What is evolution of money?

Answer 1

This is a very big question but in brief:

For example if people had more vegetables than they needed and not enough meat they would look for someone who had too much meat and not enough vegetables. They would then trade their extra vegetables for some of the extra meat.

This was called barter and was fine if both people had an excess of what the other wanted but it becomes more difficult when the other person has extra of what you want but they don't want what you have.

Taxation existed before money did. Powerful rulers would demand some of the produce of the people to feed the army and pay for their palaces and high living. In return they generally made sure that things were peaceful. In Egypt huge grain stores were set up and people were given receipts for their grain. The grain stores allowed the ruler (Pharaoh) to take his cut of their products but it also kept the grain safe from robbers and saver from rats and mice.

Anyone who took a receipt back to the grain store could take out a sack of grain.

Imagine someone in the market who has extra vegetables and they want some grain. The person with the grain in the store could now give the receipt for the grain instead of the sack of grain. This saved them carrying it around with them. It also meant that if the person with meat who wanted vegetables could do a barter trade for a grain receipt (even though he didn't want grain) and then take it to the person with the vegetables who wanted grain.

These receipts were an early form of money.

Over the years people have used things that would last a long time but were in short supply to be money. Gold coins, silver and so on, even salt. Up until 1971 in the UK the money was pounds shillings and pence. This was shown as £ s d (If the pound symbol doesn't immediately show on your computer hold down the Alt key and then press 156 on the key pad before letting go of the Alt key).

People used to think that the "s" in £ s d stood for shillings but it actually stood for saltam or salt. Which is what the Roman legions were often paid with. People use different things as money in different places. In prison prisoners often use tobacco or phone cards as they don't have access to much money.

As time went by people wanted to travel safely without carrying a lot of money. Many religious orders that existed in different countries saw a way to make money and keep travellers safe. The traveller could go to the religious order near to where he lived and give them some money to look after (say 100 gold pieces). They would then give him a piece of paper saying that he had given them 100 gold pieces. When he went abroad he knew that robbers weren't interested in paper so if he was stopped they would take the few coins he was carrying but not take the paper, as they saw it as worthless. Then when he arrived at where he was going he would be able to go to the local house of the same religious order and show them the paper. They would then let him take as much of the gold as he wanted. If he did not take it all they would give him another paper saying how much he had left so that he could take that to another religious order's house.

In those days the receipts, coins or papers represented wealth held elsewhere and no more money would be in circulation than there was wealth to back it.

Then banks started to print money on paper and sometimes there wasn't enough wealth to back it. Many projects in the development of the West in the USA were financed in this way with many people losing everything as they had been paid with money that had no value.

Governments still get their money from taxes, but governments often borrow money from banks to pay for the things they want to do. For example pay for armies, build roads, hospitals and so on. This means that they have to pay the money back to banks with interest. This means that they have to tax people more than the value of the things they bought so that the interest can be paid.

Banks lend money to all sorts of people and in the UK the banks print the money - not the government. The banks no longer have to limit the money they print to a store of wealth. There used to be the Gold Standard which meant that there was a pile of gold held in a bank and only as many pounds would be printed as the gold was worth. Nowadays banks can issue money to people as credit. This money could be a number in a book. There does not have to be cash.

In fact in the modern world most money does not exist as cash. It is merely figures in a computer file. If you want to buy something on the internet you can send an electronic message to the person you are buying from and your bank will transfer the money to their bank. You may use an intermediary like PayPal. Like the religious houses in the olden days PayPal is a trusted company that will do as they say with the money they have. This allows both parties in the transaction to feel safe. The person selling may be unsure of letting you have the goods before they see the money in their account or you may be unsure of paying for something that you have not got in your hand. That's where the trusted middle man comes in.

This is just a very brief overview and many things have been left out, but I hope it helps