The History of Money: From Barter to Bitcoin, Part One
Money is a universal measure of value and one of the most familiar pillars of modern society. We take the monetary system for granted, but It would be naive to think that the idea of money has always remained the same.
Coins made of precious metals, banknotes, cryptocurrencies … Throughout the history of mankind, money has taken many forms, and the monetary system itself has changed fundamentally. Nowadays, most of the money supply is “fiat money”. On the other hand, we are lucky to live in an era when we can observe another round of evolution — the idea of money in the form of cryptocurrencies.
To understand the history of money and economic relations between people, we need to plunge into the depths of antiquity and understand what money was in the distant past …
Barter
Economic relations between people existed even before the idea of money arose — even at that ancient time, there was a gift and a debt. The main way to get what you want from another person (apart from brute force and theft) was natural exchange or barter. However, it is not so easy to understand how many stone axes or clay pots a mammoth skin costs. Moreover, the needs of the exchange participants can be very diverse: you need a neighbor’s clay pot, but he does not want to exchange it for a stone ax, because he needs a piece of meat, and he already has an ax. The emergence of the idea of money against this background looked quite natural, since the need for it was great.
Money as a commodity
The concept of money as a commodity is widespread even today. In ancient times, originally durable objects of natural origin were used as money, the circulation of which could be effectively controlled. The famous Cowry shells were used as money throughout the Indo-Pacific region, from eastern Africa to southern Asia and Australia. Native copper, obsidian, amber, animal skins — all this could serve as currency even before the invention of minting. But at what point did it become systemic? It is safe to say that the monetary system was truly entrenched when mankind mastered agriculture. This is due not only to the fact that a universal measure of grain was required, but to the fact that statehood and taxation became possible precisely when people began to lead a sedentary lifestyle. Economist Glyn Davies also notes that along with taxes, the need for commodity money created a need for participation for things like religious donations or bride ransom. Lets use shekel as an example, how a measure of grain became a monetary unit.
Shekel history
The word “shekel” is itself very ancient, having arisen long before the minting of coins. Shekel was originally a unit of measure for weight in the ancient Near East, in Mesopotamia around 3000 BC. Shekel’s weight was approximately 8.28–8.4 grams. The word “shekel” comes from the Semitic verbal root for “weighing” (Š-Q-L), akin to the Akkadian “šiqlu” or “siqlu”, so the initial unit of measurement can be considered the weight of the grain (this is approximately 0.046 g). This suggests that granaries were the ancient analogue of banks. Perhaps the shekel is best known to the modern public due to the fact that it appears in the Old Testament. In Genesis 23:16, for example, we hear of “four hundred shekels of silver, according to the weight current among the merchants.” In about 2400 BC, silver began to be used to balance payments in the Middle East. Grain is susceptible to rotting, but metals are more durable. With the invention of coins around the 7th century BC, the shekel was used as silver coins in the Middle East. In essence, the coins were simply carefully weighed and stamped pieces of metal.
To be continued
In our next publications, we will look at the history of money after the invention of coinage, paper money, banking, cashless transactions and cryptocurrencies.
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