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T h e E v a l u a t i o n o f m o n e y Page 1
Money is an invention of the human mind. The creation of money is made possible because
human beings have the capacity to accord value to symbols. Money is a symbol that represents
the value of goods and services. The acceptance of any object as money – be it wampum, a gold
coin, a paper currency note or a digital bank account balance – involves the consent of both the
individual user and the community. Thus, all money has a psychological and a social as well as
an economic dimension. As human consciousness has evolved, the nature and function of money
has evolved too. While a history of money may trace the origin and usage of different forms of
money at different times and in different parts of the world, an evolutionary perspective on
money traces the social and psychological changes in human attitude and collective behavior that
made possible this historical development.
Money is any item or verifiable record that is generally accepted as payment for goods and
services and repayment of debts in a particular country or socio-economic context, or is easily
converted to such a form. The main functions of money are distinguished as: a medium of
exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment.
Any item or verifiable record that fulfills these functions can be considered money.
(By John N. Smithin. Retrieved July-17-09.)
Money is historically an emergent market phenomenon establishing a commodity money, but
nearly all contemporary money systems are based on fiat money. Fiat money, like any check or
note of debt, is without use value as a physical commodity. It derives its value by being declared
by a government to be legal tender; that is, it must be accepted as a form of payment within the
boundaries of the country, for "all debts, public and private". Such laws in practice cause fiat
money to acquire the value of any of the goods and services that it may be traded for within the
nation that issues it. (Mankiw, N. Gregory (2007). "2". Macroeconomics (6th ed.). New York: Worth
Publishers. pp. 22–32. ISBN 0-7167-6213-7) The money supply of a country consists
of currency (banknotes and coins) and, depending on the particular definition used, one or more
types of bank money (the balances held in checking accounts, savings accounts, and other types
of bank accounts). Bank money, which consists only of records (mostly computerized in modern
banking), forms by far the largest part of broad money in developed countries.
The word "money" is believed to originate from a temple of Juno, on Capitoline, one of Rome's
seven hills. In the ancient world Juno was often associated with money. The temple of Juno
Moneta at Rome was the place where the mint of Ancient Rome was located. The name
"Juno" may derive from the Etruscan goddess Uni (which means "the one", "unique", "unit",
"union", "united") and "Moneta" either from the Latin word "monere" (remind, warn, or instruct)
or the Greek word "moneres" (alone, unique).In the Western world, a prevalent term for coin-
money has been specie, stemming from Latin in specie, meaning 'in kind'.
( "Online Etymology Dictionary")
T h e E v a l u a t i o n o f m o n e y Page 2
History of money
The use of barter-like methods may date back to at least 100,000 years ago, though there is no
evidence of a society or economy that relied primarily on barter. Instead, non-monetary societies
operated largely along the principles of gift economy and debt. When barter did in fact occur, it
was usually between either complete strangers or potential enemies.
Many cultures around the world eventually developed the use of commodity money. The
Mesopotamian shekel was a unit of weight, and relied on the mass of something like
160 grains of barley. The first usage of the term came from Mesopotamia circa 3000 BC.
Societies in the Americas, Asia, Africa and Australia used shell money – often, the shells of
the cowry (Cypraea moneta L. or C. annulus L.). According to Herodotus, the Lydians were the
first people to introduce the use of gold and silver coins. It is thought by modern scholars that
these first stamped coins were minted around 650–600 BC.
Song Dynasty Jiaozi,the world's earliest paper money | A 640 BC one-third staterelectrum coin from Lydia
The system of commodity money eventually evolved into a system of representative money.
