Money Tips Network

Primitive societies did not have money, since they did not trade. When trade began it was under a barter system. Goats might be exchanged for corn, or sheep for axes. As society became more complex, barter grew inadequate as a trading system. Goats might be acceptable as payment to one man but not to another, who might prefer sheep or cattle. Even then it was easy to dispute the question of how many sheep were worth a sack of corn.

Gradually precious metals and, most notably, gold and silver were used as payment and became the first money. Precious metals had several advantages. Money had toe be scarce. It was no good basin a monetary system on the leaf. Everyone would soon grab all the leaves around and the smallest payment would require a wheel barrowful. Money had also to be easy to carry and in divisible units –making the goat a poor monetary unit. Gold and silver wee sufficiently scarce and sufficiently portable to meet society’s requirements.

Of course, it soon became inconvenient to carry gold and silver ingots. Coins were created by the kings of Lydia in the eighth century BC. From the days of Alexander the Great the custom began of depicting the head of the sovereign on coins.

There are a variety of functions which money serves. It is a measure of value. Sheep can be compared with goats and chalk with cheese by referring to the amount of money one would pay for each product. Money is also a store of value. It can be saved until it is needed, unlike the goods it buys, which are often perishable. Creditors will accept money as a future payment, confident that its value will remain stable in the meantime.

Of course, today’s money is made from neither gold nor silver. Coins are made from copper or nickel, and the most valuable monetary nits are made of paper. There are two main reasons for this. The first is that supplies of gold and silver were outstripped by the demands of society. If money is scarce, it is difficult for the economy to expand and for us to get richer. The second reason is the so-called Gresham’s Law that ‘bad money drives out good’. When money was in the form of gold coins, it was tempting for those with a large number of coins to shave off a tiny fraction of each coin. The resulting shavings could be melted down to make new coins. Gradually some coins contained less gold than others. Anyone who had a coin with the maximum amount of gold would have been foolish to spend it least the received a coin with less gold in return. So the best coins were hoarded and the worst coins circulated. Bad money drove out good.