History of Money
Money is medium of exchange and store of value. In the early days of human civilization people didn’t have money but instead they bartered together exchanging surplus products they produce for surplus products others produce. If farmer Joe has excess wheat and needs eggs and neighbor farmer Tom has eggs and needs wheat they would meet and exchange a number of eggs for an amount of wheat.
The above example could become more interesting if we added farmer Max who needs wheat but can only offer beef. If Max can trade with Joe exchanging some beef for some wheat then he will meet his wheat needs. If Joe doesn’t need beef but Tom needs beef then Max will have to do a double trade. He will first trade with Tom exchanging some beef for some eggs then exchange these eggs for some of Joe’s wheat. In that example Max used the eggs as medium of exchange, which means that he got the eggs to exchange them for other products. Max may keep some of the eggs so he can exchange them later for more wheat from Joe or other farmers who accept eggs. In this use case eggs function as store of value because Max is using them to store the value he got from trading the beef.
Of course eggs and perishable similar goods cannot store value for long and cannot be easily divided. People started to use goods that don’t perish and can easily be divided as storage of value and medium of exchange and these goods played the role of money in addition to their role as commodities. Different civilizations picked different types of commodities to use as money such as types of shells and rocks. The commodities that got used as money were usually scarce and valuable in that civilization. In larger civilizations gold and silver became widely used as money and they started to take the form of coins and governments played a role in standardizing the weights and shapes of these coins.
