Why does money exist? You’ve probably never wondered this because you are either glad you have it when you need it or so busy working towards having enough.
But wait… do we actually need money? And, when did we start using money?
Regardless of the answers to all these questions, one thing is apparent; we all need money to buy things we need or want now and in the future.
The lack of money, therefore, means that we will not live the kind of life that we want. So, why can’t we just print more money? More about this later but you might just pick up a few tips on how to attract money.
Back to what makes money so important and where it all started, this post will provide in-depth information on everything you need to know about the existence of money.
Why Does Money Exist?
Does money mean anything? Below is a highlight of the reasons why money exists and what this means:
1. Money Is a Medium Of Exchange.
A medium of exchange simply means that people see money as valuable enough to give to take in exchange for commodities or services. This helps us conduct business that would otherwise be difficult or even impossible without it. If we did not have money, we would have to rely on barter again.
Notably, barter trade only makes sense within small networks of people who know each other personally and trust each other with their goods and services. With money, all you need is to believe that you are getting value for your money and distance or unfamiliarity cannot be a limit.
2. Store Of Value
Money is also a store of value or an item that we can save up for the future and use to purchase goods and services, even in the future.
This has been made possible by developing modern banking systems where we can deposit our money in a bank and get a promissory note that we can exchange for cash. We can also save it in the form of cryptocurrencies like bitcoin and Ether.
3. Measure Of Value
Money also works as a measure of value; we can depend on it to tell us the value of goods and services. For example, a troy pound of silver costs about $245 while that of gold costs $21,550.
What does their cost in dollars say about the value of the items? One is more valuable than the other.
4. Standard of Deferred Payment
This is the function that allows money to be used to value a debt such that goods and services can be given in the present and paid for in the future.
5. Unit of Account
Being a unit of account, money can be divided or measured in standard monetary units. Measuring the value of goods and services becomes easy since money can be used to show price, cost, salary, rate, etc.
Also, this function makes it easy for people to compare goods and services in terms of aspects such as quantities and qualities as well as accounts for profits and losses in businesses.
How Was Money First Made? The History of Money
Money in all its forms has been around for thousands of years.
The Mesopotamians used the earliest known currency – the Mesopotamian shekel – dating back to the Old Kingdom (about 2700 BC) of ancient Egypt.
The Chinese had a standardized monetary system based on a gold standard until 1914 when they too shifted to an anchored currency. Money has evolved from the barter trade system to today’s digital currencies.
Notably, long before money existed, people still found a way to get the goods and services that they needed.
What Was Before Money?
Barter trade was the original form of exchange. In barter trade, objects were exchanged for other goods or services.
This, of course, came with its fair share of challenges. For example, someone who wanted to exchange their corn for a pair of shoes had to find a shoemaker who would accept corn as payment for their shoes.
This meant carrying bulky goods from one place to another, engaging in negotiations, and waiting around for suitable deals, making the process a long and tedious one.
Other easier-to-use items would later be used as the medium of exchange including cattle, salt, peppercorns, cowrie shells, and pieces of gold, silver, and copper. Still, it was the use of money that made business speedier and modern economic life easier.
To date, barter is still in use in some parts of the world for the exchange of goods and services.
When Did We Start Using Money? Minting the First Official Currency
Stamped pieces of metal made from bronze and copper and used as a medium of exchange can be traced back to 1000BC in China.
These were bean-shaped pieces with stamps and impressions that reflected their value depending on their silver or gold content. They were later replaced by pure gold and pure silver pieces.
The first official currency was, however, minted in the 6th century BC. These were coins made of bronze, silver, or gold and were used to exchange goods and services.
The coins were first developed in Lydia- present-day Turkey- but the techniques were later adopted and improved in other parts of the globe including the Greek, Roman, Persian, and Macedonian empires.
Coins made business easier because they would be used They were safe from counterfeiting, but they were not flexible. In other words, they could not be easily used to pay by their count instead of their weight.
This also means that carrying them around was tedious, especially for merchants who needed to travel from one place to another to buy commodities.
1. Transition to Paper Currency
The first paper notes appeared in China between 700 and 800 AD and for several centuries, China used paper money for its security and convenience but its use was not very different from the use of promissory notes. This means that the value of paper money was still dependent on the value it represented in precious metals.
Banks could now give paper banknotes for people to trade with instead of metal coins. And consequently, people could now trade without having to carry a lot of coinage over long distances
Some merchants didn’t trust paper notes, though. They were suspicious of the value of the paper, and they were also worried that they might not be accepted everywhere. It was later between the 11 and 13th centuries that true paper money was embraced both in China and parts of Europe.
Depositors would require several receipts in fixed denominations which they would use as money and by the 17th century, an early form of the modern notes called the bills of credit was already in use. This would later develop into paper money as we know it today.
