History of Money
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Money can be said to be a commodity that is employed as a medium of exchange while carrying transactions. Categorically, money is assumed to be a store of value and unit of account in addition to being a medium of exchange for goods. A large number of writers find the first two not being very essential comparing to the third one. As a matter of fact, other goods are considered to be better in terms of intertemporal value storing, as compared to money. This is due to the fact that from time to time, money degrades in value through inflation or overthrow of a government (Rothbard 2).
Money cannot just be said to be just papers, instead, it is a medium of exchange that facilitate trade (Davies 27). A double coincidence of wants can be said to be a situation where supplier of a given good A wants to possess good B, and supplier of B wants that of A. The point here is that money gives people more flexibility in trade, as compared to barter. With money, being a medium of exchange, there is no need for the double coincidence of wants (Robertson 2).
On the basis by which money is measured, there are data that are published by the Federal Reserve on a weekly and monthly basis. It shows three main measures: M1, M2, and M3. It also gives data on overall sum of debt of non-financial branches of the US economy. Money measures show different degree on liquidity that different types of money usually have. The narrowest measure is usually M1, which is restricted to the liquid form of money in addition to savings account. It is the amount in travelers hands of the public among other deposits by which cheques can be written. M2 constitutes M1 and some other savings accounts, whereas M3 includes M2 and some other denominations, which are much larger (Moffat).
Forms that money has taken over the history of mankind
First, anything could have been used for trading if only the buyer and seller could agree on the value of items on trade. For example, a pig could be taken for trade with a few sacks of grain. However, the system of barter often failed in cases when where the two could not come to an agreement on the relative value of the trading items (Rothbard 45). Thus, all items that could be traded were given values according to a given number of coins that had variations. The most often used coins in the daily purchasing were copper and bronze. Silver coins were used for more expensive products. Rarely, gold coins were used, although they were made because of their great value. Additionally, gold is a very soft metal, and it could be easily damaged if not handled with great care. Thus, this resulted to reduced value of gold (Weber 3).
In avoidance of carrying around many coins, traders began producing vouchers that represented specific quantity of coins. This was done successfully in circumstances where traders had some cash to back up the voucher that was issued. On the other side, there were those who often issued vouchers with values far greater comparing to what they were capable of paying. Another risk that was involved was the situation when people countered fake vouchers resembling a valid voucher and with no redeemable value. At a given time, the government started issuing paper money that was official and backed by silver or gold reserves, giving more stability to the system of paper money. Therefore, the government avoids a possibility to go bankrupt. Furthermore, the government is now able to take control over counterfeiting, because there was launched a standard system of money. With the help of computers, it is now possible to carry commercial transactions electronically (“A Brief History of Money Point” 5). With the given cases, money is not changed on hands but can modify accounts according to the transactions that are made. This helps people to avoid the risk of carrying cash on hand.
Fiat and commodity based money
Fiat money is money that is worthless and has no guarantee that is provided by the government, whereas commodity money is that which derives its value from the actual commodity from which the good is made. Thus, when a golden coin was to be made, its cost could be based on the coin and not the nominal value of the coin. Commodity money became a more convenient type of trade due to its superiority to that of barter. On the other hand, commodity money is normally faced with fluctuations in prices.
Supposedly that the commodity on use is gold, and some new gold mining is found, those that had much gold will lose their wealth. In today’s life, some of the prisoners use alcohol or cigarettes to be commodity money. Generally, without an official tender, people should suggest something that is common, stores value and is convenient.
On the other hand, the introduction of fiat money proved being more convenient. Rather than carrying around the silver coins, silver, or even cigarettes, one could only carry backed papers by the government. Over a given period of time, government has not been interested in making provisions of the fait currency with gold or any other commodity, and, thus, fait money became based on the government that issue it. Most of the governments demand that their national currency was accepted while paying debts (“Commodity Money vs. Fiat Money”).
The origin of expression “Bad money drives out good”
This is explained by the law of Gresham that states “Bad money drives out good”, though it is well regarded as: “Bad money drives out good if their exchange rate is set by law” (“Gresham’s Law”). The law specifically applies to a situation where two kinds of commodity money exist in circulation, and the legal tender law necessitates that it was accepted and possessed alike face values that are meant for economic deals. Artificially, money that has been overvalued attempts to drive the undervalued money out from circulation; which is done through price control.
The law of Gresham derived its name from Sir Thomas Gresham, an English financier, during the Tudor dynasty. Forty years before, Nicolause Copernicus had started the law. Aristophanes realized that bad money was used instead of good money in his fifth century century play. Good money refers to the money that shows a small disparity amid its nominal worth and the value of the commodity. Without laws governing legal tender, there can be free exchange of metal coins money in market values above bullion. The case is not theoretical and is observable presently in the bullion coins. Such coins possess certain purity and are convenient to handle. In trading, coins are more preferable than anonymous metal hunks, which are more precious thereby giving the coins more value. The demand for coins makes them profitable (“Gresham’s Law”).
Meaning of a “touchstone”
The term refers to a part of a hard stone, which is dark, for instance, a slate, jasper, or basalt, which is applied in the assaying process involving testing of the metals’ purity. There was widespread application of these stones, but in the modern society, it has reduced. Touchstones are presently kept in assaying offices, and some individuals preserve them just because of curiosity. Some of them are in museums, although they are old. To use a touchstone, a piece of metal under test would be taken and rubbed against the stone. Among the frequently tested metals, there were silver and gold because of their categorical softness and large value, which served as incentive in alloying them, using cheaper metals (Smith).
After laying down the streak under test, the second streak was applied for comparison, using a testing pencil that is called alloy. Moreover, the impurities in the sample could be dissolved using acidic solutions in order to compare the difference amid the two streaks. The comparison could reveal some traces of cheap metal alloy. Touchstones were characteristically kept with collection of the testing pencil and acids too because of testing, whereas some firms produced and supplied them (Smith).
Where the word dollar came from
In 1516, Joachimsthal launched the silver mine, which was followed by a mint called Joachimsthal. Initially, the mint began churning coins known as Joachimsthalers, which were later shortened in their name to thalers and are currently known as the Dutch. This was corrupted to dollar by the English, and the words dollar was given to any foreign silver coin. For instance, the English men who settled in wide America named the Spanish piece of eight the Spanish dollar, which was wide in circulation.
Numerous years following the independence, the Americans could use any oddball coinage at their disposal, including the Spanish dollar. However, as time went by, they started considering having their own currency. Thomas Jefferson was not for the idea of using the English system but proposed the possession of a monetary unit with the label dollar, since this term was familiar to many. The continental congress pronounced the dollar as the US currency in 1785 up to 1794, when it was minted. Washington was already referring to the almighty dollar in 1837, and this continued later (Adams).
Why the dollars are sometimes known as bucks
The European settlers learnt of the dollar from the Indians during the eighteenth century. It meant a deerskin, which was employed in trading its rights as well as a unit of value in trading for other commodities. During the Indian Territory visit to Ohio, Conrad Weiser wrote in his periodical that he had been robbed of 300 bucks, and every whisky’s cask ought to be traded for 5 bucks. The value of deerskin had declined in the following century and could serve as an exchange medium during the time when the buck passed the dollar (Sproul 3).
In 1856, a Californian newspaper reported the incident to the court. Notwithstanding the fact that twentieth century inflation hit the bucks, their use progressed. In nineteenth century, poker players assigned the dealer with a market which they could call the buck. The name arose, because they made use of a knife whose handle came from buckhorn. Therefore, the buck was passed when the responsibility of the transactions changed to the player.
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