This occurred because gold and silver merchants or banks would issue receipts to their
depositors – redeemable for the commodity money deposited. Eventually, these receipts became
generally accepted as a means of payment and were used as money. Paper money
or banknotes were first used in China during the Song Dynasty. These banknotes, known as
"jiaozi", evolved from promissory notes that had been used since the 7th century. However, they
did not displace commodity money, and were used alongside coins. In the 13th century, paper
money became known in Europe through the accounts of travelers, such as Marco
Polo and William of Rubruck. Marco Polo's account of paper money during the Yuan Dynasty is
the subject of a chapter of his book, The Travels of Marco Polo, titled "How the Great Kaan
T h e E v a l u a t i o n o f m o n e y Page 3
Causeth the Bark of Trees, Made Into Something Like Paper, to Pass for Money All Over his
Country." Banknotes were first issued in Europe by Stockholms Banco in 1661, and were again
also used alongside coins. The gold standard, a monetary system where the medium of exchange
are paper notes that are convertible into pre-set, fixed quantities of gold, replaced the use of gold
coins as currency in the 17th-19th centuries in Europe. These gold standard notes were
made legal tender, and redemption into gold coins was discouraged. By the beginning of the 20th
century almost all countries had adopted the gold standard, backing their legal tender notes with
fixed amounts of gold.
After World War II and the Bretton Woods Conference, most countries adopted fiat currencies
that were fixed to the US dollar. The US dollar was in turn fixed to gold. In 1971 the US
government suspended the convertibility of the US dollar to gold. After this many countries de-
pegged their currencies from the US dollar, and most of the world's currencies became unbacked
by anything except the governments' fiat of legal tender and the ability to convert the money into
goods via payment. According to proponents of modern money theory, fiat money is also backed
by taxes. By imposing taxes, states create demand for the currency they issue.
(Wray, L. Randall (2012). Modern money theory: a primer on macroeconomics for sovereign monetary systems.
Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. pp. 45–50.)
In Politics Book 1:9 (c.350 B.C.) the Greek philosopher Aristotle contemplated on the nature of
money. He considered that every object has two uses, the first being the original purpose for
which the object was designed and the second possibility is to conceive of the object as an item
to sell or barter. The assignment of monetary value to an otherwise insignificant object such as a
coin or promissory note arises as people and their trading associate evolve a psychological
capacity to place trust in each other and in external authority within barter exchange.
With barter, an individual possessing any surplus of value, such as a measure of grain or a
quantity of livestock could directly exchange that for something perceived to have similar or
greater value or utility, such as a clay pot or a tool. The capacity to carry out barter transactions
is limited in that it depends on a coincidence of wants. The seller of food grain has to find the
buyer who wants to buy grain and who also could offer in return something the seller wants to
buy. There is no agreed standard measure into which both seller and buyer could exchange
commodities according to their relative value of all the various goods and services offered by
other potential barter partners.
T h e E v a l u a t i o n o f m o n e y Page 4
David Kinley considers the theory of Aristotle to be flawed because the philosopher probably
lacked sufficient understanding of the ways and practices of primitive communities, and so may
have formed his opinion from personal experience and conjecture.
In his book Debt: The First 5000 Years, anthropologist David Graeber argues against the
suggestion that money was invented to replace barter. The problem with this version of history,
he suggests, is the lack of any supporting evidence. His research indicates that "gift economies"
were common, at least at the beginnings of the first agrarian societies, when humans used
elaborate credit systems. Graeber proposes that money as a unit of account was invented the
moment when the unquantifiable obligation "I owe you one" transformed into the quantifiable
notion of "I owe you one unit of something". In this view, money emerged first as credit and
only later acquired the functions of a medium of exchange and a store of value.
In a gift economy, valuable goods and services are regularly given without any explicit
agreement for immediate or future rewards (i.e. there is no formal quid pro quo). Ideally,
simultaneous or recurring giving serves to circulate and redistribute valuables within the
There are various social theories concerning gift economies. Some consider the gifts to be a form
of reciprocal altruism. Another interpretation is that implicit "I owe you" debt and social status
are awarded in return for the "gifts". Consider for example, the sharing of food in some hunter-
gatherer societies, where food-sharing is a safeguard against the failure of any individual's daily
foraging. This custom may reflect altruism, it may be a form of informal insurance, or may bring
with it social status or other benefits.
Emergence of money
Anatolian obsidian as a raw material for stone-age tools was distributed as early as 12,000 B.C.,
with organized trade occurring in the 9th millennium.(Cauvin;Chataigner 1998) In Sardinia, one
of the four main sites for sourcing the material deposits of obsidian within the Mediterranean,
trade in this was replaced in the 3rd millennium by trade in copper and silver.
