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From Silver to Paper

The History of Money

Easy as it is to comprehend now, money has not always been so clearly defined. For millennia, the exchange of things throughout civilization had much to do with an object’s intrinsic value to its society. Money, in other words, meant something useful, such as barley, tools, or precious metals. Today, most currency systems use money that has symbolic value.  Whether a dollar, yen, euro, or bolívar, the money in hand only represents the quantity printed on it. Instead, money is dependent upon trust. Philosophers have filled volumes throughout history on the theory and valuation of money, but this is the history of physical money. Whether or not money can buy happiness remains uncertain. But most of us depend upon money in one way, or another.

Etymology of Money

Money and the processes of producing money have word origins that are all tied up in a Latin root. According to the online Encyclopedia Mythica, the goddess Moneta protected prosperity. In practice, Moneta was a specific attribute of Rome’s patron goddess Juno, near whose temple resided the city’s mint.  In effect, Juno was the protector of the empire’s finances (Lindemans 2004).  In Roman usage, moneta referred to both “mint” and “coinage,” synonyms describing the production or manufacture of monies, and may have derived from the Latin word for monitor, monere, suggesting a warning or admonition. She was a goddess, in other words, who cautioned people in their financial dealings. Moneie subsequently appeared in Old French by the thirteenth century, and referred both to coin or coinage as well as specifically metal money. Money evolved in definition to include paper currency almost everywhere by the nineteenth century (Dictionary.com) Money has an undeniable influence in the lives of modern humans, but its role in early society was much more limited.

Early Money in the Western Tradition

egyptian coin
Coins have depicted many things throughout the history of money, from the natural world to emperors to religious messages

In Mesopotamia and Egypt, precious metals dominated early money production, though it would be well into the first millennium B.C. before actual denominations of coins emerged. Metals whose value was measured by weight, typically in the form of bulk bullion, were often traded for goods or used as payment. It is complex distinguishing what served as money. From cuneiform documents researchers have shown evidence of transactions that involved weights of metal money, but “monies in ancient Mesopotamia were themselves all potentially useful substances…[including] barley, lead, copper or bronze, tin, silver, gold” (Powell 1996). Virtually everything of use occasionally functioned as money.

The Egyptian word for money, hedj, actually evolved over time to encompass the concept of money or exchange—rather than just the precious metal—showing how the concept of money developed naturally in the market of exchange (Williams 1997).

Like Egypt, Mesopotamia existed for centuries without the need for coinage, though the bartering system that likely predominated simply doesn’t exist in the written record. What do exist are written records of weighed exchanges. Such exchanges are important in the history of money because they are the likely source of two key developments in the West: writing and banking. Warehousing at palaces and temples in Babylonia provided the origins of banking, beginning with deposits of grain then evolving to include other valuables, the record of which likely spurred the invention of writing (Davies 2005). Such weighed exchanges, then, are the precursors to coinage, and the system out of which standards of weight and fineness—a term pertaining to precious metal (Powell 1996). Ultimately, the Mesopotamian shekel and larger mina standards were eventually adopted by the Greeks, but not until coinage was developed by a neighboring kingdom.

Coinage seems to have originated with the Lydians of Asia Minor, in present-day Turkey to the northwest of Mesopotamia. Lydia was an alloy-rich kingdom lasting into the sixth century B.C. (before falling to the Persians) that early in the seventh century produced objects that clearly served as coins with various denominations intended for use in retail exchanges. That alloy, called electrum, soon gave way to coins minted from gold and silver with imprints and designs of increasing sophistication. Trade, incidentally, seems to the main reason for the emergence of coinage.

In ancient Greece, for example, money could be used internally for, say, payment for a service to the state. But while increased minting added economic value to a society, it also meant a central regulating agency would be required to prevent overvaluation and ensure consistent trade. Coins were in widespread use in ancient Greece by the fifth century B.C., and over the next two centuries coinage of lower value was developed to differentiate between silver coins for state transactions and coins for everyday transactions minted from less precious metal.

