Money, as you know drives our daily lives and is a main source of exchange for everything we need. It is almost as old as the human civilisation and has taken various forms throughout the human history, from metals to cowry shells to paper based system.
Have you ever wondered why money holds such a significant value in our lives and why is it so successful in driving our global economy? Let us go back to the stone-age era. Humans of that era were hunters. There was no money. Each hunter band hunted, gathered almost anything that was required from food to medicine, from clothes to shelter. Every band member had some specialised skill which they use to exchange in favour of goods and supplies they needed.
For example: if one band required meat, they would ask another band in exchange for a free medical assistance. Nothing changed even during the agricultural revolution. A farmer, wanting to take a free medical assistance, would go to a local village specialised in medicine and return a sack of rice for that favour. This is what we called the “Barter System”.
An economy of favours and obligations doesn’t work when a large of group of strangers try to cooperate. It’s only effective when you are exchanging a limited range of products. In order to understand the limitations of the barter, let’s take an example.
Let’s say you own a strawberry farm and work very hard that your shoes start to wear out. You take a ride to a local shoemaker and ask for a shoe in exchange for the strawberries that you just grew in your orchard. Shoemaker hesitates and says he doesn’t like strawberries but wants a divorce. True, that you could find a lawyer who likes strawberries and sign a three way deal. But what if the lawyer has a full stock of strawberries and needs medical assistance.
Also, if there are numerous exchange commodities in the market, people will have to juggle through various exchange rates. For example: a shoemaker would have to check how many strawberries is one shoe worth in the market ? Some of the societies during that era tried to solve these problems by establishing “Central Barter System” that collected products from specialised growers and distributed them to those who needed them. Most famous one was in Soviet Union and it failed miserably.
Their thought process was ‘Everyone would work according to their abilities and receive what they need’ which turned out to be “Everyone would work as little as they can and receive as much as they could grab”. This is the reason why most of the ancient societies found an easy way to connect large groups of experts and they developed “Money”.
Money has been created many times in many places from coins, metals to cowry shells. Human history’s first known money was “Sumerian Barley Money” in Sumer around 3000 BC. It was simply barley. A fixed amount of barley was exchanged in return for other goods and services. This method was not effective as it is very difficult to store and transport barley. Just imagine ordering one pizza in exchange for 20 sacks of barley. That would be a nightmare!
You would probably have to use a truck every time you venture out in search for goods and services. Later in the modern era, coins and metals were exchanged, but that too was not feasible, in terms of transport, when carried in large amounts. This is the reason why most of the money today, is on the computer servers in the form of digital money. Sum of total money in the world is $60 trillion, yet less than 10% of it is the form of bank notes and coins.
You see, trust is a raw material from which all types of money is minted. Dollars, rupees, pounds etc. They only hold value in our imagination. Their worth is not encoded in the chemical structure, colour, material or its shape. What I mean to say is that money is a psychological construct. For thousands of years, philosophers, thinkers have besmirched money and have called it the ‘root of all evil’. But money is the peak of human tolerance. It is open minded than any other language, beliefs or habits. It is the only trust system that does not discriminate between age, race, sex or religion. Thanks to money, that people who are unknown to each other and don’t trust each other can nevertheless co-operate effectively.