The History of Money

Unless you’ve renounced all earthly possessions, money plays a huge role in your day-to-day life. We spend our lives working to earn the money that allows us to live comfortably and provide for our families. We spend time designing budgets, analyzing stock portfolios, and strategizing with finance professionals to make sure we have enough to last us through our golden years.

While there are countless pithy sayings and adages instructing us to obsess less over the stuff, the simple fact of the matter is that money, in most societies, is the number one resource that dictates everything from our living situation to our social status to the pick-me-ups we allow ourselves to indulge in.

Whether we like it or not, money is an essential part of our culture. But how did we get here, and why did we start using money in the first place?

Let’s take a look.

What is Money?

While every country has its own official currency customarily consisting of a combination of notes and coins, money itself is a theoretical construct. That’s a fancy way of saying that the value ascribed to, let’s say, a ten dollar bill is based on nothing short of a social agreement of worth. 

The specific note of currency is not worth anything in and of itself. Instead, currency and money in general gets its value from some form of governing agency. In the modern world, the governing agency is typically a formal government. Depending on the value ascribed to the currency, it is then used in specific amounts to secure items of equal value.

It’s this reasoning that allows people to use credit or electronic transactions to purchase goods and services. While physical or representative money isn’t exchanged during a transaction, fiat money (money whose value is regulated by a government) is, and the value of that money is recorded and debited or credited where applicable.

First Uses of Money

Traditionally, money formally entered a society when bartering was no longer a sufficient form of obtaining goods and services. The society required a standardized form of currency with a more rigid system of values in order to grow and flourish.

For example, it’s difficult to assign a fixed value on something like building a house. If the going rate of having your neighbor help you out is 3 cows, but you only have goats and some tanned leather, how do you arrive at a final value? It’s subjective. As communities and societies grew and evolved, they became more complex and required a more defined form of procuring goods and services.

This happened early on in human civilization. In fact, the first currency predates written history. We do know, however, that the first recorded usage of representative currency occurred in China in 1100 B.C. in the form of miniature bronze replicas of valuable goods. The first minted coins were recorded a full 500 years later in ancient Turkey in 600 B.C. Eventually, currency evolved in to paper forms and spread throughout Europe from 1290 A.D. to 1661 A.D.

How Money Has Changed

Just as money originated in response to growing civilizations, it continually developed and evolved over time to accommodate the economic demands of formal countries. Bank notes were introduced as the average citizen accumulated more wealth, and governments began to regulate currency as economies flourished.

As a rule, money tends to evolve along with the societies in which it is exchanged. By the industrial boom of the mid-1800’s, money could be transferred via telegrams across long distances whenever it was needed (as long as someone had enough to send, that is).

Credit cards were introduced in basic form in the 1940’s along with the economic and industrial boom of the years during and after WWII. We needed an easy way to process transactions even if we didn’t necessarily have adequate funds on hand. The concept of interest served as an incentive to pay back money borrowed from creditors. 

How Money is Used Today

Today, money can be exchanged via mobile payments with a single swipe of a card or tap of a button. As a global society, we need quick, secure methods of payment that allow us to make error-free transactions even when we don’t have physical money on hand. When was the last time you even regularly carried cash?

Virtual currencies, like Bitcoin and other cryptocurrencies, are the latest forms of money that are changing the way we establish and measure wealth. First introduced in 2009, cryptocurrencies are a response to the evolution of powerful computing systems and hardware that can be used to process and log transactions through a process known as blockchain mining.

Whether through mobile payments, Bitcoin, or paper money, the way we use money today is a direct reflection of our societal needs. Reliance on physical currency is much lower as we have become more comfortable with earning and subsequently saving or spending money without ever seeing a physical dollar.