As early as 9000 BC both grain and cattle were used as money or as barter (Davies) (the first
grain remains found, considered to be evidence of pre-agricultural practice date to 17,000 BC).
In the earliest instances of trade with money, the things with the greatest utility and reliability in
terms of re-use and re-trading of these things (their marketability), determined the nature of the
object or thing chosen to exchange. So as in agricultural societies, things needed for efficient and
comfortable employment of energies for the production of cereals and the like were the most
easy to transfer to monetary significance for direct exchange. As more of the basic conditions of
T h e E v a l u a t i o n o f m o n e y Page 5
the human existence were met to the satisfaction of human needs, so the division of labour
increased to create new activities for the use of time to solve more advanced concerns. As
people's needs became more refined, indirect exchange became more likely as the physical
separation of skilled labourers (suppliers) from their prospective clients (demand) required the
use of a medium common to all communities, to facilitate a wider market.
Aristotle's opinion of the creation of money as a new thing in society is:
When the inhabitants of one country became more dependent on those of another, and they
imported what they needed, and exported what they had too much of, money necessarily came
The worship of Moneta is recorded by Livy with the temple built in the time of Rome 413 (123);
a temple consecrated to the same god was built in the earlier part of the fourth century (perhaps
the same temple). The temple contained the mint of Rome for a period of four centuries.
The Code of Hammurabi, the best preserved ancient law code, was created ca. 1760 BC (middle
chronology) in ancient Babylon. It was enacted by the sixth Babylonian king, Hammurabi.
Earlier collections of laws include the code of Ur-Nammu, king of Ur (ca. 2050 BC), the Code of
Eshnunna (ca. 1930 BC) and the code of Lipit-Ishtar of Isin (ca. 1870 BC). These law codes
formalized the role of money in civil society. They set amounts of interest on debt... fines for
'wrongdoing'... and compensation in money for various infractions of formalized law.
The Mesopotamian civilization developed a large scale economy based on commodity money.
The Babylonians and their neighboring city states later developed the earliest system of
economics as we think of it today, in terms of rules on debt, legal contracts and law codes
relating to business practices and private property. Money was not only an emergence, it was a
Types of Money
Currently, most modern monetary systems are based on fiat money. However, for most of
history, almost all money was commodity money, such as gold and silver coins. As economies
developed, commodity money was eventually replaced by representative money, such as the gold
standard, as traders found the physical transportation of gold and silver burdensome. Fiat
currencies gradually took over in the last hundred years, especially since the breakup of
the Bretton Woods system in the early 1970s.
T h e E v a l u a t i o n o f m o n e y Page 6
A 1914 British gold sovereign
Many items have been used as commodity money such as naturally scarce precious
metals, conch shells, barley, beads etc., as well as many other things that are thought of as
having value. Commodity money value comes from the commodity out of which it is made. The
commodity itself constitutes the money, and the money is the commodity. Examples of
commodities that have been used as mediums of exchange include gold, silver, copper, rice, salt,
peppercorns, large stones, decorated belts, shells, alcohol, cigarettes, cannabis, candy, etc. These
items were sometimes used in a metric of perceived value in conjunction to one another, in
various commodity valuation or price system economies. Use of commodity money is similar to
barter, but a commodity money provides a simple and automatic unit of account for the
commodity which is being used as money. Although some gold coins such as the Kruger and are
considered legal tender, there is no record of their face value on either side of the coin. The
rationale for this is that emphasis is laid on their direct link to the prevailing value of their fine
gold content. American Eagles are imprinted with their gold content and legal tender face value.
Gold coins are an example of legal tender that is traded for their intrinsic value, rather than their face value.
Fiat money or fiat currency is money whose value is not derived from any intrinsic value or guarantee that it
can be converted into a valuable commodity (such as gold). Instead, it has value only by government order
(fiat). Usually, the government declares the fiat currency (typically notes and coins from a central bank, such
T h e E v a l u a t i o n o f m o n e y Page 7
as the Federal Reserve System in the U.S.) to be legal tender, making it unlawful not to accept the fiat currency
as a means of repayment for all debts, public and private.
Some bullion coins such as the Australian Gold Nugget and American Eagle are legal tender, however, they
trade based on the market price of the metal content as a commodity, rather than their legal tender face
value (which is usually only a small fraction of their bullion value).
