BC_A History of Money!

7/28/2019 BC_A History of Money!

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A History of Money!

Banking & CreditMr. Yates


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What did we do before money?

In the beginning, people bartered.

Barter is the exchange of a good orservice for another good or service

bag of rice for a bag of beans.


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Barter


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Commodity Money

However, what if you couldn't agreewhat something was worth inexchange or you didn't want what

the other person had? To solve that problem humans

developed what is called

commodity money.


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Commodity Money Commodity money consists of objects

that have value but which are used as amedium of exchange.

Pretty shells could serve as commoditymoney.

Gold jewelry can serve as commoditymoney.

Among prisoners, cigarettes often serveas commodity money.


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Soo

As a practical matter, money is:

Anything that is widely accepted in

exchange.


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Which brings us to Fiat money

No, not the Italian cars

Fiat money is something that has no

intrinsic value, but which thegovernment declares by fiat to bemoney.


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Wait, back up, whats this fiat again?

Fiat money is money that has valueonly because of government regulationor law.

The term derives fromthe Latin fiat, meaning "let it be done",as such money is established by

government decree


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So, our dollars are Fiat?

If you look at a dollar bill, you will see thephrase "legal tender for all debts, public andprivate."

What that means is that if someone sells you

something and you "tender" the currency(offer the currency as payment), you havelegally paid, whether or not the seller acceptsyour currency.

By making U.S. currency legal tender inthis country, the government forcespeople to accept it as a medium ofexchange.


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Holla at the dolla


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And we accept it, right?

With the concept of fiat money, thegovernment can turn worthless piecesof paper into something of value.

The reason that people value money isthat it allows for complex exchangesto take place more easily than using

barter.


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Trading Commodities

A commodity is a basicitem used by almosteveryone.

In the past, salt, tea,

tobacco, cattle and seedswere commodities andtherefore were once usedas money.

Carrying bags of salt and

other commodities washard, and commoditieswere difficult to store orwere perishable.


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Coins!

Metals objects were introduced as moneyaround 5000 B.C.

By 700 BC, the Lydians became the first in

the Western world to make coins. Countries were soon minting their own

series of coins with specific values. Metal was used because it was readily

available, easy to work with and could be

recycled. Since coins were given a certain value, it

became easier to compare the cost of itemspeople wanted.


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Cha-ching!

More than 2,700 years old

Made from electrum, a natural alloy of goldand silver, the coin originated in the area

of Lydia (Asia Minor/Turkey) (Weighed about as much as a quarter.)


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Paper?

Some of the earliest known papermoney dates back to China, where theissue of paper money became

common from about AD 960 onwards.

O


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Oldest

Surviving

Banknote

Printed withthe block onthe previous

page 1 Kuan, 1368-

1398

Link:http://www.tomchao.com/as/china1.html
http://www.tomchao.com/as/china1.htmlhttp://www.tomchao.com/as/china1.htmlhttp://www.tomchao.com/as/china1.htmlhttp://www.tomchao.com/as/china1.htmlhttp://www.tomchao.com/as/china1.htmlhttp://www.tomchao.com/as/china1.html


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Paper worth as much as gold coins?

With the introduction of paper currency andnon-precious coinage, commodity moneyevolved into representative money.

This meant that what money itself was madeof no longer had to be very valuable.

Representative money was backed by agovernment or bank's promise to exchange it

for a certain amount of silver or gold.


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The Standard

For example, the old BritishPound bill or Pound Sterling wasonce guaranteed to be

redeemable for a pound ofsterling silver.

For most of the nineteenth andtwentieth centuries, the majority

of currencies were based onrepresentative money throughthe use of the gold standard.


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Early Money in America

Traditional native currencies such as furs andwampum - Massachusetts declared whitewampum legal tender for sums up to oneshilling, a limit raised substantially in 1643.

The so-called "Country Pay" or "CountryMoney" such as tobacco, rice, indigo, wheat,maize, etc. - "cash crops" in more than onesense.

Tobacco was used as money in and around Virginiafor nearly 200 years, so lasting about twice as longas the US gold standard.


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Early American Money (continued)

Unofficial coinages, mostly foreign, andespecially Spanish and Portuguesecoins.

Not all the unofficial coins were foreign. John Hall set up a private mint inMassachusetts in 1652 and his popular"pine-tree" shillings until the mint wasforced to close down in 1684.

The scarce but official British coinage.


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Tobacco Notes

Another early form of paper money used innorth America was "tobacco notes".

These were certificates attesting to the qualityand quantity of tobacco deposited in publicwarehouses.

These certificates circulated much moreconveniently than the actual leaf and wereauthorized as legal tender in Virginia in 1727and regularly accepted as such throughoutmost of the eighteenth century.


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A tobacco note


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Tobacco Notes = how

Let's say I lived in Maryland in 1740 andwanted to buy a new wagon wheel from thelocal store. How could I pay for it?

Since tobacco served as money, I could offerthe merchant a certain weight of tobacco,say 100 pounds, in exchange for the wheel.

The merchant might not be too comfortable

with this, since he knows that I might try tohide some "bad" tobacco with high qualitytobacco.


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Tobacco Notes = continued

The Maryland Tobacco Inspection Act of 1747changed all of that. Now, all tobacco had tobe inspected by colonial inspectors.

Once the tobacco was inspected, tobacco "notes"

were issued that certified the quality.

Whoever held these tobacco notes owned thetobacco.

Thus, I could pay the merchant 100 pounds of

tobacco by simply signing over the notes to him. That way, he could go to the warehouse with the

notes in hand and claim the tobacco as his.


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I.O.U. Tobacco

There is another way that I could pay forthe wagon wheel with tobacco I could give the merchant an I.O.U. that

promised to pay him 100 pounds of tobaccoin the future, when my crop came in.

Before the Inspection Act, the merchantwould be less willing to accept this I.O.U.,

since he would not be sure of the quality oftobacco.

After the Inspection Act, the I.O.U. couldpromise to pay in "certified" tobacco


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Early American Paper Money


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Sources:

http://inventors.about.com/od/mstartinventions/a/money.htm

http://projects.exeter.ac.uk/RDavies/arian/northamerica.html

http://users.humboldt.edu/erick/econ323/topics/tobacco_notes.html
http://inventors.about.com/od/mstartinventions/a/money.htmhttp://inventors.about.com/od/mstartinventions/a/money.htmhttp://projects.exeter.ac.uk/RDavies/arian/northamerica.htmlhttp://projects.exeter.ac.uk/RDavies/arian/northamerica.htmlhttp://users.humboldt.edu/erick/econ323/topics/tobacco_notes.htmlhttp://users.humboldt.edu/erick/econ323/topics/tobacco_notes.htmlhttp://users.humboldt.edu/erick/econ323/topics/tobacco_notes.htmlhttp://users.humboldt.edu/erick/econ323/topics/tobacco_notes.htmlhttp://projects.exeter.ac.uk/RDavies/arian/northamerica.htmlhttp://projects.exeter.ac.uk/RDavies/arian/northamerica.htmlhttp://inventors.about.com/od/mstartinventions/a/money.htmhttp://inventors.about.com/od/mstartinventions/a/money.htm

BC_A History of Money!

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