The Origins & Functions of Money Essay Example

trade, blood-money, bride-money, barter, ceremonial and religious rites, amerce (to punish), ostentatious ornamentation, and serving as a common medium between economic individuals. A crucial development in money's evolution was the preference for certain items to serve as a medium of exchange instead of relying solely on bartering goods directly. These preferred items were chosen based on their convenience in storage, high value densities and portability, as well as durability. As these commodities became highly desired by many people, they eventually gained acceptance as forms of money.

Furthermore, societies often had laws mandating compensation for acts of violence instead of seeking personal revenge against offenders.The Latin word "pacer" is the origin of the word "pay," and it means to pacify or make peace with. This word signifies the use of an appropriate unit of value acceptable to both parties involved. In many societies, it was common to compensate the head of a family for the loss of a daughter's services through payment for brides. This practice, along with taxes and tribute imposed by rulers, has been observed since ancient times. Religious obligations often required the payment of tribute or sacrifices as well. As a result, there was a need for a means of payment for various purposes such as blood-money, bride-money, taxes, or tribute. This need led to the widespread use of money. Objects used for payment eventually found acceptance in non-economic contexts and began to be utilized for general trade, either supplementing or replacing bartering practices over time.

Primitive forms of money used in different regions like the Third World, North America, Africa, and Asia provide insights into the possible origins of modern money. The utilization and

documentation of items such as wampum (traditional sacred shell beads used by indigenous tribes), disc-shaped stones, cowrie shells (a type of sea snail also known as cowries), cattle, manilas (decorative metal ornaments), and whale teeth are extensive studies conducted on this topic.

Additionally noteworthy is that the term "potlatch" means "to give away" or "a gift".Manilas, which were bronze or copper armlets sometimes made of gold, served as both jewelry and currency in West Africa until 1949. The use of precious metals for ornamental purposes throughout history may explain their adoption as money in ancient societies. Cattle, initially used for religious sacrifices, became mankind's first working capital asset before being utilized in broader monetary transactions. Interestingly, the English words "capital," "cantatas," and "cattle" all share a common root. Additionally, the term "salary" is derived from the Latin word for cattle, "pecuniary." The development and significance of banking and coinage can be traced back to Ancient Mesopotamia and Egypt. In Mesopotamia, banking began before the introduction of coinage with royal palaces and temples serving as secure storage spaces for goods like grain. Receipts were used to transfer deposits among account holders and third parties, eventually extending to private houses engaging in banking activities. Regulations governing these operations were included in the code of Hamburg. Similarly, Egypt's centralization of harvests in state warehouses led to the emergence of a banking system where written orders for grain withdrawal served as payment for debts owed to tax collectors, priests, traders, and others individuals.Even with the introduction of coinage, Egyptian grain banks continued to minimize reliance on precious metals for domestic transactions, reserving them primarily for foreign purchases and military purposes.

In ancient times, precious metals served as a common form of currency, initially based on weight but gradually transitioning to a system based on countable quantities. The words "spend," "expenditure," and "pound" all derive from the Latin word "expender," meaning "to weigh." Ancient Greece used the "drachma" or "handful" of grain as its primary unit of weight, although its exact weight varied. Money in different parts of the ancient world was represented by a unit called the "states," which signified a balancer or weighed item. Primitive forms of money, like cowrie shells, were counted similarly to coins and were widely used as currency even in more recent times in places such as Nigeria. Cowrie shells played such an important role as money in ancient China that their pictograph became part of written language for money. Hence why some of China's earliest countable metallic coins resembled bronze or copper cowrie shells. Additionally, Chinese society accepted coins shaped like other objects such as spades, hoes, and knives as currency long before they appeared in Europe alongside early European coins (although there is disagreement about when these developments occurred).It has been suggested that the origins of coins may date back even further, possibly to the end of the second millennium BC. The use of tool coins also emerged independently in the Western world. The ancient Greeks used iron nails as coins, while Julius Caesar regarded the Britons' use of sword blades as currency as a sign of their backwardness (although they eventually minted true coins before being conquered by Romans). These quasi-coins were easily counterfeited and made from base metals, making them low in intrinsic value and unsuitable

for expensive purchases.

In Asia Minor, true coinage developed through stamping small round pieces of precious metals by the Lydia civilization to ensure purity. As metallurgical skills improved over time, these pieces became more uniform in shape and weight. Minting likely began between 640-630 BC and quickly spread from Lydia to Ionian, mainland Greece, and Persia. One type of smaller Greek coin was called the silver blob. In terms of weights and coinage under Attic standard, six silver pools equated one silver drachma.

