Some History on Money

What is money?
Can you imagine a society that did not have money? Long ago, before money was “invented”, people exchanged things they needed or wanted with each other by bartering (giving things to each other). You might give me a piece of clothing that you made and I would give you several chickens in return. But in order to get stuff, you need to have stuff to trade and “carry chickens” around with you. Over time, people started to value shiny metals (like gold and silver) that all agreed were valuable and use them as a way of exchanging things – one coin of silver was worth several chickens. (Fun fact: some scholars believe that gold and silver were considered to be valuable because they reminded people of the sun and the moon). These pieces of metal could be pretty easily carried and easily used to get stuff. These tokens – either small pieces of metal or eventually pieces of paper that represented some amount of value – are what we mean by money.

So, every society where people trade with one another finds something to facilitate trading – to make it easier and more convenient to do and that something is money.

What is money in our society?
Coins and bills for sure. But most of our transactions (like paying rent, getting a paycheck) use bank deposit balances as money. When you get paid, your employer (with a check or just by instructing your bank-called direct deposit) transfers money from her bank account to yours and you are getting paid with money.

Coins and Bills and deposit balances are money because everyone accepts them for transactions. Remember a dollar bill is just a green piece of paper. And that is why it is so important to maintain trust in our government that issues currency and our banks that hold deposits.

The Federal Reserve Bank of St. Louis has an excellent resource where students can learn lots more about money, banks and finance.