Roman coinage actually became more refined over the centuries. Vast amounts of precious metals moved into Rome from throughout the empire, gradually erasing independent currencies as wealth became increasing centralized. In Imperial Rome every coin featured the emperor. But political turmoil and inflation forced reform by the fourth century A.D. and devalued currencies were rebuilt or restored, though with varying success. One piece that emerged was actually a small gold coin that saw widespread use in the subsequent Byzantine Empire (Williams 1997).

The Story of Money in the East

There are two long, distinct early monetary traditions that developed in Asia: that of India and Southeast Asia, and that of China and the Far East. While evidence of Greek influence on early Indian coinage abounds (particularly dating to Alexander the Great’s conquests of the late fourth century), Indian coinage reaches further back, likely originating in Buddhist communities from about the middle of the fifth century B.C. Some Greek influence also seeped in through neighboring areas under previous Greek-influenced territories, including the Achaemenid Empire covering much of present day Afghanistan, Pakistan, and Iran. The empire used both Greece’s early die-striking technology as well as single-side imprints with punches related to denominations.

Throughout the early coinages, stamped natural symbols increasingly became replaced by royal portraits and important religious rituals and historical events. Such depictions are clearly based on Greek models and, of course, remain a common theme across currencies today. However, the modern coinage has roots in British colonialism, when the East India Company standardized the country’s rupee in 1835, replacing hundreds of localized variations throughout the subcontinent.

Record of coinage in China dates at least to 645 B.C., approximately contemporary with the history of money in the West.  Cowrie shells, or the brilliant, porcelain-like shells of marine mollusks were used in exchanges twice as far back, and like other early human civilizations all manner of goods were exchanged throughout China (Williams 1997).  While examples of early coinage abound, it was during China’s “Golden Age” of the Tang Imperial Empire that coinage with an inscription designating the coin specifically as money was established. Because of the cultural influence and reach of the Tang, that money became the model for coinage throughout the Far East, inspiring the first coins of Japan, Vietnam, and Korea between the early eighth and late tenth centuries A.D. (Williams 1997).

Over the centuries, the process of coinage in China and around the world became increasing more refined and sophisticated. Exchange in the West through much of the Middle Ages was dominated by bartering, with wealth and coinage centralized in the church. Meanwhile, gold-based Byzantium currency and silver influences from Persia both saw expanded roles in Islam with the spread of the Arab Empire. Islamic coins were covered in religious messages, but also had the mint and date of production. Early exploration and economic expansion on the precipice of European rebirth brought new sources of raw materials and the need for increased coinage, both of which began to transform money in Europe.

The Emergence of Paper Money

paper money
Official paper money originated as Exchange Certificates in the twelfth century in China

By the twelfth century in China, it was very difficult to determine compatibility among China’s regional currencies. Outside observers labeled the array “chaotic,” as regional preferences complicated exchange (Kuroda 2008). Paper money, originating as notes of exchange, helped solve these challenges, though early on inflation was rampant. Based on the popularity of notes of exchange, governmentally authorized Exchange Certificates were developed during the Jin Dynasty by 1189 A.D., and are the earliest predecessors to the modern paper currencies in use around the world today.

Banking and banknotes began to emerge in Europe in the thirteenth century, but official paper money wouldn’t emerge for four centuries. Small gold coins such as ducats from Venice, and florins from Florence were launched that same century, and played a prominent role in trade long after their release.

In colonial America, localized paper bills of exchange became popular due to limitations of manufacture and shortage of coin and metal, though the value of paper was lower than their metal counterparts (Williams 1997). The value of the dollar, including its subdivision into one hundred pennies, was adopted with the Coinage Act by the newly sovereign nation in 1792, even if only because it differed from the English pound (Davies 2008). Legislation in the United States in the late nineteenth century laid the foundation for the United States Federal Reserve, though even the first authorized “Greenback” dollars saw quick depreciation to less than half their face value in gold. The Gold Standard Act of 1900 solidified the standard unit of value in America, but the fluctuations and debates shed light on the challenge of developing and maintaining a reliable standard (Williams 1997).

