eli5, how does a society transition from a bartering system to a centralized currency?

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I remember learning about bartering in some elementary school, but it didn’t occur to me to ask until now. How the heck does a society collectively agree that “mm yes these metal circles equate to cows”? Does the government just give everyone 100 shmeckles and let supply and demand cover the rest?

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21 Answers

Anonymous 0 Comments

After 2000 years or so the kings of Lydia came up with coins as a way of paying mercenaries, who were outside the general credit system. They caught on as a way of state display, and also making money for states. Some currencies had a better reputation for purity and standard weight, so were widely used as the reference point in trade – the Aegetinian and later the Athenian stater, in medieval times the Florentine shilling or the Venetian zecchino. States asserted a sole right to issue coins, but anyone could issue notes, and there were lots of private banks that did (and do). States only mandate the standard of value – the dollar, euro or rouble or whatever. Most currency is still notes of debt and credit.

Anonymous 0 Comments

After 2000 years or so the kings of Lydia came up with coins as a way of paying mercenaries, who were outside the general credit system. They caught on as a way of state display, and also making money for states. Some currencies had a better reputation for purity and standard weight, so were widely used as the reference point in trade – the Aegetinian and later the Athenian stater, in medieval times the Florentine shilling or the Venetian zecchino. States asserted a sole right to issue coins, but anyone could issue notes, and there were lots of private banks that did (and do). States only mandate the standard of value – the dollar, euro or rouble or whatever. Most currency is still notes of debt and credit.

Anonymous 0 Comments

After 2000 years or so the kings of Lydia came up with coins as a way of paying mercenaries, who were outside the general credit system. They caught on as a way of state display, and also making money for states. Some currencies had a better reputation for purity and standard weight, so were widely used as the reference point in trade – the Aegetinian and later the Athenian stater, in medieval times the Florentine shilling or the Venetian zecchino. States asserted a sole right to issue coins, but anyone could issue notes, and there were lots of private banks that did (and do). States only mandate the standard of value – the dollar, euro or rouble or whatever. Most currency is still notes of debt and credit.

Anonymous 0 Comments

The answer generally is that the government or other powers that be declare that people damn well better pay in currency or their head will be bashed in.

The initial process of how these coins got out is lost to history. Maybe the government spent some years purchasing goods with coins before then enforcing the use of currency. Maybe they asked everyone to come in and convert their silver ingots into coins for use. The ‘value’ of these coins was created by declaring the government wants them or you’re in big trouble.

(It’s always odd how whenever this question or similar come up, there’s not actually someone answering it in the comments.)

Anonymous 0 Comments

The answer generally is that the government or other powers that be declare that people damn well better pay in currency or their head will be bashed in.

The initial process of how these coins got out is lost to history. Maybe the government spent some years purchasing goods with coins before then enforcing the use of currency. Maybe they asked everyone to come in and convert their silver ingots into coins for use. The ‘value’ of these coins was created by declaring the government wants them or you’re in big trouble.

(It’s always odd how whenever this question or similar come up, there’s not actually someone answering it in the comments.)

Anonymous 0 Comments

The answer generally is that the government or other powers that be declare that people damn well better pay in currency or their head will be bashed in.

The initial process of how these coins got out is lost to history. Maybe the government spent some years purchasing goods with coins before then enforcing the use of currency. Maybe they asked everyone to come in and convert their silver ingots into coins for use. The ‘value’ of these coins was created by declaring the government wants them or you’re in big trouble.

(It’s always odd how whenever this question or similar come up, there’s not actually someone answering it in the comments.)

Anonymous 0 Comments

Well, imagine a world where chickens are currency. You have some chickens and I have some cows. You want my cows and I want your chickens, but we can’t agree on how many chickens it takes to get a cow. So we argue and argue until we’re both exhausted and still have no deal.

Then, one day, someone comes along with a bright idea. They say, “Let’s make these shiny little rocks the currency instead of chickens!” And we all look at each other and think, “Sure, why not?”

So we start using the shiny little rocks to buy and sell things, and pretty soon, everyone is using them. They’re easy to carry around and they don’t spoil like chickens do. Plus, they’re shiny and pretty to look at, so we feel good about having them.

Eventually, the shiny rocks become so popular that the government decides to get involved. They start making their own shiny rocks and telling everyone that these are the only ones that are worth anything.

And that’s how we transition from a bartering system to a centralized currency. All it takes is a little creativity and a lot of shiny rocks.

Anonymous 0 Comments

Well, imagine a world where chickens are currency. You have some chickens and I have some cows. You want my cows and I want your chickens, but we can’t agree on how many chickens it takes to get a cow. So we argue and argue until we’re both exhausted and still have no deal.

Then, one day, someone comes along with a bright idea. They say, “Let’s make these shiny little rocks the currency instead of chickens!” And we all look at each other and think, “Sure, why not?”

So we start using the shiny little rocks to buy and sell things, and pretty soon, everyone is using them. They’re easy to carry around and they don’t spoil like chickens do. Plus, they’re shiny and pretty to look at, so we feel good about having them.

Eventually, the shiny rocks become so popular that the government decides to get involved. They start making their own shiny rocks and telling everyone that these are the only ones that are worth anything.

And that’s how we transition from a bartering system to a centralized currency. All it takes is a little creativity and a lot of shiny rocks.

Anonymous 0 Comments

Well, imagine a world where chickens are currency. You have some chickens and I have some cows. You want my cows and I want your chickens, but we can’t agree on how many chickens it takes to get a cow. So we argue and argue until we’re both exhausted and still have no deal.

Then, one day, someone comes along with a bright idea. They say, “Let’s make these shiny little rocks the currency instead of chickens!” And we all look at each other and think, “Sure, why not?”

So we start using the shiny little rocks to buy and sell things, and pretty soon, everyone is using them. They’re easy to carry around and they don’t spoil like chickens do. Plus, they’re shiny and pretty to look at, so we feel good about having them.

Eventually, the shiny rocks become so popular that the government decides to get involved. They start making their own shiny rocks and telling everyone that these are the only ones that are worth anything.

And that’s how we transition from a bartering system to a centralized currency. All it takes is a little creativity and a lot of shiny rocks.

Anonymous 0 Comments

It doesn’t really matter if barter or something else came before. What you need to know is this: as soon as the number of transactions taking place becomes non-trivial, you need some medium in between to express the value of goods and services exchanged.

It’s just a level of abstraction. That level of abstraction isn’t needed in pre-civilization. As soon as you have civilization you need it.

As most people have trouble dealing in straight abstractions, the first money was coins, and the worth of those coins was whatever they were made of. Thus, copper for the smallest transactions, silver for the intermediate, and gold for the big, wholesale-level ones. Since the fall of the gold standard it’s entirely abstract though, which is good. It’s too much trouble to have to get someone to decide whether that shiny thing you’re offering up really is gold/silver/copper or just colored that way. (Old cash registers had a marble slab in front where you could hit a coin to see if it rang. Slugs didn’t ring.) Modern money represents a value, and the various governments have come up with ways of insuring it’s “real” that are far more convenient. Mostly these days people just do everything digitally, via credit/debit cards and accounts, so even the need for cash is slowly fading.