MONEY, WHAT IS IT?

 MONEY WHAT  IS IT? 

It is hard to believe, but money did not always exist.  In ancient times, early societies, bartered for goods or services. The Sumerians of Mesopotamia (5000BC) the earliest known civilization, bartered for products they needed.  Even as late as our own colonial era, at a time in our history when printed or coined money was scarce or absent, locals often resorted to trading deer pelts, live stock, agricultural produce, labor, etc., for services, manufactured goods, or agricultural products.   Bartering was cumbersome and difficult. It took time to find someone who had something you wanted, and you had what they wanted.  Barter often resulted in an unsatisfactory exchange and unhappy trades.  These difficulties slowed economic growth and development.

In very early times, to remedy this uncertainty and encourage exchanges, readily useful or valuable materials such as lumps of bronze, copper or iron were often used to facilitate exchange. The Sumerians even used barley (an edible grain) as well as silver.   These materials, especially metals (bronze, copper and iron) were in high demand since they could be used for a wide range of purposes, they had intrinsic value.  Iron bars (and other metals) could be readily altered by heat in a forge into useful tools or essential weapons. It is well known that the ancient Spartans used heavy bars of iron (ingots) as units of exchange. Later in history,  Julius Caesar  reported ( Commentarii de Bello Gallico ) that early Britons of 58 BC also used bar-iron as “money”.

This usefulness of metal as a valuable medium in exchanges somehow took hold. Eventually, perhaps for practical purposes, smaller more easily transported units of base metals were eventually circulated as “coins” in economic exchange. The ancient Chinese, as early as @1000BC minted small flat circular pieces in base metals such as brass or copper.  Later, by about 650 BC, the Hellenes  also minted coins of standard weight.  The Lydians (citizens of an ancient Hellenic city located in what is now modern Turkey) were first to mint coins in gold and silver.  Gold and silver were heavy, lustrous, chemically inert, malleable, easily melted and altered, and thus  useful and desirable substances which could be used to make decorations, jewelry, and other artifacts.  (This author has a silver belt buckle made by a Native American (Navajo) in Arizona from US silver dollar coins which were in common use in the 1950s and 60s in southwest USA. ). Gold and silver had intrinsic value becaue they could be used this way.  Coins of these soft metals were stamped with an image of a king or god to guarantee the coin’s quality, purity, authenticity and value.  The advantage of standard metal coins as a medium of exchange, over bars of iron or copper was that instead of estimating the crude weight of an ingot of metal, or weighing amounts of agricultural products, one could accurately count out coins for a rapid and more equitable exchange.  

A natural improvement related to the use of coinage was that their value could be varied by minting different weights or sizes.  In some cases, since soft gold and silver were easily cut, users might even divide the coin on their own.  In  colonial America, Spanish gold doubloons were often cut in half or quartered to adapt to exchange needs.  

Naturally, in each economy where coins were used, the “exchange value” of coinage was set by free market practices.  The prices of agricultural products, manufactured  goods, live stock, labor, etc. that were exchanged with coins would be established through the agency of a free market and the law of supply and demand. The advantages of using “money” or coinage over barter was so great that in very early times almost all nations eventually began minting coins.  

Money is an invention that reduces the cost of economic exchanges. Without money all exchanges of goods are dependent upon barter or trade in goods.   Money solves the problem of barter because money is something that—for multiple reasons— everyone wants. So “money” can facilitate exchanges. 

Money is defined as an “asset that functions as a generally accepted medium of exchange”.  It can take on many appearances in different cultures, settings and times.  At various times and places in the past   “money” in local use may have been a barrel of barley grains, a rusty bar of iron, a stiff dry deer pelt, a slim gold arm bracelet, a bead made of the blue inner part of a marine clam shell, gold dust, a lump of silver stamped into a  flat circle,  a .22 caliber cartridge, a rectangle of green-stained paper with symbols and images, or even a brass bitcoin token with no known use value at all.  

How can all of these diverse materials have served as “money”? At each time or place these different items were widely accepted as useful or valuable and thus could have served as an intermediate in the process of exchange.  