Fiat money, if physically represented in the form of currency (paper or coins) can be accidentally damaged or
destroyed. However, fiat money has an advantage over representative or commodity money, in that the same
laws that created the money can also define rules for its replacement in case of damage or destruction. For
example, the U.S. government will replace mutilated Federal Reserve notes (U.S. fiat money) if at least half of
the physical note can be reconstructed, or if it can be otherwise proven to have been destroyed. By contrast,
commodity money which has been lost or destroyed cannot be recovered.
These factors led to the shift of the store of value being the metal itself: at first silver, then both
silver and gold, and at one point there was bronze as well. Now we have copper coins and other
non-precious metals as coins. Metals were mined, weighed, and stamped into coins. This was to
assure the individual taking the coin that he was getting a certain known weight of precious
metal. Coins could be counterfeited, but they also created a new unit of account, which helped
lead to banking. Archimedes' principle provided the next link: coins could now be easily tested
for their fine weight of metal, and thus the value of a coin could be determined, even if it had
been shaved, debased or otherwise tampered with (see Numismatics).
In most major economies using coinage, copper, silver and gold formed three tiers of coins. Gold
coins were used for large purchases, payment of the military and backing of state activities.
Silver coins were used for midsized transactions, and as a unit of account for taxes, dues,
contracts and fealty, while copper coins represented the coinage of common transaction. This
system had been used in ancient India since the time of the Mahajanapadas. In Europe, this
system worked through the medieval period because there was virtually no new gold, silver or
copper introduced through mining or conquest. Thus the overall ratios of the three coinages
remained roughly equivalent.
A Bangladeshi Coin of 2 Taka (money)
T h e E v a l u a t i o n o f m o n e y Page 8
Huizi currency, issued in 1160
In premodern China, the need for credit and for circulating a medium that was less of a burden
than exchanging thousands of copper coins led to the introduction of paper money, commonly
known today as banknotes. This economic phenomenon was a slow and gradual process that
took place from the late Tang Dynasty (618–907) into the Song Dynasty (960–1279). It began as
a means for merchants to exchange heavy coinage for receipts of deposit issued as promissory
notes from shops of wholesalers, notes that were valid for temporary use in a small regional
territory. In the 10th century, the Song Dynasty government began circulating these notes
amongst the traders in their monopolized salt industry. The Song government granted several
shops the sole right to issue banknotes, and in the early 12th century the government finally took
over these shops to produce state-issued currency. Yet the banknotes issued were still regionally
valid and temporary; it was not until the mid 13th century that a standard and uniform
government issue of paper money was made into an acceptable nationwide currency. The already
widespread methods of woodblock and then Pi Sheng's movable type printing by the 11th
century was the impetus for the massive production of paper money in premodern China.
At around the same time in the medieval Islamic world, a vigorous monetary economy was
created during the 7th–12th centuries on the basis of the expanding levels of circulation of a
stable high-value currency (the dinar). Innovations introduced by Muslim economists, traders
and merchants include the earliest uses of credit, cheques, promissory notes, savings
accounts, transactional accounts, loaning, trusts, exchange, the transfer of credit
and debt, and banking institutions for loans and deposits.
In Europe, paper money was first introduced in Sweden in 1661. Sweden was rich in copper;
thus, because of copper's low value, extraordinarily big coins (often weighing several kilograms)
had to be made. The advantages of paper currency were numerous: it reduced transport of gold
T h e E v a l u a t i o n o f m o n e y Page 9
and silver, and thus lowered the risks; it made loaning gold or silver at interest easier, since the
specie (gold or silver) never left the possession of the lender until someone else redeemed the
note; and it allowed for a division of currency into credit and specie backed forms. It enabled the
sale of stock in joint stock companies, and the redemption of those shares in paper.
