I was reading a book with my daughter the other day entitled “The 53 and 1/2 Inventions that Changed the World”. The title of the book is self explanatory. It is a child friendly book (of course) that mentions the things before history began such as tools, clothes, and the wheel. Then the book focuses on great inventions such as the the light bulb, medicine, toilets, and clocks. I don’t dispute the author’s selections as they were indeed world changing.

The book even mentions the Gutenburg printing press, invented in 1440, which I think (not minimizing all the other great inventions) had the greatest impact on mankind ever. Think about it. Prior to that, there was no way the common man had access to books (i.e. information and education) as all books were hand written, usually transcribed by the clergy or sponsored by royalty, who had staff on hand to produce what the King’s Court wanted. Can you imagine how long it would take to order a book such as the Bible? No 4 to 6 weeks for delivery back then. It took YEARS! There was no proliferation of ideas from those in the know to those in the dark. As an aside, since I mentioned the Bible, do you think that there would be typo’s or transcription errors, whether innocent or deliberate to support a particular religious sects doctrine, prior to 1440? Hmmm… Me thinks that the common sense o’ meter says: “a high degree of probability”. Blasphemy? Nope. Just a thought.

Information available via the Internet today is just as revolutionary as the printing press. Freed from the shackles of corporate interests that control mass media, the Internet is available to most of us in the Western world regardless of income, race, creed, and social stature. Anyone can have a newspaper or television station! I think of the Internet as a television with an infinite number of channels to select from. One could write a thesis on the pros and cons of it, but that is not the point of this blog….I am going off on a tangent…

In my meanderings through the book with my daughter showing her the pictures and keeping her interested with me reading the stories to her in my poor imitation of Robert Munsch, I noticed a glaring omission in the book. Well…not glaring to the average population, but glaring to me (and it is all about me right? 😉 ), there was no mention of the invention of money!

I wasn’t surprised. Nobody gives money a second thought, yet it is the grease that lubricates the wheels of commerce. Employers give to employees in return for their labour. Employees exchange money for goods and services. People save excess money (well they should anyway) today to exchange it for goods and services tomorrow. They borrow money today to meet their needs and wants. Years ago, my Dad said to me, “Son, money is not important. Just the lack of it.” Without money, our modern economy would grind to a halt and seize up. In order for work to be performed, there are 4 things that are needed:

  • The work to be done.
  • The materials to do the work.
  • The labor to do the work.
  • The money to pay for the work to be done.

If any of those four things are missing, no paid work can take place. It is a naturally self-regulating system. If there is work to be done, and the material is available and the labour willing, all we have to do is create the money. This is what really happened in the Great Depression. We had three of the 4 conditions described above, but due to the contraction of the money supply, there was no money to pay for the work to be done. People starved.

So what is money? Classically, money has been described as having the following characteristics. It is:

  1. A medium of exchange.
  2. From the above characteristic then, it logically has units of measure.
  3. Again, from the first point, to be used as a medium of exchange it must be a store of value, for the purpose of deferred spending.

What is used as money? Quite simply, anything we agree on that meets the criterion as described above. Various civilizations have used gold, silver, salt, sea shells, playing cards, tally sticks, and even bags of yak dung!

In the old village markets, the barter system was often used. People traded things they produced for things they did not produce. A an example would be to trade wheat for corn, pigs for cows, and so forth. A buyer and seller would haggle over what value the trade had to the other. However, the barter system had obvious limitations. The barter system can be described as a “coincidence of wants” where a buyer and a seller want the others goods at the time they want it. Each party must bring something to the table the other desires. Barter is limited to local markets wherethe buyer and seller must be able to meet to evaluate the condition of the goods offered to the other. If a producer supplies a widely needed goods or service, such as a blacksmith, the blacksmith can only accept so many cows (how is he going to look after all those cows anyway? He is too busy being a blacksmith…) or bushels of wheat for his products and/or services. Finally, barter is not a store of value. You can’t put bushels of perishable wheat or livestock on the shelf for later trade. This is where the money comes in. This article does not attempt to cover the history of money, as it would be to long and, to put it bluntly, quite boring for me.

Money can be anything which the trading parties agree has transferable value, but the usability of a particular sort of money varies widely. Desirable features of a good basis for money include being able to be stored for long periods of time, dense so it can be carried about easily, and difficult to find on its own so it is actually worth something.

Today, we normally think of pretty pieces of paper issued by the nations central bank, such as the Bank of Canada, or in the United States, the Federal Reserve, as money. Our government tells us this is to be used as money, good for all debts, public or private. By manufacturing this money with intricate patterns in attempts to thwart counterfeiters, we call this money “fiat”. In Latin, this means “by decree”. In other words, we use this as money because we are told to.

But it was not always this way. In order to understand how we arrived at where we are today with money, we must look into the past…