The Unique World of Money and Numismatics

Though economists differ on precisely what should be required, money must possess certain qualities to be recognized as money. Money should have utility and value, be portable, indestructible, homogenous, and divisible, and should be stable and be generally known as money (Einzig 1966). Some indigenous monies frequently meet just enough of the requirements to be recognizable as money. The study of money throughout history reveals some unique examples that complicate the meaning of money.

Explorers from Europe encountered a number of currencies that they considered primitive or backward. Whatever was thought to hold a store of value had the potential to serve as money. Examples range from cattle and hoe-shaped iron in the Sudan to salt bars in Ethiopia. When European rail lines began to cut across Africa, coins increasingly replaced all local objects in the marketplace.

Similar patterns can be found throughout the world, including fur and blanket exchange in North America. Pelts, along with shells and the familiar shell-bead wampum remained in use among indigenous people of America well into the nineteenth century. Cacao and corn were two native plant species also observed as currency in the New World upon European colonization (Einzig 1966).

An extreme example of currency is found among the indigenous Pacific Island society of Yap. Yap islanders used calcite disks as money. Though as small as a few centimeters, some disks reached upward of twelve feet in diameter (Williams 1997). Classically dismissed by economists as having no inherent value (termed fiat, also applicable to modern United States currency), Yapese stone disks in fact have an understood value that is based not only on size, but also on history and tradition. Even today, several thousand of the disks remain in use around the islands, but even those that remain immobile retain their value, often exchanging hands through cultural transactions such as marriage (Goldberg 2005).

While money has its obvious function in society, the study and collection of money is called numismatics. Numismatic societies abound across the globe maintaining the history of the world through its currencies. At its core, currency implies exchange, enabling a society “to exchange goods without the need for barter” (OED). For most of history, money has been understood as objects with an understood “store of value.” Such objects have varied extensively and in the modern era include electronic money that is merely a digital “record of ownership” (OED).

Virtually no one carries gold or silver of any kind around anymore, as coins are minted from much less valuable metals and alloys. In the future, as money becomes increasingly abstracted from a source of value, it remains to be seen what forms it will take.  Perhaps Back to the Future Part II holds the answer. It’s a future where people pay for goods and services with only their thumbprint.

-- Posted July 16, 2010

References

Davies, Roy. 2005. “A Comparative Chronology of Money: Monetary History from Ancient Times to the Present Day.” 2008. “The Word ‘Dollar’ and the Dollar Sign $: Origins, History and Geography of Dollar Currencies.” Accessed: July 2, 2010. Adapted from: Davies, Glyn. 2002. A History of Money: From Ancient Times to the Present Day. Cardiff: University of Wales Press.

Einzig, Paul. 1966. Primitive Money: In its Ethnological, Historical and Economic Aspects. Oxford: Pergamon Press.

Goldberg, Dror. “Famous Myths of ‘Fiat Money.’”  Journal of Money, Credit, and Banking. Vol. 37 No. 5 (2005): 957-967.

Kuroda, Akinobu. “Concurrent but non-integrable currency circuits: complementary relationships among monies in modern China and other regions.” Financial History Review. Vol. 15 No. 1 (2008): pp 17-36.

Lindemans, Micha F. “Juno.” “Moneta.” Pantheon.org. 1997, 2004. Accessed: June 15, 2010.

money. Dictionary.com. Online Etymology Dictionary. Douglas Harper, Historian. Accessed: July 06, 2010.

money. Oxford English Dictionary Online. Oxford University Press. Accessed: June 16, 2010.

Powell, Marvin A. “Money in Mesopotamia.” Journal of the Economic and Social History of the Orient. Vol. 39 No. 3. (1996): 224-242.

Williams, Jonathan, ed. 1997. Money: A History. New York: St. Martin’s Press.