 6). They responded by pointing south to the middle of Cuba.

History can verify as to what followed in the succeeding years. Spain’s thirst for gold launched an onslot of ships as well as men to the newly discovered America’s to enslave the natives to work for their mines for gold. As a result, their land was stripped and their people were murdered and enslaved, changing their way of life forever.

The consequence of these expeditions for the Spaniards resulted in a little over five million dollars’ worth of gold. The expense of getting this gold was the cost of “several expensive expeditions with their outfits, some thousands of Spanish lives, and at least a million and a half of Indios” (Del Mar, 13)!

Even though Spain seemed to be only concerned with the use of gold for its coins, not every civilization employed gold as the only means for money. Archaeologists have discovered that before Europeans settled this country, the people that lived here used other forms of money.  They consisted of: Lignite and coal money, Ivory and bone money, Terra cotta money, stone money, Galena coins, scylates or concavo-convex copper discs, beaver and morten skins, also gold, silver and copper were employed.

As for this country money was not used as a means of trade until the sixteen hundreds. After this country began to be settled by the Europeans man resorted back to using the bartering system as a means of exchanging goods. This was established basically by the decrees of European governor’s that established rules so their money would not find competition. By the increasing size of the population the bartering system soon became obsolete.

On October 16, 1692, the colony of Massachusetts found it necessary “to defy the Royal authorities by erecting a mint and striking Pine Tree shillings” (Del Mar, 75). These shillings closely resembled the clipped shilling of England and came in “denominations of 12, 6 and 3 pence, and in 1662 also in 2 pence” (Del Mar, 76).

From that point of time on metal coins were widely used in America as a means of making payments. It was not until in 1861 that paper money came into existence in the United States. Its appearance would not have occurred until later, was it not for its “pressing need brought about by the Civil War” (Official, 2).

The metal to make the coins was in short supply by both North and South at the onset of the war. To fill this need both sides resorted to printing notes (emergency money) “and at first circulation was disorderly and disorganized” (Official, 2). The first notes that came into existence were the U.S. Demand Notes of 1861 and Legal Tender Notes appeared in 1862. What followed thereafter are a variety of notes of different styles and designs.

By putting prices on different items man in general is ranking and ordering those items in order of his preferences. By having different prices for similar items man can compare the values of different goods and services. Without using money, man would not recognize full output by not employing specialization and by so doing would find himself below the production possibilities curve.

By accepting the use of money as a “unit of account and prices expressed in its terms, also serves to transmit economic information between people and so make possible specialization and division of labor beyond the confines of the family” (Scitovsky, 2). By having prices on items, the consumer is able to determine what society demands and how the producers uses the factors of production to supply these goods.

What most economists fear in times of inflation is hyperinflation. When this occurs the prices of goods not only go up, they skyrocket. This was evidenced in Germany of 1923 when “business firms were forced to expand their office staffs in order to deal with the greatly expanding task of obtaining and interpreting market information” (Scitovsky, 3). During the same time “prices increased so rapidly that waiters changed the prices on the menu several times during the course of a lunch” (Macro, 149).

When the economy is in a period of hyperinflation the Unit of Account of money not only becomes worthless but meaningless, people resort back to the bartering system to exchange goods.

If we did not have money as a medium of exchange for goods and services, we would be using the bartering system. Instead of looking at the advantages of using money we will look at the disadvantages of the bartering system.

First when we use money to go shopping it is easy to carry along, and it is widely acceptable. But now try to imagine what you would have to go through if this is not available.

For example, suppose you send your wife shopping, she not only needs to take along “a shopping list, but also a well-assorted bundle of goods to pay with, which may have to contain anything from china and bed linen to a grand piano” (Scitovsky, 4). Besides this imagine the difficulty you need to go through to find the one specific merchant that wants the particular consumer good you have to pay with.

Second if the bartering system was employed, we may need to go through a multiple number of transactions so we may acquire the one good we will need to exchange with the merchant that has the good we need. By using a form of money that is widely acceptable we will be limiting the amount of transactions needed to acquire a good or service.

