INT 200: Global Capitalism and
its Discontents
The History of Money
Money
• three main functions:
– a medium of exchange, easily traded for
goods & services.
– a store of value, so that it can be saved and
used for consumption in the future
– a unit of account, a useful measuring-stick
• Before money
– Barter: a system of exchange by which goods or services
are directly exchanged for other goods or services
– Gift exchange/gift economy: goods and services given
without an explicit agreement that the gift will be
reciprocated
Money
• history
– Obsidian (12,000), copper and silver (3,000), cattle, grain, etc.
– Commodity money: value comes from the commodity of which it is
made
– Electrum, an alloy of gold and silver, was used to make coins in Lydia in
around 650BCE
•
•
•
•
A coin: stamped money have a mark of some authority, a symbol, picture or words
Pre-weighted and pre-alloyed
Still a commodity money
Clipping and devaluing
– coin as a unit of weight vs. a unit of value
• Seigniorage: the difference between the value of the money and the cost to
manufacture it
Money
• history
– Bills of Exchange:
• the buyer’s promise to make a payment at
some specified future date
– Promissory notes
• circulate as a safe and convenient form of
money backed by the goldsmith's promise
to pay
– Representative Money: A claim on a
commodity, a "commodity-backed money
– Banknote
Money
• history
– Gold Standard
• a currency is defined in terms of a specified
amount of gold and for which the currency
could be exchanged
• The Bretton Woods System
– $35 / ounce
– D. August 15, 1971
• Advantages: Long-term price stability,
fixed international exchange rates
• Disadvantages: Gold unequally distributed,
limits growth
• d. 1976
Money
• history
– Fiat Money
• intrinsically useless; is used only as a medium of exchange
• derives its value from the government which declares it to
be legal tender
– Inflation, reputation of the government, devaluation
– Monetization
• Money evolves to reduce barter; as a private-sector attempt
to minimize the costs of trading
vs.
A Government operation
• fiscal wing of government has a huge incentive
to move its economy away from barter
– Taxes, seigniorage
Bitcoin
• Not just a fiat currency, but a virtual one
– No central monetary authority to control the money supply
– A community currency that requires self-policing on the part of its
users