However, these advantages held within them disadvantages. First, since a note has no intrinsic
value, there was nothing to stop issuing authorities from printing more of it than they had specie
to back it with. Second, because it increased the money supply, it increased inflationary
pressures, a fact observed by David Hume in the 18th century. The result is that paper money
would often lead to an inflationary bubble, which could collapse if people began demanding hard
money, causing the demand for paper notes to fall to zero. The printing of paper money was also
associated with wars, and financing of wars, and therefore regarded as part of maintaining
a standing army. For these reasons, paper currency was held in suspicion and hostility in Europe
and America. It was also addictive, since the speculative profits of trade and capital creation
were quite large. Major nations established mints to print money and mint coins, and branches of
their treasury to collect taxes and hold gold and silver stock.
At this time both silver and gold were considered legal tender, and accepted by governments for
taxes. However, the instability in the ratio between the two grew over the course of the 19th
century, with the increase both in supply of these metals, particularly silver, and of trade. This is
called bimetallism and the attempt to create a bimetallic standard where both gold and silver
backed currency remained in circulation occupied the efforts of inflationist’s. Governments at
this point could use currency as an instrument of policy, printing paper currency such as the
United States Greenback, to pay for military expenditures. They could also set the terms at which
they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount
that could be redeemed.
By 1900, most of the industrializing nations were on some form of gold standard, with paper
notes and silver coins constituting the circulating medium. Private Banks and governments
across the world followed Gresham's Law: keeping gold and silver paid, but paying out in notes.
This did not happen all around the world at the same time, but occurred sporadically, generally in
times of war or financial crisis, beginning in the early part of the 20th century and continuing
across the world until the late 20th century, when the regime of floating fiat currencies came into
force. One of the last countries to break away from the gold standard was the United States in
No country anywhere in the world today has an enforceable gold standard or silver
standard currency system.
(Banaji,Jairus(2007). "Islam,the Mediterraneanandthe Rise ofCapitalism".Historical Materialism (Brill Publishers)
T h e E v a l u a t i o n o f m o n e y Page 10
Bank notes of Bangladeshi Taka
Plastic cards Money
More and more of us are using plastic cards that aim to make our lives easier in various ways.
For example, we may have a card to get money out of a cash point machine or to pay for things
in shops and over the Internet. Some of us may receive our benefits straight onto a card. We also
use plastic cards to borrow books from the library, collect loyalty points in shops, make
telephone calls, and top up gas and electricity meters. In this section we look at the different sorts
of plastic cards that we use to help us manage our money.
Debit or Credit Card
Electronic money, or e-money, is the money balance recorded electronically on a stored-value
card. These cards have microprocessors embedded which can be loaded with a monetary value.
Another form of electronic money is network money, software that allows the transfer of value
on computer networks, particularly the internet. Electronic money is a floating claim on a
private bank or other financial institution that is not linked to any particular account. Examples
of electronic money are bank deposits, electronic funds transfer, direct deposit, payment
processors, and digital currencies.
Electronic money can either be centralized, where there is a central point of control over the
money supply, or decentralized, where the control over the money supply can come from various
sources. Electronic money that is decentralized is also known as digital currencies. The major
difference between E-money and digital currencies is that E-money doesn't change the value of
the fiat currency (USD, EUR) it represents, but digital currency isn't equivalent to any fiat
T h e E v a l u a t i o n o f m o n e y Page 11
currency. In other words, all digital currency is Electronic money, but Electronic money isn't
necessarily digital currency. Many mobile sub-systems have been introduced in the past few
years including Google Wallet and Apple Pay.
In 1983, a research paper by David Chaum introduced the idea of digital cash. In 1990, he
founded DigiCash, an electronic cash company, in Amsterdam to commercialize the ideas in his
research. It filed for bankruptcy in 1998. In 1999, Chaum left the company.
In 1997, Coca Cola offered buying from vending machines using mobile payments. After
that Paypal emerged in 1998. Other system such as e-gold followed suit, but faced issues because
it was used by criminals and was raided by US Feds in 2005. In 2008, bit coin was introduced,
which marked the start of Digital currencies.
Mobile Money is a prepaid account facility where Customer can do transactions from anywhere
through mobile phone with 24 hours banking facility. Customer will be able to fund Transfer,
Deposit and Withdraw money from the accredited Pay-points by using Mobile. Customers also
will be able to send remittance faster to the remote place of Bangladesh by availing this product.