Finally, if a bartering system were in place there would be less competition of the desired goods. The only ones that would be able to purchase the goods would be the individuals that carry goods that the sellers want. By using a form of money that is readably acceptable a larger number of people would be able to compete for that product and would conversely increase the consumer demand.

Many of us are only too familiar with what happens when we purchase an automobile. From the moment it leaves the dealers lot its value has already depreciated a couple of hundred of dollars. Likewise, is the case with other assets, one day you buy them the next day they are either worthless or obsolete. Not only do goods depreciate in value and become obsolete, there is also the added cost and inconvenience of storing them.

This is not the same as cold hard cash. Cash can be used at almost any time to purchase any desired good. Even if we want to postpone the purchase of something in order to budget our household expenditures we could do so because that money can still be used in the near future to purchase that item.

But is money the only store of value? No, there are other assets that give a store of value like stocks, bonds, Treasury Bills and debentures. “Unlike bills, bonds and debentures, money yields no interest. Unlike equities, it promises no dividends, capital gains, or insurance against inflation; and it offers none of the services that make real assets worth holding” (Scitovsky, 9).

But why have money around? Basically, for two reasons: First to pay off your current obligations to creditors. Second to take advantage of unexpected opportunities for economic growth. A businesses ability to stay profitable depend on it liquidity to meet its obligations and to take advantage of opportunities. Lack of liquidity has resulted in the opposite, bankruptcy (Business Failure).

1. The purchasing of goods and services over the more recent years has changed from payment of cash to payment on credit. In most instances the plastic credit card has been a convenient and easy way to make purchases. It allows a person to put off the payment of an item over a few months or possibly years into the future. Credit institutions (like VISA, Mater Card and American Express) have grown into multi-billion-dollar businesses.

In order to be profitable these institutions offer short-term loans to individuals who qualify at a stated interest rate. For instance if you would borrow from a bank today a $1,000 loan at a 10% rate, in one years time you would owe the bank not only the $1,000 face value of the note but also $100 accrued interest (assuming simple interest).

By offering loans to individuals banks are confident that they will earn a rate of return that exceeds the rate of inflation. If a bank wants to earn a 5% rate of return on a loan to a customer and the rate of inflation is 6%, the bank will charge the customers an interest rate of 11% to compensate themselves for the 6% inflation rate. Under this pretense other lending institutions follow the same format.

Not only do individuals make debts for themselves by acquiring loans, but also corporations, banks and the government do the same. Corporations acquire loans by issuing stocks and bonds to interested parties with a promise to pay these parties with a rate of return. In turn these corporations use these loans to finance their operations.

It has been noted that there is an inverse relationship between the rate of interest and the supply of money. When the interest rate is low for bonds people will be less willing to spend their money to acquire them. In turn the bond prices will fall, and the money supply will increase. At the other extreme when the rate of interest is high for goods people will be willing to purchase these bonds. This will not only increase their price but will also drop the supply of money.

Banks also make loans for themselves from two sources. One source is from individuals who deposit money into their checking and savings accounts. With this money the banks in turn issue loans to other individuals, but their main obligation is still to the persons who initially make the deposits. The other source where banks receive money is from the Federal Reserve Bank that they belong to.

The U.S. Government when it issues paper currency is in turn in debt to the citizens of the country. At one time paper currency could have been exchanged upon demand for gold or silver at the federal depository. But since the supply of gold has gone down and the demand for money has gone up this is no longer possible, therefore the government can no longer back the face value of the currency it has issued.

After examining the function of money and looking into the bartering system we may ask ourselves, “Have we advanced far enough to live without money?” To do without money each and every individual that is alive today would have to do their own work to provide themselves with their own necessities.

We would have to not only build our own house, but also manufacture our own materials to do so. We would have to sew our own clothes but also herd sheep, spin wool and extract dye to color the wool. If we wanted to eat and have a variety of foods, we would not only have to herd animals, but also cultivate the field to grow produce.

To accomplish all of these feats we would have to be supermen. But as we see we are not and as is, we just cannot do without money. Money in turn has become the most valued invention that man has developed, without it we could not exist.