Check out the entire process of how money is made.
2. Mobile Payments
In the middle of the 19th century, the idea of mobile payments that would do away with paper money was conceived.
By around 1850, people started moving to more urban locations. This meant they could no longer carry all their money around as they had used to in the past.
They wanted a way to make payments easier, so they started using mobile payment systems like prepaid cards and bank transfers which are still used today in many locations across the globe.
3. Digital Currencies
One of the things that made mobile payments so successful was that they were digital. It was easy to transfer money from one person to another.
Digital currencies, such as bitcoin and Ether, have taken this concept further. The design of digital currencies makes it possible to store, manage, and exchange currency using digital computer systems.
It applies to making payments in the same way that prepaid cards function today.
The Demand For Money
Did you know that there’s a desired amount of money in form of cash that a population or an individual wants to hold? That’s what the demand for money is all about!
The demand for money arises because the three types of motives influence the demand. They include:
1. Transactive Motive
This is the most important of the three. The desire to use the money to pay for goods and services helps create the demand for money. Without this motive, you would never spend money. It fuels the economic engine that drives exchange economies.
For example, you have bills to pay, so you hold some of your income rather than spend it on other things that would enhance your lifestyle.
2. Precautionary Motive
This is motivated by the need to use the money to pay for unforeseen expenses or to cope with a sudden loss of income. The precautionary motive is similar to the transactive motive described above but involves saving money for unplanned expenditures in the future.
3. Speculative Motive
This involves using money to invest to achieve capital gains (profits) or to protect against a potential decline in its purchasing power, and it usually consists of some risk.
Why Can’t We Just Print More Money?
Printing more money causes inflation because it puts more cash into circulation. This simply means that the prices have gone up but the purchasing value of money has gone down.
With more money to pay for goods and services, consumers will demand more. If the number of goods available remains the same, ‘scarcity’ prompts sellers to increase prices.
For example, an item that was going for say, $200 will now cost $400. That said, you are able to achieve less than you previously could with $400. Simply put, you have more money but your life has not improved because the purchasing value of money has decreased- this is inflation.
So, does money become worthless? Yes! Inflation gradually renders money worthless. In some parts of the world, hyperinflation in the past has been as bad as people using a full wheelbarrow of cash to buy basic commodities.
1. What is the Oldest form of Money?
The oldest form of money was the Mesopotamian shekel which was used over 5000 years ago. As a development of the barter system, cattle, which comprises cows, sheep, goats, and other domestic animals was also recognized as a form of money from 9000-6000 BC. With time, cattle were used alongside vegetables, grains, pieces of precious stones, spices, and ornaments as a medium of exchange.
2. How Was Money First Made?
Money was first made into primitive versions of the modern minted coins. Mesopotamian shekels were at first pieces of silver used as a unit of weight before they became a currency and were gradually designed into minted coins.
The first official currency, the Lydian coins were minted coins made of electrum, a naturally occurring mixture of silver and gold.
3. Why was Money Ever Created?
Money exists due to the value that it has been accorded in the exchange of goods and services. In addition to being a medium of exchange, it is a store of value, a measure of value, a standard of deferred payment, and a unit of account.
4. Who Made Money Exist
The Mesopotamian people developed the first known form of currency, the shekel. From there, people of influence and especially renowned leaders made effort to ensure that money has existed and evolved over the centuries.
5. What Comes First Money or Power?
There’s no definite answer. Money gives you power over others when it comes to influence, options, and opportunities. Nevertheless, having money is not a guarantee that you will always have all the power you need.
The same case applies to power. With it, you can get what you desire, including money. Yet, you don’t necessarily need the power to get money. Simply put, money and power are not mutually exclusive.
Take Away; What if there was no Money?
The importance of the existence of money is apparent, thanks to its many functions. The transformations that money has undergone predate so many other inventions and to date, there are still new developments to make the exchange of goods and services as smooth and effortless as possible.
So, what if there was no money? My thoughts: We would still find a way to get the goods and services we need.
Our ancestors taught us well by barter trading and if all the advancements we have attained are anything to go by, then the adage that necessity is the mother of the invention couldn’t be more precise!
What are your thoughts concerning the existence of money or the lack of it? Keep those comments coming…
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I’m Swati, a mom, a personal finance enthusiast, and the owner of TheBlissfulBudget. My work has been featured in major publications including Fox 10, Credit Cards, Cheapism, How to Fire, Databox & Referral Rock.
I help busy budgeters like you save and make money by utilizing simple yet effective methods that can create wonders.
My Mantra: You are entitled to live the life you desire, and financial bliss should be simple to obtain–check out my blog for helpful tips on acquiring wealth easily.