Warehouse receipts became a very successful form of representative money in ancient Egypt
during the reign of the Ptolemies around 330 BC. Farmers deposited their surplus food grains for
safe-keeping in royal or private warehouses and received in exchange written receipts for
specific quantities of grain. The receipts were backed and redeemable for a usable commodity.
Being much easier to carry, store and exchange than bags of grain, they were accepted in trade as
a secure and more convenient form of payment, acting as a symbolic substitute for the quantities
of food grain they represented. The warehouse receipt itself had no inherent value. It was only a
symbol for something of value.
T h e E v a l u a t i o n o f m o n e y Page 12
The invention of representative money had profound effect on the evolution of both money and
society. It directly led to the creation of a new social organization, banking. The network of royal
and private banks that were created during the reign of the Ptolemies constituted a national grain
or girobanking system. Grains were deposited in ‘banks’ for safekeeping. Warehouse receipts
were accepted as form of symbol money because they were fully ‘backed’ by the grains in the
The acceptance of symbolic forms of money opened up vast new realms for human creativity. A
symbol could be used to represent something of value that was available in physical storage
somewhere else in ’’space’’, such as grain in the warehouse. It could also be used to represent
something of value that would be available later in ‘’time’’, such as a promissory note or bill of
exchange, a document ordering someone to pay a certain sum of money to another on a specific
date or when certain conditions have been fulfilled. In the 12th Century, the English monarchy
introduced an early version of the bill of exchange in the form of a notched piece of wood known
as a tally stick. Tallies originally came into use at a time when paper was rare and costly, but
their use persisted until the early 19th Century, even after paper forms of money had become
prevalent. The notches were used to denote various amounts of taxes payable to the crown.
Initially tallies were simply used as a form of receipt to the tax payer at the time of rendering his
dues. As the revenue department became more efficient, they began issuing tallies to denote a
promise of the tax assessee to make future tax payments at specified times during the year. Each
tally consisted of a matching pair – one stick was given to the assesses at the time of assessment
representing the amount of taxes to be paid later and the other held by the Treasury representing
the amount of taxes to be collected at a future date. The Treasury discovered that these tallies
could also be used to create money. When the crown had exhausted its current resources, it could
use the tally receipts representing future tax payments due to the crown as a form of payment to
its own creditors, who in turn could either collect the tax revenue directly from those assessed or
use the same tally to pay their own taxes to the government. The tallies could also be sold to
other parties in exchange for gold or silver coin at a discount reflecting the length of time
remaining until the taxes were due for payment. Thus, the tallies became an accepted medium of
exchange for some types of transactions and an accepted medium for store of value. Like the
girobanks before it, the Treasury soon realized that it could also issue tallies that were not
‘backed’ by any specific assessment of taxes. By doing so, the Treasury created new money that
was backed by public trust and confidence in the monarchy rather than by specific revenue
Trade Bills of Exchange
Bills of exchange became prevalent with the expansion of European trade toward the end of the
middle Ages. A flourishing Italian wholesale trade in cloth, woolen clothing, and wine, tin and
other commodities was heavily dependent on credit for its rapid expansion. Goods were supplied
to a buyer against a bill of exchange, which constituted the buyer’s promise to make payment at
some specified future date. Provided that the buyer was reputable or the bill was endorsed by a
credible guarantor, the seller could then present the bill to a merchant banker and redeem it in
money at a discounted value before it actually became due. These bills could also be used as a
T h e E v a l u a t i o n o f m o n e y Page 13
form of payment by the seller to make additional purchases from his own suppliers. Thus, the
bills – an early form of credit – became both a medium of exchange and a medium for storage of
value. Like the loans made by the Egyptian grain banks, this trade credit became a significant
source for the creation of new money. In England, bills of exchange became an important form
of credit and money during last quarter of the 18th century and the first quarter of the 19th
century before banknotes, checks and cash credit lines were widely available.
