Key Messages
Understanding Money: A Comprehensive Look At Its History, Character And Many Different Forms
Money is an intriguing and fascinating concept that has been around for centuries, yet still remains mysterious and elusive to economists today.
The Evolution of Money by delves into the history, character, and use of money – exploring why it is so essential to our economy and how it has changed over time.
You’ll learn how human beings have used money throughout its evolution, from shells and coins to bills in various forms including Bitcoin.
The book explains how the economy strives to make sense of this phenomenon, as well as offering insight on what the future of money may look like.
Woven in the narrative are unique facts such as how Australia’s coming-of-age with money is enviable compared to other nations, or why two pizzas once sold for a fortune worth millions today.
The Myth Of The Barter System: How Money Really Came To Be
Contrary to popular belief, money wasn’t invented to replace the barter system; in fact, it may have been around even before trade existed.
This theory was first proposed by Aristotle, and many great thinkers such as Adam Smith have since backed it.
The idea was that people needed a way to easily transfer value from one item or person to another, so they started exchanging valuable commodities such as cattle or slaves for coins instead – creating a more efficient form of resource allocation.
However, this has been disproven by British economist Alfred Mitchell-Innes in 1913.
Historians have since found evidence of ancient civilizations using old forms of money even before bartering was common practice – like powdered salt and precious metal bars which were used for transactions in Sumer about 5000 years ago.
The very first coins to come into circulation appeared in the seventh century BC during the Mediterranean kingdom of Lydia — and by the sixth century BC Greek city-states had also begun minting their own coins as an assertion of power and independence.
Ultimately, there is still much mystery surrounding when and how money was invented, but what we do know is that bartering wasn’t necessarily involved in its origin story!
The Complex Nature Of Money: How Isaac Newton Established The Gold Standard And Shaped Our Currency
Determining the value of money reveals its complex nature.
When Sir Isaac Newton took a job as Warden of London’s Royal Mint back in 1649, he ended up putting England on the gold standard- a fixed rate between the currency’s weight, like England’s silver coins, and the value of gold.
But when it comes to money, both tangible and intangible properties are important to consider.
On one hand, there is the physical object- coins and bills in your pocket.
But it also represents something intangible- its numerical value.
In a way, this duality emulates that of a quantum object that has both particles and light wave characteristics.
Moreover, just like some quantum objects, money can change in an instant depending on market rates.
For example, you might buy a bottle of water with one dollar today but tomorrow its market rate could go up and you would now receive two dollars for it instead.
This illustrates how our understanding of money reflects its intricate complexity throughout history which continues to captivate economists’ curiosity today.
The Evolution Of Debt: How Negative Numbers And Promissory Notes Improved The Economy
The invention of debt opened the door to the modern banking system and ushered in a new era of international trade.
Before the use of negative numbers, people simply couldn’t keep track of their transactions well enough to benefit from lending or borrowing.
People like Brahmagupta revising these concepts set in motion new forms commerce.
We saw businesses adopt the double-entry bookkeeping system, which made it easier to account for debts without having to calculate positives and negatives individually.
This led to money lending existing as an intangible concept – something that was greatly helped along after Islam forbade usury but allowed for fees in exchange for loans.
The Middle Ages brought even more progress when loans were used in Europe by towns constructing churches – religious service was seen as justification enough for debt!
With complex economies gaining traction across Europe, budding traders formed associations leading to companies demanding a more formal style of finances.
Consequently, port cities such as Venice and Florence became financial centers due to their trade with Asia resulting in Moneychangers forming Arte del Cambio which served as early version of actual banks.
In order to make foreign trades easier, bills were introduced instead of heavy coins, started off as letters directing a banker or out-of-country agent how much the writer owed them.
Introduction of bills made things much simpler for merchants allowing them to purchase goods from places all over world through exchanging currencies at an agreed rate.
It’s clear now: the invention of debt truly revolutionized banking and international trade!
The Discovery Of The Americas Led To A Rush Of Precious Metals And A New Economic Reality
The gold and silver riches of the New World significantly changed the world economy.
When Hernán Cortés conquered Mexico in 1521 and discovered their stockpiles of precious metals, it caused a huge influx into Spain, with around 150,000 tons of silver and 2,800 tons of gold produced.
This led to massive inflation as the value of these metals declined and the prices had to be adjusted accordingly.
Apart from this inflationary pressure, it also allowed other European countries to mint their own coins which meant that even the lower classes had access to them.
These newfound riches encouraged mercantilist nations such as Great Britain to become expansionary forces.
Their mercantilist theory assumed that there was a fixed amount of resources in the world, so they would grant a royal charter to companies like The East India Trading Company in order to secure as much wealth possible.
