How did money come about in the first place?

Money is an interesting phenomenon. What was once conceived to make barter easier has become the subject of an extensive discussion. This discussion has been held several times, including on the platform of Holland Gold, but if you want to understand money, you also have to take a closer look at history. Where does money actually come from? And what forms of money were actually used in the past?

People have lived without money for a long time. Money was not a requirement in the small groups that used to move around. What was needed was made and caught, and at most they exchanged among themselves or with other groups of people. But as societies grew and became more complex, so did the desire to make things a little easier. People therefore began to express the value of products in the same yardstick; money. 

People have used an awful lot of things as money over the centuries. The interesting thing is also that the perception of what constitutes 'real' money is subject to change. When banknotes were introduced, it was mainly the coins that represented the real value. For example, the robin, the first Dutch banknote introduced by the Dutch Central Bank in 1814, was at the beginning not legal tender, but it was mainly used by banks themselves. Coins were certainly preferred in the early days. The population was suspicious of paper money, partly because of the fiasco that had taken place in France a hundred years earlier with John Law's paper money. Due to almost unlimited money creation, the money there became almost worthless. Nowadays, payment transactions are mainly handled by cash, but most people see the banknotes in their wallets as 'real' money. 

Products that used to function like money often shared a number of characteristics. They could often be stored for a longer period of time, but they also had to be easily transferable. Gold has been seen as a suitable means of payment for centuries, because gold coins can convey great value in a relatively simple way. Sometimes the money also had a practical, symbolic, or spiritual value that made it widely accepted. Whale teeth are an example of this, but tobacco and salt have also played a monetary role.

Cowrie shells

A money system that has functioned for a long time is a system based on cowrie shells. These shells were collected thousands of years ago on the beaches of the Maldives, Sri Lanka and Indonesia. They were the oldest and longest functioning standard known to date. Until the beginning of the twentieth century, cowrie shells were still used in Ugandaaccepted to taxes to be paid for. Even after coins had slowly taken over the payment system, cowrie shells were still used for small payments. In The History of Money Glyn Davies describes how, as a young boy, the former governor of the Nigerian central bank, Green Nwankwo, was sent out into the streets to look for cowrie shells that had been lost by others. At that time, people could still buy a meal with eight cowrie shells.

A small selection of cowrie shells (source;  historiek.net)

Yapstones

In addition to cowrie shells, the Raistenen An admirable story. These stones fulfilled the role of money for centuries on the island of Yap, which is located in the Pacific Ocean. The stones were transported from the neighboring islands of Palau and Guam to Yap. This was a time-consuming and intensive job, as the islands were hundreds of kilometers away from Yap. The hard work sometimes required hundreds of people, but this kept the stones scarce on the island of Yap and were of great value to the inhabitants. 

The characteristic round stones were not only used for decoration, but also came to play the role of money. The small stones were suitable for small transactions, for larger transactions large stones were used that often did not even have to change places. It was simply decided in the local community that the stone had changed hands. Since the stones were only used by the locals, they functioned as money for a long time. 

The stones only lost their value when Westerners facilitated the transportation of the stones to Yap Island. For example, there was an Irish-American trader who wanted coconuts from the islanders. However, he had to pay with Yap stones, because that was the only money the Yap people accepted. After the arrival of the Westerners, attempts were made to ban stones that had been brought in too easily. Nevertheless, the stones of the Westerners found their way to the island. The amount of stones increased, which reduced the value. The demise of the Yapstones is also nicely described in the book The Bitcoin Standard. Today, payments are made with US dollars on Yap.

Yap's system is reminiscent of bitcoin. As with the Rai stones, bitcoin also runs on consensus. Where the inhabitants knew from each other who owned which stone, this is also registered with bitcoins. Yap's consensus even went so far as to have an inhabitant in possession of a stone lying at the bottom of the ocean. This stone had been knocked overboard by a storm, but was still valuable, because everyone knew that the stone existed.

A larger specimen of a Raisteen (source;  indeflatie.nl)

Coinage

It is not possible to say with certainty where the first coins were put into use. There are textbooks that assume that the first coins were minted in Lydia, in present-day Turkey. The first coins were minted there from electrum, a kind of mix of gold and silver. Later, ways were found to separate gold and silver. The coins were very irregular at first. Later, they were standardized and even provided with a stamp that confirmed authenticity. Although it is not certain that these were actually the first coins that people used, these coins did set the tone. The method used by the Lydians was soon adopted by the Greeks.

The coins did not yet have numbers that represented the value. That only appeared on coins later, when money became more of an accounting system and banknotes also appeared. In the time of ancient Lydia, money was still a barter mechanism and coins derived their value from the weight of the precious metal contained in the coins. So it was different from money as we know it today. 

Coin minted in Lydia (source;  bank blog)

China

It could also be the case that coins first came into vogue with the Chinese.  Initially, cowrie shells were copied from iron, because the cowrie shell was known to be valuable at the time. Even knives and swords fulfilled the role of money in China for a while. It was only later that coins were minted. Because the money was relatively low-value, larger transactions were settled in the old way, where bullion was weighed. 

The Chinese money was easy to counterfeit, which led to large-scale counterfeiting. It is difficult to date the Chinese coins, as there were not always words or symbols on the coins. Step from 633 AD each coin was marked under which emperor the coin was minted.

So money developed in a different way everywhere. Some peoples continued to hold on to the shell economy for a long time, while coins in other places became more popular. And while Chinese money remained unchanged for a long time, money on the European continent was much more volatile. This will also be evident in later parts of this series.  

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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here  to subscribe.