The previous article in this series discussed Barter Systems. This article will discuss the emergence of commodity money, which is generally thought to have evolved out of the necessity to have a specific debt instrument for an “I owe you” (IOU).
Origin of the word “money”
In the Roman Republic, coins were made on the Capitol Hill, near the temple of the Roman goddess Juno Moneta (Greek goddess Hera). The word moneta, meaning “warner” or “reminder” eventually became associated with what the mint produced, namely “money”.
Silver denarius showing Juno Moneta
A silver denarius from Rome (46 B.C.) shows an image of the goddess Juno Moneta. The back of the coin shows tools used for metal working, and the name of the maker of the coin, “Titus Carisius”.
Early Usage of Commodity Money
A key advantage of commodity money over barter systems, other than its use in resolving debts as noted above is that it eliminates the need for a “coincidence of wants” (you want what someone is offering and vice versa at the same time) for a barter system to work.
Obsidian has been recorded as being used as commodity money in 12,000 B.C., and some records note that the use of pigments or shells could have been used as much as 100,000 years ago! Other ancient records and law codes (ex: The Code of Hammurabi) from Babylon, circa 1,760 B.C., indicate that money had a formal place in society, for debt, business, and compensation for infractions.
Types of Commodity Money
Commodity money is money that has intrinsic value, i.e.: its value is determined from the commodity that it is made of. Examples include: gold, silver, copper, and salt. Gold for example, is a useful commodity money as it is not susceptible to environmental degradation, is highly malleable and ductile and thus can be reshaped to be used for other purposes, and can be easily stored. Other examples of commodity money include the koku (Japan; a unit of rice), shekel (Mesopotamia; initially a weight of barley), and cowry shells (India). The intrinsic value of commodity money is in contrast to that of representative money which has no intrinsic value, but can be exchanged for an underlying commodity.
Standardization
The standardization of commodity money was essential for its official usage by governments. Devices such as the touchstone allowed for alloys to be tested for the purity of various precious metals, which when multiplied by the weight of the alloy could be used to determine the amount of the precious metal present. If the government was able to pre-assay a coin, and stamp its value on it, it could provide standardization of commodity money.
Coins made of metals thus had the advantage of being able to carry their value. Standardized coins have been known to exist as far back as 1,000 B.C. in the Zhou dynasty of China, and were in the shape of small knives and spades in bronze. Mediterranean civilizations were believed to have adopted standard coins starting in the 7th century B.C. Some commodity money is still created even today, one of the most prominent examples being the Canadian Gold Maple Leaf, which is 0.9999 fine (24 carat).
2 oz. Pure Gold Coin – Grand Trunk Pacific Railway – Mintage: 300 (2014)
The downside of a coin that carries its value is that commodity markets could influence the value of the coin itself. For example, coins were sometimes clipped (edges removed) to obtain the precious metals that the coin was comprised of. In addition, gold coins were often desired more than silver coins, despite their relative par values, requiring government intervention, in the form of guaranteeing to convert commodity money into gold at a fixed rate. Future articles will discuss further advances in money, such as paper money and bank notes.
4 thoughts on “The History of Money – Part II”