Origin and Growth of Money

Introduction to Morwy

Origin and Growth of Money
Money that we use today has not sprung up overnight. In fact it has passed through centuries of evolution to reach in its present form. Broadly speaking the evolution of money and its growth can be divided into four stages, namely barter, commodity, metallic and paper. These four stages are discussed below.
1. Barter System:
In barter age there was no money. The trade used to take place without an> money. Goods were exchanged for goods and there was a problem of double coincidence of wants. Further there were many other inconveniences such as absence of unit of value, lack of sub division, lack of common measure etc.
2. Commodity Money:
As the society developed people found that they need some commodities more than others and their wants are of varying importance. This increased the importance of some commodities and goods. Gradually these commodities attained the status of money in that era. People used to value these goods higher than others. So we can say that different goods or commodities became money in that era. Examples of goods used as money could be animal skin, barley, wheat etc. Certain defects of barter were also present in this era of commodity money. There were numerous similar problems such as inability to store wealth for a longer period of time, lack of unit of account, lack of subdivision, etc
3. Metallic Age:
With the passage of time, man found gold, silver and other precious metals. As these things were scarce, their charm and shine fascinated men, so people started using them as wealth. They were considered as a source of purchasing power and people started using gold and silver pieces as medium of exchange. However such pieces had following disadvantages:
No Valuation: There was no valuation of such prices as how much amount will be needed to buy any particular good.
Weight & Measurement: People had to weigh the pieces every time they are going to pay or receive them.
Transportation: Heavy pieces of precious metals were extremely difficult to transfer from one place to another.
Debasement: The pieces of gold and silver were exposed to wear and tear. This means that with continuous usage and change of hands they used to loose their weight and hence their value.
These problems led the man to mould heavy pieces of metal into standard coins and to give them a face value equal to their intrinsic value. These coins were then used as a medium of exchange but they also created problems. First, they were exposed to wear and tear which decreased their intrinsic value as against face value. Secondly, with the findings of new mines of gold and silver, the supply of these metals increased and their worth decreased.

4. Paper Money:
The people were in the habit of keeping these gold coins and bars with goldsmiths. The receipts issued by goldsmiths become medium of exchange over time. People started using these receipt to discharge their obligations. This was the start of paper money and goldsmiths became commercial banks of that time. Later on confusion occurred due to different types of receipts belonging to different goldsmiths. So central bank was devised to take over the function of note issuance. Paper money itself passed through three stages of evolution. In first stage it was representative, in the second stage it became convertible and in the final stage it becomes inconvertible paper money.
Conclusion:
This is how the money originated and developed and reached at the stage where we are using it,today.