Money​—Its Origin and Use

IT ONLY cost them $24, but it wasn’t paid with coins or bills​—money as we know it today. The purchase was of Manhattan Island, New York, now worth countless millions of dollars. In 1626 those Dutch settlers purchased it from the native Indians with beads, trinkets, and cloth.

Money throughout history has come in various forms. Just about every useful commodity has been used as money​—hides, grain, seashells, tobacco, salt, cattle, stones, feathers, and cacao beans. Our word “salary” comes from salarium, the Latin word for salt. Similarly, “pecuniary” comes from the Latin word for cattle, pecus. At different times, both salt and cattle were used as money in ancient Rome.

But for trade and industry to flourish, money had to have a convenient and widely acceptable form and be equally valued everywhere. For example, cowrie shells were accepted as currency on the west coast of Africa. They were rare there and highly valued. They were also light in weight and impossible to counterfeit​—important factors for money. But they could not be used for trade with India, where the seashores teemed with them!

Gradually, precious metals such as gold and silver began to replace other forms of currency. They were durable, widely accepted, relatively scarce (giving them a high and stable price per unit of weight), and could more easily be carried and divided into smaller amounts. Merchants, though, had to carry a set of sensitive scales with them to ensure that all transactions were exact and neither party was cheated. Later, marked coinage was introduced, which eliminated the need for scales.

Have you ever wondered why our coins today have milled (ridged) edges and are carefully decorated? That is because early coins were not perfectly round and could easily be clipped or shaved before they were passed on. An enterprising person could thus salvage a small bit of precious metal from each and accumulate a tidy sum. To prevent this type of cheating, milled edges were added, which made such practices easier to detect.

Paper money, in the form of letters of credit and treasury notes, was known in China in the ninth century B.C.E. and also in Roman times. Modern bank notes, though, came into usage in Europe. London goldsmiths began using their secure vaults to store gold and valuables for others. A receipt was issued for each item deposited. As confidence in the integrity of the goldsmith grew, the receipts themselves would be exchanged and used as money, rather than moving the items. Also, signed orders to the goldsmiths to hand certain sums of gold to a named person became the forerunners of our modern checks.

As long as it was securely backed up and trusted, paper money was much more convenient to use and less risky to handle​—especially for large sums. Pictorial notes were even made to help the illiterate. Today, paper money, bookkeeping, and electronic transfers predominate in business transactions worldwide.

Now, which would you rather use and carry with you daily: animals, stones, shells, grain, metals, or paper money?