Earlier today, we talked about bartering. This was a tool of exchange used primarily between strangers and enemies to get what they wanted, while friends and families tended to gift each other needed items.
The first unit of money recorded in history is the shekel, and it originated in Mesopotamia. Wondering where that is? Me, too. It’s in modern-day Iraq, the area of the world was considered the cradle of civilization. The people apparently realized the need for some other means of exchange, and they set up the first commodity money system, meaning, a piece of money that is made from a material that is actually worth a specific amount. The term “shekel” was first used to indicate a measure of barley, and then was used to denote the piece of metal that was worth the same amount as that measure of barley. The first coins were minted by the Lydians around 600 B.C. and were made from gold and silver.
Over time, gold and silver merchants came up with an idea. They gave their depositors a piece of paper stating how much of the precious metal they had brought into their business. The depositor could then keep that piece of paper and bring it in to be redeemed at will. It then became possible for the depositor to give that slip of paper to someone else, and they could go in and withdraw that amount of money from the metal merchant. It sure was easier than carrying around a whole pocket full of coins. This idea came from China, as early as the seventh century.
This system made its way over to Europe in the 1600s. Banknotes were distributed widely, and by the 1700s, this was the way to handle your money. Everything was set up according to the gold standard, meaning, a specific amount of gold was assigned to each piece of currency. This became so popular that it was rare to see someone carrying around a bag of gold, and by the 20th century, paper money was how it was done all over the world. The gold standard ruled, and everyone pretty much trusted the system. That is, until World War II …
Stay tuned for our next installment, where we’ll discuss what happened after World War II and how it impacted our current economy.