From Bartering To Banknotes To Bitcoin

The History of Money

From Bartering To Banknotes To Bitcoin

By Andrew Beattie   Updated March 24, 2022  Reviewed By Robert C. Kelly

Money, whether it's represented by a seashell, a metal coin, a piece of paper, or a string of code electronically mined by computer, doesn't always have value. Its total global value—currently estimated to be around $420 trillion1—depends on the importance that people place on it as a medium of exchange, a unit of measurement, and a storehouse for wealth.

Money allows people to trade goods and services indirectly; it helps communicate the price of goods (prices written in dollar and cents correspond to a numerical amount in your possession—e.g., in your pocket, purse, or wallet); and it provides individuals with a way to store their wealth.

KEY TAKEAWAYS

Money conveys the importance that people place on it; it allows trading of goods and services indirectly, communicates the price of goods, and provides a way to store wealth.

All of the money in the world is estimated to total around $420 trillion.1

Before money, people acquired and exchanged goods through bartering.

The world’s oldest known, securely dated coin minting site was located in Guanzhuang in Henan Province, China, which began striking spade coins sometime around 640 BCE, likely the first standardized metal coinage.

Money is valuable as a unit of account—a socially accepted standard by which things are priced and with which payment is accepted. However, throughout history, both the usage and form of money have evolved.

Though the terms "money" and "currency" are often used interchangeably, several theories suggest that they are not identical. According to some theories, money is inherently an intangible concept, while currency is the physical (tangible) manifestation of the intangible concept of money.

By extension, according to this theory, money cannot be touched or smelled. Currency is the coin, note, object, etc. that is presented in the form of money. The basic form of money is numbers; currently, the basic form of currency is paper notes, coins, or plastic cards (e.g., credit or debit cards). Though this distinction between money and currency is important in some contexts, for the purposes of this article, the terms are used interchangeably.

Understanding the History of Money

The Transition From Bartering to Currency

Money—in some form or another—has been part of human history for at least the past 5,000 years.2 Before that time, historians generally agree that a system of bartering was likely used.

Bartering is a direct trade of goods and services; for example, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker. However, these arrangements take time. If you are exchanging an ax as part of an agreement in which the other party is supposed to kill a woolly mammoth, you have to find someone who thinks an ax is a fair trade for having to face down the 12-foot tusks of a mammoth. If this doesn't work, you would have to alter the deal until someone agreed to the terms.

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