The silver rupee became India’s standard currency due to Great Britain’s influence.
All in all, this new generation of gold and silver rights dramatically shifted how economies were run and developed around the world – a lasting effect that still reverberates today!
The History Of Paper Money: From France To The U.S. Federal Reserve, Discovering A Robust System Of Currency
When it became possible to print paper money, certain problems started to arise.
Due to the ability to produce unlimited amounts of currency without using expensive metals, too much money was released into circulation and this led to inflation.
To resolve the situation and prevent a repeat of the same problem, Pennsylvania created a system that balanced increased currency production with measurable assets like land and taxes.
This finally created a stabilizing effect on the economy and set it up for growth in the future.
To ensure that there was no imbalance between private and federal banks when issuing money, Abraham Lincoln worked on creating a framework for overseeing private banking powers.
As a result, the Federal Reserve oversaw these activities, keeping everything in check despite economic uncertainties.
The economic crisis of 2007 further proved this point as it showed how an imbalance in private bank power could cause devastation while those under the federal government’s watch remained relatively unaffected.
The Evolution of Money shines light on these events which ultimately established a stable economy.
Adam Smith Gave Birth To Economics, But Our Understanding Of Money Has Evolved Significantly Since Then
Economic theory has significantly changed over the last few centuries, and is no longer as straightforward at it used to be.
Adam Smith’s labor theory of value was one of the first theories to come out of economics, arguing that the value of an item should be based on how much work it takes to obtain.
Though this idea still remains, there have been advances made in economic theory that recognize more factors at play.
Irving Fisher’s quantity theory of money changed the game considerably because he realized that a strong economy relies heavily on momentum and flow of currency.
The more money pumped into markets through investments and purchases, the healthier an economy will be.
Nowadays, economists are also considering psychological aspects when making decisions about economics.
Behavioral economics introduces the possibility that our decisions might not always be rational but rather subject to emotions or biases.
Daniel Kahneman and Amos Tversky started off this new field of study which looks deeper into why we make irrational choices when it comes to money; from saving too little for retirement, to investing in risky stocks rather than safe bonds.
Creative Solutions To Economic Problems Can Help Avoid Recessions
When faced with a monetary crisis, economists and politicians have debated and tried various approaches in an attempt to solve it.
One such tactic is to provide citizens with extra spending money to encourage them to help the economy bounce back, as Australia did in 2008 when they gave taxpayers $900 each.
Another option is quantitative easing (QE), where central banks can boost reserves by buying assets from private banks – while some believe this will spur lending, others think it’s too close to printing money, which could lead to inflation.
Iceland has put this method into place after their banking collapse and experienced success.
Alternatively, changing the currency altogether has also been discussed – since the gold standard ended in 1971, around ten systemic financial crises have occurred annually and one potential solution may be using a unified currency system.
An example of this was seen in 1922 when Russia re-introduced gold chervonets during a crisis over their ruble.
Finally, if currency is scarce then introducing negative interest rates can push people towards spending their money; an example of this being during the Great Depression when stamp scrip notes were created as an incentivization towards quick spending.
The Rising Popularity Of Cryptocurrencies Could Lead To An Economic Revolution
The introduction of Bitcoin to the world has changed our status quo of monetary systems, and it’s not over yet.
In 2008, this digital currency was created outside of any banking system, and soon enough people started buying real things with it.
One of the earliest purchases was for two pizzas that were bought in Florida for 10,000 Bitcoins – an amount that would now be worth millions!
This development opened the door to a more globalized economy when considering international transactions.
What we’re facing right now is a largely deregulated capitalist system, aiming for unlimited growth while exploiting nature’s limited resources; this includes releasing carbon dioxide into the atmosphere, land exploitation in search of metals and minerals and overfishing in oceans that are already polluted.
With income inequality at an all-time high – an average CEO making 354 times more than an unskilled worker – there is immense tension due to social conflict.
The future will bring many challenges on how exactly we will tackle these issues through our economic system.
It’s difficult to predict how all this will resolve itself, but it could very well involve some kind of economic revolution – one that might have Bitcoin at its core.
Wrap Up
The Evolution of Money offers readers a thorough look at the history of money and its importance.
In the book, readers learn about the different forms that money has taken throughout the ages, from valuable objects to modern currency.
It also highlights how those with money wield immense power and how a civilization’s strength is heavily based on the state of its economy.
At its core, this book serves as a reminder that money has been — and will always be — an integral part of human life.
From ruling empires to shaping cultures, it is clear that no one can deny its importance in our daily lives.
The Evolution of Money provides readers with an understanding of how our society‘s wealth is shaped by money and urges us to take part responsibly in our current economic system.