It is important to note that before coinage's development, pointed spits or elongated nails served as forms of currency similar to earlier grain-based methods. These tool currencies were commonly referred to as customary handfuls.The early Greek coin known as the blob was an imitation of the primitive form of money, the iron spit or pointed rod. Inflation was already an issue during this time. When Sparta captured the Athenian silver mines in 407 BC, they released about 20,000 slaves which caused Athens to face a shortage of coins. As a result, bronze coins with a thin layer of silver were issued in 406 and 405 BC, but this only made the shortage worse. People started hoarding good coins and using the new ones instead to get rid of them, following what could be considered Graham's law: bad money pushes out good money. In Aristotelian's play The Frogs (written in 405 BC), he mentions that despite ancient coins being excellent, people preferred using recently issued and poorly made copper pieces. These base coins were introduced in 393 BC and created rivalry between different currencies. Just like ten Persian emperors fiercely competed for dominance, Greek city-states

also fiercely competed for dominance in coinage and other matters. Having a strong and widely accepted currency would bring prestige to countries just like newly independent Third World countries took pride in their own airlines, national banks, and currency in the 20th century. The beauty of their coins indicated how proud ancient Greek city-states were of their currencies.According to Glen Davies, J. Portentous stated that the fifth century witnessed the creation of the most exquisite coins ever crafted. Furthermore, Austin and Vidal-Manque argued that throughout Greek city history, coinage always served as a symbol of civic identity and a declaration of political sovereignty. The great diversity in coin types made money changing the earliest and most prevalent form of Greek banking. Money changers would typically set up their operations near temples and other public structures, utilizing trapezium-shaped tables adorned with lines and squares for calculations. It is from this practice that Greek bankers acquired their name, similar to how our term "bank" originates from the Italian word "banc," meaning bench or counter. The convenience offered by coins played a significant role in their rapid dissemination, leading to a monopolistic control over minting by royalty. In situations where coins were widely accepted at face value, weighing them became unnecessary; counting proved more practical for everyday transactions involving small quantities. Monarchs during the Middle Ages capitalized on this convenience to generate profit. Coinage endorsed by royal authority as legal tender proved highly advantageous since there were limited alternatives available. Consequently, coins possessed a substantial premium above their intrinsic metal worth, which easily offset minting expenses. Kings could exploit this premium for personal gain, resulting in frequent recalls

of coinage.Initially, recalls of coins occurred every six years, then every three years, and eventually approximately every two years. It was crucial for all existing coins to be returned in order to ensure maximum profit during the recycling process. Furthermore, authorities needed new issues of coins to be distinguishable from previous ones while still being widely accepted by the public.
In China, paper money became commonly used around 960 AD, although occasional issuances were made even earlier. One motive for an early issue of paper money in China was a shortage of copper for making coins during Emperor Hein Tutus' reign (806-821). By 1020, there was an excessive quantity of paper money caused by the drain of currency from China and inflation ensued. China experienced multiple episodes of hyperinflation in subsequent centuries until they ultimately abandoned paper money around 1455.
During the Crusades, bills of exchange - written instructions used for transferring large sums of money - gained popularity in Western Europe. The Knights Templars and Hospitalizers acted as bankers during this time and it is possible that Arabs may have used bills of exchange even earlier. The use of paper as currency came much later.
During the English Civil War (1642-1651), goldsmiths' safes were secure places for depositing jewels, bullion, and coins.The instructions given to goldsmiths to pay money to another customer eventually transformed into checks. Likewise, the receipts issued by goldsmiths were not only used for withdrawing deposits but also served as evidence of ability to make payments. By approximately 1660, these receipts had developed into banknotes.

In the American colonies of England, a scarcity of official coins led to the utilization of substitutes like tobacco as

currency. Consequently, this resulted in the creation of paper money through a different process. To overcome the limitations of using tobacco leaves as money, certificates were introduced that represented the quality and quantity of stored tobacco in public warehouses. These certificates were declared legal tender in 1727.

Unlike tobacco, paper money held no inherent value; its acceptance relied on being backed by a commodity, typically precious metals. During the Napoleonic Wars, convertibility of Bank of England notes was suspended, leading to mild inflation. This inflation raised concerns among observers accustomed to stable prices. As a solution, Britain adopted the gold standard for the pound in 1816 based on recommendations from an official inquiry.

For centuries prior to this change, silver had been recognized as the standard unit of value. Originally, one pound represented a weight equivalent to one pound of silver.France and the United States both supported a bimetallic standard. In 1867, an international conference took place in Paris to promote the use of common currencies based on gold and silver coins with standardized weights. When the German states merged in 1871, they chose to adopt the gold standard. Following this, the Scandinavian countries also transitioned to the gold standard. France shifted from bimetallism to gold in 1878, while Japan made the switch from a silver standard in 1897. The United States officially embraced the gold standard in 1900. However, when World War I began in 1914, Britain decided to remove gold from internal circulation and other nations followed by ending their ties to it as well. Germany reintroduced the gold standard in 1924 through a new currency known as Reichstag.