The Evolution of Moneyby Patrick White

• Money, in itself, is nothing – it is a symbol. • It can be a shell, a metal coin, or a piece of paper

with a historic image on it.• The value that people place on the symbol has

nothing to do with the physical value of money. • Money derives its value by being a medium of

exchange, a unit of measurement and a storehouse for wealth.

• Money – allows people to trade goods and services indirectly – understand the price of goods (prices written in Euro

and cents correspond with an amount in your wallet) – gives us a way to save for larger purchases in the future.

What is money?

The evolution of money Stages in development of money

1. Barter trade2. Commodity value3. Representative money4. Standardized Coinage5. Paper Money6. Banking7. Credit Money8. Electronic Money9. Back to barter

Stage 1 – Barter Trade At the beginning, there was no money. Barter became the most primitive form of

reciprocal exchange People engaged in barter, the exchange of one

product for another product, without a definition of equivalent value – based on needs

Barter involves only two people; each has something the other wants

“Hungry weaver is searching for a naked farmer” – exchange of feed for cloth

Stage 1 – Barter Trade (before 9,000 BC) This elementary form of trade is still found

today among people of primitive economies. Barter is also being revived again in the form

of exchange of services or goods.

Limitations Coincidence of wants Perishability Divisability Inefficient

Commodities then came to have a set value accepted by all to allow exchange for other products and used to assess their value.

Cattle was one of the mostly used and had the advantages of moving for itself, reproducing and rendering services.

Salt was another commodity money, difficult to obtain, mainly in the interior part of continents, also used as a preservative for food.

Commodities having a real value

Stage 2 - Commodity value (9,000 – 6,000 BC)

Many cultures around the world eventually developed the use of representative money.

Ancient China, Africa, and India used cowry shells.

Pepper – Europe Stones – Pacific Islands (in Micronesia, stone money is still used) Coils of red feathers – Pacific Islands Dog’s teeth – New Guiney Iron Nails – Scotland Whales teeth - Fiji

Stage 3 - Representative Money (assumed value)

Stage 4 - Token Money

From approximately 1,000 BC, the Zhou dynasty in China developed token money in the shape of miniature objects such as knives and spades made of bronze

The replicas’ shapes were simplified to circles because no one wanted to put a sharp tool in their pocket.

These were the first coins.

The use of silver as proto-money developed in Mesopotamia with silver bars

The use of gold has been traced back to the fourth millennium BC when the Egyptians used gold bars of a set weight as a medium of exchange.

The shekel was an ancient unit used in Mesopotamia around 3,000 BC to define both a specific weight of barley and equivalent amounts of materials such as silver, bronze and copper.

Stage 5 - Standardised value

When metal was traded, it required an assessment of weight and purity to evaluate its value at each transaction.

The touchstone was developed which allows the estimate the amount of gold in an alloy, which is then multiplied by the weight to find the quantity of gold in the lump of metal.

Later, metal money gained standardised form and weight, receiving a mark indicating its value, indicating also the person responsible issuing it.

Stage 5 - Standardised value

Stage 6 - Standardised Money - coinage The first manufactured coins seems to have

taken place separately in India, China, and in cities around the Aegean sea between 700 and 500 BC

They were small metal pieces, with fixed weight and value, and bearing an official seal, which is the mark of who has minted them and also a guaranty of their value.

At the beginning, coin pieces were made by hand in a very coarse way, had irregular edges, and were not absolutely equal to one another as today’s ones.

Stage 6 – Standardised money - Coinage

The Aegean coins were stamped (heated and hammered with insignia)

the Indian coins (from the Ganges river valley) were punched metal disks

Chinese coins were cast bronze with holes in the center that they could be strung together.

The different forms and metallurgical process implies a separate development in different parts of the world

Stage 6 – Token money - Coinage

For many centuries, countries minted their most highly valued coins in gold, using silver and copper for lesser value coins.

This system was kept up to the end of the last century, when cupronickel, and later other metallic alloys, became used, and coins came to circulate for their token value, that is to say their face value is independent from their metal value.

Stage 6 – Token money - Paper money

Paper notes date to the 7th century Tang Dynasty ion China.

In order to carry large amounts of cash, people hefted around an ever-increasing number of these coins – not the easiest, or safest, thing to do over long distances.

In an attempt to lighten their load, merchants began to deposit these coins with each other and were issued paper certificates for the coin’s value.

With the appearance of paper money, minting of metal coins was restricted to lower values, necessary as change.

Organisation of money - Greek Banking

Banking activities in Greece were more varied and sophisticated than in any previous society.

Private entrepreneurs, as well as temples and public bodies, undertook financial transactions.

They took deposits, made loans, changed money from one currency to another and tested coins for weight and purity. They even engaged in book transactions.

Moneylenders would accept payment in one Greek city and arrange for credit in another, avoiding the need for the customer to transport or transfer large numbers of coins.

Organisation of money - Roman Banking

Rome, with its genius for administration, adopted and regularised the banking practices of Greece.

By the 2nd century AD, a debt could officially be discharged by paying the appropriate sum into a bank, and public notaries were appointed to register such transactions.

The collapse of trade after the fall of the Roman empire made bankers less necessary than before, and their demise was hastened by the hostility of the Christian church to the charging of interest.

Organisation of money - Crusades

In the 12th century, the need to transfer large sums of money to finance the Crusades stimulated the re-emergence of banking in western Europe.

In 1162, Henry II of England levied a tax to support the crusades.

