The history of cash part 1
Money, money, money: The history of cash
Some say that it makes the world go round, others call it the root of all evil. But what exactly is money? Why do we need it? And where did it come from? As economists herald the advent of a cashless society, Johnny Acton tells the story of man’s most basic commodity – while Sean O’Grady looks to its hi-tech future
Goats and axes: the trouble with barter
Before the invention of money, the only way to trade goods was via barter. If you had a spare goat but wanted a big pile of wheat, you had to find someone in the reverse position. This would have been fine in a community where the only possessions were wheat and goats, but once you threw a few more items into the mix the limitations of the barter system became glaringly obvious.
First, there was the problem of matching up desires. What if the person with the wheat was only interested in swapping it for hand axes? It could be a long time before the first man found an axe-rich individual in desperate need of a goat. In the meantime, he might starve.
Second, what if the wheat man did want a goat, but not until his daughter’s wedding in three months’ time? Had they been able to read and write, the protagonists could have drawn up a contract, but at this stage there were no literate societies. Even if there had been, a system relying on written records of who owed what to whom would have become hopelessly unwieldy once there was a reasonable amount of trade going on.
As it was, the parties to the deal would have had to rely on memory. This was open to abuse (”What are you talking about? I never said I’d give you a whole goat!”) and still more liable to become overtaxed (”If Ug owes Stig seven axes, Stig owes Rok four clubs and Rok owes Ug two goats, how many bear hides does Stig owe Yed?”). And there was always the risk that the poor old goat might turn up its toes before the wedding day.
One day, an anonymous Neolithic farmer came up with an ingenious solution. Why not settle on something that everyone agreed was worth having? This could then be used to buy goats, axes, clubs and all the rest of it. The dollar bill signs flashed in the proto-economist’s mind. Eventually his big idea would become known as “money“.
After a period of trial and error, it became apparent that candidates for this exciting new function had to have certain characteristics. They needed to be:
Scarce – Ordinary pebbles would be useless as a form of money, at least in most places. They are just too easy to obtain. It wouldn’t seem right to trade the goat you had lovingly reared for years for a handful of stones that the buyer could simply pick off the ground.
Difficult to fake – This is related to the scarcity imperative. A monetary system which is based on pieces of paper with simple crosses drawn on to them would be doomed to failure. If people could literally make money with the minimum of effort, the temptation would be very difficult to resist. The result would be galloping inflation and a total loss of confidence in the currency.
Portable – You can certainly trade items like houses and mountains, but taking them to the local market is not really practical. OK, the Yap islanders did have stone “coins” that weighed several tons, but they also had little ones for everyday transactions.
Durable – A commodity such as salt might seem a potential goer as a currency, but you would be rapidly disabused of this idea if you left your supply out in the rain.
Easily divisible – Imagine a society where the only form of money was the $100 bill. Although this wouldn’t be a problem with relatively large transactions, it would be a mighty headache if you just wanted a box of matches. To work efficiently, units of currency need to be divisible into smaller units. For this reason, live goats are not a viable option.
Desirable – Nowadays, we are all delighted to receive pieces of paper adorned with the right symbols, but this is only because of the symbolic value they have acquired through long and complex chains of events. An early farmer would have been distinctly underwhelmed to be handed a wad of £50 notes. To part with his goods, he would have needed to be given items directly exciting in themselves. Shiny, pretty or inherently useful things would have come to mind.
With these criteria in mind, or perhaps more likely operating unconsciously, our ancestors developed the first primitive forms of money. Cowrie shells were a popular early choice, as were precious or semi-precious stones and metals. The latter became increasingly important in the payment of tribute, which the empires that were now beginning to form started to extract from their subject territories. Such forms of what can loosely be described as cash are technically known as “commodity money“.