In early colonial, New Amsterdam, (after 1664 known as New York), Dutch colonists used Native American wampum as money.  Wampum was widely admired by local Native Americans.  Native Americans  would accept it for goods and services. Thus colonists could enlist their services by offering wampum, or purchase food or skins from Native Americans for wampum. Its value to natives, gave it value, thus it served as an economic transfer to colonists and for a time it  became a medium of local exchange— or “money”.

Government involvement in minting coins provided a useful service to the economy of a community, state or nation. It encouraged and facilitated monetary exchanges, increased business activity, and helped to improve trade and the availability of essential products.

What about paper money?

Coins of gold and silver were common currency almost world wide.  It is claimed that the Chinese were the first to use paper money or “bills” because it as onerous  for long distance traders to carry large amounts  of coin.  In general, coinage was scarce in colonial America.  The British government  prohibited the colonies from printing currency.  Immigrants brought their savings as coinage with them to the colonies.  But in time money tended to return to the mother country.  Since all manufactured goods were, by law, imported only from Britain, these coins  returned to their source  overseas as colonists purchased supplies, manufactured goods from the mother country. 

In the early 1700s the scarcity of British coins in the American colonies and specifically in the colony of Pennsylvania was intensified by an economic downturn in England,  and a concomitant reduction in colonial export trade. Reduced trade with England caused the money (coins) supply to dry up. With coins unavailable for exchange, debts could not be paid to banks, fines and taxes could not be collected by government, farmers could not sell their produce , and imported products remained on the shelves.  This  lack of money for exchange slowed business activity, reduced demand for consumable goods, hampered trade, and slowed investment. The formerly vibrant economy  of colonial Pennsylvania, where flax and grain was grown in abundance, minerals mined, and forest products harvested to be sold abroad, collapsed.  

Benjamin Franklin (1706-1790) had a solution.  As the owner of a newspaper and pamphlet-printing establishment, as well as being the Clerk of the General Assembly (and later, a member of Colonial Assembly from Philadelphia)  Benjamin Franklin proposed that the Assembly pass legislation to permit the printing of paper money to help improve the economy.  He lobbied the state representatives and won a contract to print paper bills.  Between 1731 and 1764 Franklin and his partner David Hall printed almost  800,000 (British style) pounds of Pennsylvania scrip.  

An August 1739 paper 15 shilling Pennsylvania note read on the face : “This ….bill shall pass current for fifteen shillings in the province of Pennsylvania.”  Counterfeit bills were of course a threat to this economic solution. Again, Franklin had a solution. To discourage counterfeiters, the reverse of the bill included the warning: “To counterfeit is death”, while along side of the warning was printed with the image of the trifoliate leaf of a poison Ivy plant (Toxicodendron radicans). Another leaf image, said to be that of the herb, sage (Salvia officinalis) was printed overlapping a part of the first leaf image. These images of natural leaves devised by Franklin showing the fine leaf structures were made from actual leaf-casts, and were thus very difficult or impossible to duplicate or counterfeit.  

In another method to dissuade counterfeiters , Franklin purposely printed his bills with the name of the word  “Pennsylvania” misspelled. He reasoned  that a potential counterfeiter would examine his bill, see the incorrect  spelling and assume the bill was counterfeit!   Franklin expected that the counterfeiter would “correct” the  misspelling on his fake bill. Government officials of Pennsylvania  were thus alerted to look for any bills with the state name spelled correctly!  These were the counterfeit bills!  In later years, Franklin even developed a special high-linen-content paper for printing bills which made duplication difficult.  

By law, Pennsylvania citizens could use paper bills to pay any state government debts they may have incurred such as: taxes, mortgage payments and fines. This gave the paper bills a certain assured value to all Pennsylvania residents, since these costs were common to all citizens. 

After the issuance of paper money in 1731 Franklin claimed that he observed increased internal trade, higher rates of employment, new construction, and an increase in the number of inhabitants of in the state.  

Governments also used coinage to establish the sovereignty of a state or nation. During the Roman Empire as soon as an upstart Roman general  was hailed as a new pCaesar! by his troops…his first act was to rush to the mint where coins with his image were minted and dispersed.