How has money evolved into the currency we use today?

Answer 1

== == Money as we know it, paper money (which will henceforth be called by its technical term, Fiat - French for "fake" - money), originated, as was kind of touched on above, due to the need for liquidity of value. Consider a hypothetical: you are a corn farmer and want Joe's Plumbing service. In barter trading, you ONLY have corn to trade. But what if Joe wants potatoes instead of corn? In that case, both you and Joe lose, because you don't get your plumbing fixed and Joe doesn't get his potatoes. With money, you can sell your corn to someone who wants it in exchange for money, which you can then pay Joe for his plumbing service, who can then buy potatoes.

Fiat money has another characteristic that needs to be examined: it is easily manipulated (and by that I mean changed in value, not manipulated in a bad connotation). Governments that print fiat money have a much greater amount of control over their economies than they would in a barter system or a commodity-currency system (ex: the gold standard). For instance, if the economy has slowed down, the government might wish to make it better, so they can print more money to give to people so they can spend, which helps the economy. But with that we might experience inflation, which the government is able to combat by printing less money (practically this is done by raising interest rates, but that's not the scope of this question). Check out these sites for some background on the history of money: http://www.pbs.org/wgbh/nova/moolah/history.html http://en.wikipedia.org/wiki/History_of_money