The History of Money

Orcun Kahyaoglu

Money is the medium of exchange that means people accept money in trade for goods and services in today’s world. In ancient times, beads, seashells, fishhooks, and cattle were been using before the money was invented. Money was first used by Lydian in 637 B.C. as valuable metal coins.

Based on commodity money concept these coins were made from metal, which often had similar value with the coins’ net present value.

Then, the paper currency was introduced by Chinese in later 1300s. There were the emperor’s seals and signatures on these currencies.

White defines representative money that is made of cheap metal or convertible paper money that gets its value from the principal money, which it represents (1979, p.12). It was first used as a tobacco note in U.S. in 1715. U.S. government then issued silver and gold certificates in the late 1800s.

On the other hand, fiat money is the term for a medium of exchange, which is neither a commercial commodity, a consumer, a producer good, nor title to any such commodity; in other words, it is irredeemable paper money (Hoppe, 1994, p.49). U.S. Treasury stopped redeeming silver certificates in silver dollars in and the silver coins were removed from circulation replaced with cooper coins.

The Federal Reserve controls the money supply by setting monetary policies to keep prices stable and make people to have confidence on the dollar they use.

Hoppe, H. (1994). The Review of Austrian Economics. How isfiat money possible?-or, The Devolution of Money and Credit, 7(2).  

White, H. (1979). Money and Banking. Nature and Functions of Money. New Delhi: Naurang Rai