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How Money Began

From Bartering to Paper Money.


You've probably never thought very much about money. It is just there. When you want or need something, you simply take some money and pay for it. That wasn't always the way things were done, before money was invented people used to swap things. This was called bartering.

At first, people used to do direct swaps for what they needed. Supposing you had a lot of corn, but no meat, and the farmer down the road had a lot of meat but no corn. If that was the case then you could agree on a fair swap, and swap corn for meat. If you needed meat, but the farmer already had corn, he might not want any more corn, he may want something else, perhaps some eggs. If you still wanted the meat, you would have to find someone who had too many eggs, and wanted some corn. Of course, this system meant that people spent all their days trying to find someone to swap with, and they weren't able to get anything else done. That was when people came up with a better idea.

Instead of a direct swap of one item for another people came up with the idea of using one thing to swap for everything else. This was the beginning of money. At first, it didn't look much like money. Different people used different things. Some people used beads or crops, or even small animals . Animals and crops weren't very practical, since you couldn't keep them in your pocket, when you went to the market. The Native Americans used shells, called wampum. These were very highly decorated and everyone wanted them. That was important, since if no one wanted them, you wouldn't be able to swap them for anything.

At the same time as the Americans were using shells, people in other countries were using lumps of metal. The biggest problem with a lump of metal was that it was hard to break. How could people decide what was a fair sized lump for the swap? The Lydian people, who came from an area of what is now Turkey, came up with the idea to make coins in about 600 BC. They pressed the metal into flat, round pieces, and different size coins had differing swapping value. Later they made coins of different metals, and each type of coin had a different value.

Eventually the use of coins caused problems, too. It was the same problem as with the animals; the coins were heavy and difficult to carry around. Scholars think that the Chinese were the first group of people to come up with the idea of using paper money. Although paper isn't worth anything, it is like an IOU letter. The paper money was bought by paying for it with coins. So a paper note, that cost 20 coins to buy, could be used for buying things, to the value of 20 coins.

This is how money began. We still use the same system today. Our coins are made of metal, and paper money is worth a certain amount of coins, and can be swapped for coins at the bank.

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