The Birth of Money
Before I talk about several ways you can make money today, tomorrow and everyday, it is essential for me to share with you a brief history of money…..It is necessary for me to lay a sound foundation about money, first: The History of Money, what it is, its Purpose and much more, before I delve into the information you desperately want, because I want this fnancial series to be filled with balanced teachings about Money.
Please read this article and the entire series from start to finish.
I’m glad you understand. Let’s begin our journey now, with a short History of Money.
Prior to money…before money came into being, individuals got what they wanted using a system called: Bartering.
What is Bartering?
Bartering is a system, which allows individuals to exchange the goods and services they possess, for the goods and services they need from others.
Let’s say you are a farmer who grow fruits and vegetables for a living, and you wanted to get three (3) five pound chickens to have a barbecue cookout – You would have to find someone who rears chicken, and who would be willing to exchange with you the chickens you want and which they possess, for the fruits and vegetables you grow.
See the simple example below:
Farmer exchanges (Fruits & Vegetables) For 3 Chickens
Initially, this seemed like a workable System of Exchange; but, there arose several problems with this system, which led to the birth of Money.
Problems with Bartering:
a. The Problem of Demand. You have to find someone who wants what you produce, and have what you want, in order to do an exchange.
b. Some produce are perishable, as in the case of farmers who produce fruits, vegetables and grains, and therefore, could only be exchanged during the appropriate season.
So they would have had no crop to use as exchange after the season for their crops had past, yet, they would still have basic needs which had to be met, daily.
c. Bartering had the problem of determining value. It provided no standard value for products and services. How could you determine how much corn you would need to exchange for cattle… and to make it even more complicated: For what weight of cattle, what color, size, shape, health……
d. You could not give change with bartering like you can do with money. For instance, with money, if a product costs $5.00 and you pay with a $20.00 bill, you would receive $15.00 in change. This could not be done with The System of Bartering. It was hard to establish equity using this System of Exchange.
e. Saving and Investment would be difficult under The System of Bartering. It would be challenging to save perishable items like corn, figs, potatoes etc. for any great length of time.
These problems led to the birth of Money – To the idea of Money.
(Because I want to keep these chapters so simple that any one could understand them, I will not go into the historical details of the actual creation of Money: The creation of the dollar bills or coins).
Money was an idea (no one knows who was the exact individual who had the idea for Money) born in someone’s spirit out of their need to conduct exchange, everyday, without the problems associated with The System of Bartering.
The System of Money was created to provide an intermediate commodity, which doesn’t perish like corn or wheat, and is in demand throughout the year….
…With this introduction of money, you could easily set a standard price for cattle, the cost of one dozen eggs, the cost of the clothes you wear, the food you eat, etc., etc. You now had an acceptable token of exchange, which could be used throughout the year to acquire the goods and services you need.
Money now acted as a store of value, which was acceptable for investing, saving, to be used in exchange for goods and services…….
To many, it seemed as a brilliant idea!
Later in this financial series, I will explore in more details: The System of Money. But for now, let’s talk about the five (5) types of Money.
There are Five (5) types of Money commonly used today:
1. Commodity Money e.g. gold, silver, copper.
The first stage in the evolution of money was the acceptance of certain inherently valuable objects, such as gold, copper, silver etc. as a common standard of measure and unit of exchange.
It was relatively easy for people to accept any of these as money because they had inherent use value for every individual, and therefore, their wide acceptance by other people was assured.
People accepted metals as money because they were sure of their value to themselves and to other people.
3. Fiat (pronounced ‘fee-at’) Money – Fiat Money is money which is issued and sanctioned by the Government of a country as legal tender.
Fiat money refers to money that is not backed by reserves of another commodity (gold, silver, precious metals etc.). The money itself is given value by government fiat (Latin for “let it be done”) or decree, enforcing legal tender laws, previously known as “forced tender”, whereby debtors are legally relieved of the debt if they (offer to) pay it off in the government’s money.
What money did the Government sanctioned as legal tender in your country, to be used as a medium of exchange for goods and services?
Is it: The U.S. currency, the E.C. currency, The Trinidad and Tobago Dollar, The British Pound……?
4. Credit Money
Credit Money is money which is created by the banks when they issue loans.
5. Electronic Money
Today, most of the money in the world is held in electronic form – Stored on the hard drives of computers in financial institutions, worldwide.
Actually, it is said that only four (4%) percent of the world’s money is in tangible form like Notes & Coins. This means that 96% of the Monies existing, today, are in intangible forms….Forms you cannot touch or feel.
My friends, there is much more which could be said about the birth of money, but for the sake of keeping things simple, I have only mentioned a little.