When our ancestors learned how to make metals then exchanges became easier

INTRODUCTION

Money has not always come from cash machines at banks. It has a long history and has developed over thousands of years. As our society has developed, so our need for more sophisticated types of money has developed in parallel, as is described here.

The history of money shows us that it is a medium of exchange for trade. It can be a medium of exchange because it has a clear value that is trusted by everyone.

Money is also a way to store value for the future. Finally, money is also a unit of account. It can be counted easily and it enables a clear value to be given to goods.

History of money. Barter

Many thousands of years ago, our European ancestors lived as hunters and farmers. Metals had not been discovered, so they hunted and farmed with stone tools - this time was known as the Stone Age. Stone Age men and women did not have the banknotes and coins that we use today. Instead, they would exchange goods with each other: for example, a hunter could exchange animal skins with a farmer for grain, or a fisherman could exchange decorative seashells for a polished stone axe with a hunter. This exchange is known as barter. An important feature of barter is that it involves the exchange of goods that have value.

When our ancestors learned how to make metals then exchanges became easier.

This is because metals, such as gold silver, tin and iron, were valuable to everyone. So, a farmer could barter his cattle for a certain weight of silver, then later, the farmer could use some of this silver to pay his taxes. In this way, valuable metals and other objects became a 'measure of value', a 'medium of exchange' and a way to 'store value' until it is needed.

Around 2600 years ago, the first coins were made in Asia Minor.

The ancient Greeks quickly adopted this new idea and started producing silver and bronze coins, for example the silver drachma. These early coins contained a specified weight of metal with a certain value. And to guarantee this weight, the coins were stamped with a seal by the king or city or country that issued them. Coins were convenient because they could be counted rather than weighed. Because these new coins were a trusted and efficient 'medium of exchange' they helped greatly increase trade in the ancient world.

The first European currencies

To guarantee the value of coins, kings and governments strictly controlled their production.In ancient Rome, coin production was done in the temple of Juno Moneta - which is where the word 'money' comes from. Later, as the Roman Empire expanded, other mints were opened and the same roman coins were accepted for exchange all across Europe, from the British Isles to Turkey - the first pan-European currency. Later, as the Roman Empire broke up and the nations of Europe began to appear, each country kept control of its own coinage. It was from these European nations that we inherited the many coins and currencies that existed before the euro. These were often named after units of measure, such as the Italian lira and the Finnish markka, because the coins originally contained a fixed amount of gold and silver. A problem with many currencies is that, depending on the success of individual economies, the exchange rate between the currencies can vary a lot - this makes trade between countries a risky business, so it is discouraged.

Money is generally considered to have the following characteristics, which are summed up in a rhyme found in older economics textbooks: "Money is a matter of functions four, a medium, a measure, a standard, a store." That is, money functions as a medium of exchange, a unit of account, a standard of deferred payment, and a store of value.

There have been many historical arguments regarding the combination of money's functions, some arguing that they need more separation and that a single unit is insufficient to deal with them all. One of these arguments is that the role of money as a medium of exchange is in conflict with its role as a store of value: its role as a store of value requires holding it without spending, whereas its role as a medium of exchange requires it to circulate. Others argue that storing of value is just deferral of the exchange, but does not diminish the fact that money is a medium of exchange that can be transported both across space and time. 'Financial capital' is a more general and inclusive term for all liquid instruments, whether or not they are a uniformly recognized tender.

Types of money

In economics, money is a broad term that refers to any financial instrument that can fulfill the functions of money (detailed above). Modern monetary theory distinguishes among different types of monetary aggregates, using a categorization system that focuses on the liquidity of the financial instrument used as money.