The highly successful ancient grain bank also served as a model for the emergence of the
goldsmith bankers in 17th Century England. These were the early days of the mercantile
revolution before the rise of the British Empire when merchant ships began plying the coastal
seas laden with silks and spices from the orient and shrewd traders amassed huge hoards of gold
in the bargain. Since no banks existed in England at the time, these entrepreneurs entrusted their
wealth with the leading goldsmith of London, who already possessed stores of gold and private
vaults within which to store it safely, and paid a fee for that service. In exchange for each deposit
of precious metal, the goldsmiths issued paper receipts certifying the quantity and purity of the
metal they held on deposit. Like the grain receipts, tallies and bills of exchange, the goldsmith
receipts soon began to circulate as a safe and convenient form of money backed by gold and
silver in the goldsmiths’ vaults. Knowing that goldsmiths were laden with gold, it was only
natural that other traders in need of capital might approach them for loans, which the goldsmiths
made to trustworthy parties out of their gold hoards in exchange for interest. Like the grain
bankers, goldsmith began issuing loans by creating additional paper gold receipts that were
generally accepted in trade and were indistinguishable from the receipts issued to parties that
deposited gold. Both represented a promise to redeem the receipt in exchange for a certain
amount of metal. Since no one other than the goldsmith knew how much gold he held in store
and how much was the value of his receipts held by the public, he was able to issue receipts for
greater value than the gold he held. Gold deposits were relatively stable, often remaining with
the goldsmith for years on end, so there was little risk of default so long as public trust in the
goldsmith’s integrity and financial soundness was maintained. Thus, the goldsmiths of London
became the forerunners of British banking and prominent creators of new money. They created
money based on public trust.
The primary business of the grain and goldsmith bankers was safe storage of savings. The
primary business of the early merchant banks was promotion of trade. The new class of
commercial banks made accepting deposits and issuing loans their principal activity. They lend
the money they received on deposit. They created additional money in the form of new bank
notes. They also created additional money in the form of demand deposits simply by making
numerical entries in the ledgers of their account holders. The money they created was partially
backed by gold, silver or other assets and partially backed only by public trust in the institutions
that created it.
T h e E v a l u a t i o n o f m o n e y Page 14
Counterfeit money is imitation currency produced without the legal sanction of the state or
government. Producing or using counterfeit money is a form of fraud or forgery. Counterfeiting
is almost as old as money itself. Plated copies (known as Fourrées) have been found of Lydian
coins which are thought to be among the first western coins. Before the introduction of paper
money, the most prevalent method of counterfeiting involved mixing base metals with pure gold
or silver. A form of counterfeiting is the production of documents by legitimate printers in
response to fraudulent instructions. During World War II, the Nazis forged British pounds and
American dollars. Today some of the finest counterfeit banknotes are called Super dollars
because of their high quality and likeness to the real US dollar. There has been significant
counterfeiting of Euro banknotes and coins since the launch of the currency in 2002, but
considerably less than for the US dollar.
In Money and the Mechanism of Exchange (1875), William Stanley Jevons famously analyzed
money in terms of four functions: a medium of exchange, a common measure of value (or unit of
account), and a standard of value (or standard of deferred payment), and a store of value. By
1919, Jevons's four functions of money were summarized in the couplet:
Money's a matter of functions four,
A Medium, a Measure, a Standard, a Store
This couplet would later become widely popular in macroeconomics textbooks. Most modern
textbooks now list only three functions, that of medium of exchange, unit of account, and store
of value, not considering a standard of deferred payment as it is a distinguished function, but
rather subsuming it in the others.
There have been many historical disputes 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. The term "financial capital" is a more general and
inclusive term for all liquid instruments, whether or not they are a uniformly recognized tender.
Medium of exchange
When money is used to intermediate the exchange of goods and services, it is performing a
function as a medium of exchange. It thereby avoids the inefficiencies of a barter system, such as
the "coincidence of wants" problem. Money's most important usage is as a method for comparing
the values of dissimilar objects.
T h e E v a l u a t i o n o f m o n e y Page 15
Measure of value
A unit of account (in economics) is a standard numerical monetary unit of measurement of the
market value of goods, services, and other transactions. Also known as a "measure" or "standard"
of relative worth and deferred payment, a unit of account is a necessary prerequisite for the
formulation of commercial agreements that involve debt. Money acts as a standard measure and
common denomination of trade. It is thus a basis for quoting and bargaining of prices. It is
necessary for developing efficient accounting systems.