The Templars and Hospitallers acted as Henry's bankers in the Holy Land.

The Templars' practice was to take in local currency, for which a promissory note would be given that would be good at any of their castles across Europe, allowing movement of money without the usual risk of robbery while traveling.

Money during the middle ages

Many of the units of currency in use today derive from the Roman origins, and more specifically from versions of the Roman coins minted during the Middle Ages.

The stable currency of the Byzantine empire was a gold coin, the solidus, linked in later history with the various forms of European shilling.

From about 690 AD it was joined as a hard currency by another gold coin, the dinar (from the Latin denarius), first minted by the caliph Abd-al-Malik in Damascus.

In the following century the Frankish king Pepin III introduces a silver denarius, or penny, which became the standard medieval coin in western Europe.

In the 7th century AD, the kings of the Carolingian dynasty standardized the penny, decreeing that 240 are to be struck from a pound of silver.

It is subsequently established that twelve silver pennies were to be considered the equivalent of the Byzantine gold solidus or shilling.

Thus there evolves a monetary scale of 1:12:20 (penny:shilling:pound) which lasted in much of Europe until the decimalizing innovations of the French Revolution, and in Britain until decimalisation in 1971.

Pounds, shillings and pence

Silver penny Queen Elizabeth I

Carolingian penny

Gold solidus

Keeping a tally of your money

When currency was often unavailable (and few people were literate), the tally stick became increasingly popular in Europe to record payments.

In this early version of financial record keeping, notches were made on a wooden stick to indicate the amount lent — and owed.

The sticks were then split down the middle; the creditor kept one half and the debtor the other.

When a payment was made, the sticks were paired up, and the payment was marked on both pieces of the stick.

Tally sticks were nearly impossible to counterfeit, as the shape, size and grain of the wooden halves had to match up perfectly.

Tally sticks were used in much of Europe, but probably nowhere as extensively as in England.

For more than 700 years, tally sticks were used to collect taxes from local citizens, until the system was finally abandoned in 1826.

Eight years later, when the British parliament finally decided to get rid of the thousands of leftover tally sticks being kept in storage, they decided to burn them in an underground furnace that heated the House of Lords

This resulted in a massive fire that destroyed most of the building — the worst fire to hit London since the Great Fire of 1666.

Keeping a tally of your money

Bank notes issued by Private banks Inspired by the success of the London

goldsmiths (some of which became the forerunners of great English banks), the Swedish banks began issuing paper bank notes in the 17th century.

These banknotes were a form of representative money which could be converted into gold or silver by request at the bank.

In England this practice continued up to 1694.

Scottish banks continued issuing notes until 1850.

The use of private bank notes issued by commercial banks as legal tender has gradually been replaced by bank notes authorized and controlled by national governments.

The Bank of England was granted sole rights to issue banknotes in England after 1694.

Until recently, these government-authorized currencies were forms of representative money, since they were partially backed by gold or silver and were theoretically convertible into gold or silver.

Britain ended in gold standard in 1931

Bank notes issued by Government banks

Payment by Cheque As coins and notes ceased to be convertible into

precious metal, money became more dematerialized and assumed some abstract forms.

One of these forms is the cheque that is still used by many people today as it is simple and relatively secure.

In 2018, Cheques will be phased out in Britain.

Borrowing money on Credit

Money is borrowed and an interest rate is charged to cover the risks of the borrowing and a profit margin

IOUs, Promissory Notes, Overdraft Mortgages Credit cards

Change in the value of money - Inflation Inflation is a sustained increase in the

general price level of goods and services in an economy over a period of time

1 Euro = 14,945 Indonesia Rupiah 25,311 Vietnamese Dong 33,403 Iranian Rial

Zero value money A zero rupee note is an imitation banknote

issued in India as a means of helping to fight systemic political corruption.

The notes are "paid" in protest by angry citizens to government functionaries who ask for bribes in return for services which are supposed to be free.

Electronic money - bitcoins

Bitcoin is a form of digital currency, created and held electronically.

Only 21 million bitcoins can ever be created Bitcoins can be used to buy things electronically No one controls it. It is decentralised and

anonymous. No transfer fees

Great for the black economy!

Purchasing power parity – adjusted for differences in the cost of living in different countries – what we can afford to buy

Wealth – how do we compare

Modern barter – back to the future

Modern barter - Each member offers a range of goods and services in a directory which is circulated to every member.

This directory also contains a list of the goods and services each member wants to receive.

Individuals then decide what they want to trade, who they want to trade with and how much trading they wish to do.

The price is agreed between the seller and buyer (sometimes the price is in the directory).

No money is exchanged

Modern barter – Favabank, Totnes, UK

Favabank is modernising the age old idea of barter, exchanging items and time as favours between members of your community.

The function is to enable people to trade goods and services in a locality without using the national currency.

All barter exchanges are tracked using a virtual currency called a 'Fava', to create a 'gift economy' to trade skills, time and everyday items without using cash

Modern barter – SEL money in Crest, Tain SEL means "Système d'Échange Local" It is an association whose members

exchange them the services, knowledge and property.

The principle of trade is based on the time: 1 hour = 60 grains.

For trading objects, the value assessment is decided by the "sélistes".

The question may be: how long am I willing to work to buy a bicycle, a small table or a basket of vegetables.

Brexit - value of the poundPound Euro exchange during the last week

Brexit - value of the poundPound Euro exchange during the last month

Greed

Panic