The Beginning of Money

Before we dive into Economic Theory, I think we need to think about where we started in Economics in the first place.  How were the first economies formed?

Barter	The first people didn't buy goods from other people with money. They used barter. Barter is the exchange of personal possessions of value for other goods that you want. This kind of exchange started at the beginning of humankind and is still used today. From 9,000-6,000 B.C., livestock was often used as a unit of exchange. Later, as agriculture developed, people used crops for barter. For example, I could ask another farmer to trade a pound of apples for a pound of bananas.
Shells	At about 1200 B.C. in China, cowry shells became the first medium of exchange, or money. The cowry has served as money throughout history even to the middle of this century.
First Metal Money	China, in 1,000 B.C., produced mock cowry shells at the end of the Stone Age. They can be thought of as the original development of metal currency. In addition, tools made of metal, like knives and spades, were also used in China as money.  From these models, we developed today's round coins that we use daily. The Chinese coins were usually made out of base metals which had holes in them so that you could put the coins together to make a chain.
Silver	At about 500 B.C., pieces of silver were the earliest coins.   Eventually in time they took the appearance of today and were imprinted with numerous gods and emperors to mark their value. These coins were first shown in Lydia, or Turkey, during this time, but the methods were used over and over again, and further improved upon by the Greek, Persian, Macedonian, and Roman empires. Not like Chinese coins, which relied on base metals, these new coins were composed from scarce metals such as bronze, gold, and silver, which had a lot of intrinsic value.
Leather Currency	In 118 B.C., banknotes in the form of leather money were used in China. One-foot square pieces of white deerskin edged in vivid colors were exchanged for goods. This is believed to be the beginning of a kind of paper money.
Noses	During the ninth century A.D., the Danes in Ireland had an expression "To pay through the nose." It comes from the practice of cutting the noses of those who were careless in paying the Danish poll tax.
Paper Currency	From the ninth century to the fifteenth century A.D., in China, the first actual paper currency was used as money. Through this period the amount of currency skyrocketed causing severe inflation. Unfortunately, in 1455 the use of the currency vanished from China. European civilization still would not have paper currency for many years.
Potlach	In 1500, North American Indians engaged in potlach, a term that describes the exchange of gifts at banquets, dances, and various rituals. Since the trading of gifts was so important in figuring the leaders’ community status, potlach went out of control as the gifts became more extravagant in an effort to surpass others' gifts.
Wampum	In 1535, though likely well before this earliest recorded date, strings of beads made from clam shells, calledwampum, are used by North American Indians as money. Wampum means white, the color of the clam shells and the beads.
Gold Standard	In 1816, England made gold a benchmark of value. This meant that the value of currency was pegged to a certain number of ounces of gold. This would help to prevent inflation of currency. The U.S. went on the gold standard in 1900.
Depression	Because of the depression of the 1930's, the U.S. began a world wide movement to end tying currency to gold. Today, few nations tie the value of their currency to the price of gold. Other government and financial institutions now try to control inflation.
Today	At present, nations continue to change their currencies. For example, the U.S. has already changed its $100 and $20 banknotes. More changes are in the works.
Tomorrow	Tomorrow is already here. Electronic money (or digital cash) is already being exchanged over the Internet.

*Based on NOVA Online's the Secrets of Making Money, "The History of Money."  See also Glyn Davies' History of Money from Ancient Times to the Present Day.

You will get a story packet today called, "Recollections of Pine Gulch".  Read the story and answer the questions at the end of the story.  There's an online version of the story here:  http://pinegulch.blogspot.com/  This is a retelling of the classic "Goldsmiths Tale" which we will explore next.

There is a video on YouTube which does a fair job of describing how banking was started, although it is very Euro-centric.  You can find it here: http://www.youtube.com/watch?v=D0IJCGuNtqk

Another cute cartoon of how money came about can be found here -- although it rushes through some of the important changes: http://www.youtube.com/watch?v=TLVoV6gK8mE

Finally, this is another animation discussing how "money" started.  See the similarities?