Standard of deferred payment
While standard of deferred payment is distinguished by some texts, particularly older ones, other
texts subsume this under other functions. A "standard of deferred payment" is an accepted way to
settle a debt – a unit in which debts are denominated, and the status of money as legal tender, in
those jurisdictions which have this concept, states that it may function for the discharge of debts.
When debts are denominated in money, the real value of debts may change due to inflation and
deflation, and for sovereign and international debts via debasement and devaluation.
Store of value
To act as a store of value, money must be able to be reliably saved, stored, and retrieved – and be
predictably usable as a medium of exchange when it is retrieved. The value of the money must
also remain stable over time. Some have argued that inflation, by reducing the value of money,
diminishes the ability of the money to function as a store of value.
Money Circulation flow
A model that indicates how money moves throughout an economy, between businesses and
individuals. Investors spend their income by consuming goods and services from
businesses, paying taxes and investing in the stock market. Businesses use the money spent by
individuals while consuming and the money raised from selling stock to pay for capital to run
their business, purchase material to manufacture products and to pay employees.
All expenditures from individuals become the income of the businesses, and the expenditures of
the businesses become the income of the individuals.
T h e E v a l u a t i o n o f m o n e y Page 16
Flow of expenditures for consumption and taxes
Flow of productionof goods and services
Flow of productive services
Flow of incomes
The circular flow of economic activity is a model showing the basic economic relationships
within a market economy. It illustrates the balance between injections and leakages in our
economy. The circular flow model shows where money goes and what it's exchanged for. The
model includes households, businesses and governments. We also have the banking system that
facilitates the exchange of money and, as we'll see in a minute, helps to productively turn savings
into investment in order to grow the economy. In the circular flow of the economy, money is
used to purchase goods and services. Goods and services flow through the economy in one
direction while money flows in the opposite direction.
The factors of production include land, labor, capital and entrepreneurship. The prices that
correspond to these factors of production are rent, wages and profit. People in households buy
goods and services from businesses in an attempt to satisfy their unlimited needs and wants.
Households also sell their labor, land and capital in exchange for income that they use to buy
goods and services that firms produce. Businesses sell goods and services to households, earning
revenue and generating profits. Businesses also pay wages, interest and profits to households in
return for the use of their factors of production. Governments levy taxes on households and
businesses in order to provide certain benefits to everyone.
T h e E v a l u a t i o n o f m o n e y Page 17
Findings & Conclusions
(1) Money is the generally excepted way of exchange for goods & service.
(2) There are various types of moneys are available to the world.
(3) When money was not invented people exchange their goods and service in various ways
like barter system.
(4) Barter, an individual possessing any surplus of value, such as a measure of grain or a
quantity of livestock could directly exchange that for something perceived to have similar
or greater value or utility, such as a clay pot or a tool.
(5) Money's a matter of functions four: A Medium, a Measure, a Standard, and a Store.
(6) From the past precious metal are accepted in option of money.
(7) The precious metals like gold, stone etc are used for exchange goods and service.
(8) The circular flow of economic activity is a model showing the basic economic
relationships within a market economy.
(9) The factors of production include land, labor, capital and entrepreneurship
T h e E v a l u a t i o n o f m o n e y Page 18
Davies, Glyn, ‘’A History of Money’’, University of Wales, 1994, p.51.
Davies, Glyn, ‘’A History of Money’’, University of Wales, 1994, p.146-151.
Davies, Glyn, ‘’A History of Money’’, University of Wales, 1994, p.172, 339.
Mishkin, Frederic S. (2007). The Economics of Money, Banking, and Financial Markets
"The Etymology of Money". Thewallstreetpsychologist.com.
Mauss, Marcel. The Gift: The Form and Reason for Exchange in Archaic Societies.
David Graeber: Debt: The First 5000 Years, Melville 2011.
Politics Book 1:9 (c.350 B.C.)
Marco Polo (1818). The Travels of Marco Polo, a Venetian, in the Thirteenth Century: Being a
Description, by that Early Traveller, of Remarkable Places and Things, in the Eastern Parts of
Theory of Money and Credit– Library of Economics and Liberty
Tom Bethell (1980-02-04). "Crazy as a Gold Bug"