Throughout the history of humankind, bartering, or trading goods and services, has existed. As early as 9000 BC there is evidence that the ancient Egyptians engaged in bartering, often with livestock or crops. Bartering was an effective system for exchanging things deemed of equal value, even though those values were negotiable.
Tool making developed, and with this came the advent of large scale agriculture. What used to be the job of ten people quickly became easily doable by one, and freed up time for other pursuits, like bricklaying or blacksmithing, creating other items of value.
As our commodities became more nuanced and complex, bartering became unsustainable. It became difficult or nearly impossible to gauge equivalent worth of items, as there were thousands of different values. How many pears are worth a chair, for example? This relative index made it difficult to quickly put a value on different commodities, and so a better system was required – one that would allow for easy agreement on perceived value.
Modern day bartering continues today, with betting cigarettes in prison as an example. Time is also the new money – we barter our time for a paycheck or wages, where one hour of your time is deemed to have a certain amount of worth.
Around 1100 BC the Chinese began to create small replicas of tools made from bronze as a means of exchange which eventually evolved into primitive coins. Around the same time, central regions around the Indian Ocean used cowrie shells in trade.
The advent of the first minted currency dates back to 600 BC in what is now modern day Turkey, which allowed trade to flourish. These coins were made from a naturally occurring mix of silver and gold, and were stamped with denominations.
Later, in Italy around 1250 AD, the Florin developed and was widely used across Europe. These coins were made from precious metals and were sealed with the seal or imprint of the king, which guaranteed that the coin contained a certain amount of metals, much more convenient than carrying around a scale.
We can see this with our modern day coins. One ounce of gold is an American Eagle coin, guaranteed to be a certain weight by the U.S. Mint.
Paper money in the form of bank notes came about not long after the coin, and originated in Sweden in the 1600s AD. Paper money, or “representative money”, allowed for even greater trade because it could be mass produced without relying on precious metals. These notes could be more easily carried, and could be taken into any bank in exchange for their face value in silver or gold coins. You can see this exemplified by the idea of “the gold standard”, where a government would guarantee the value of paper money by redeeming it in gold. Paper money increased the ease of international trade and allowed for the development of global markets.
Fast forward and we see the beginning of the abstractionism of money: money transferred via telegraph, never before heard of, was spearheaded by Western Union in 1860, and less than a hundred years later the first credit card was invented.
And from there we’ve come leaps and bounds, first with mobile banking, then with contactless payment, like Apple Pay and now virtual currency like Bitcoin.
Certain currencies are not all valued as equal. We can see this in places like casinos, where you place cash on the table but get a payout in chips. Sometimes you can use a casino’s chips at a different casino, but only if they are solvent, meaning that they are good for it. It’s not a good sign when a casino’s chips aren’t accepted, as it usually indicates they may not be in good shape.
This also plays out in the real world, where certain countries will accept U.S. dollars and not require you as a tourist to go trade in your dollars for the local currency.
Money only works because we hold a collective agreement on its value. If we all decided tomorrow that it had no value, it wouldn’t. Because it isn’t like goods of old, where you can actually use it in a worthwhile fashion on its own.