I often think about the fact that the objects we use to represent currency have no actual practical utility outside of their representation of “money”. But why did we begin using this system in place of exchanging good and services with one another? At what point did humans see fit that rounded metals and rectangular sheets of paper had an assigned representation of value that could be exchanged for goods and services?
In: Economics
What you’re calling “symbolic currency” is known in economics as *fiat money*. It’s money that has no (or very little) inherent value. This is as opposed to *commodity money* which is something that’s inherently useful. Paper notes are fiat money, while examples of commodity money that have been used in the past are gold, cattle, barley and even the old stereotype of cigarettes being used as money in prison.
Commodity money has a lot of potential drawbacks: indivisibility (you can’t have half a cow), portability (cows are heavy), variations in quality (some cows are better than others), and degrading value over time (cows get old and sick). Fiat money gives us a currency that can be divided however you want, that is easy to carry, that is identical from one unit of currency to the next, and that holds its value.
The catch is that since fiat money is just a promise on a piece of paper, it only works if people trust whoever is making the promise. Traditionally that’s national governments, so the value of the currency depends on how trustworthy that government is perceived to be. Governments that people don’t trust see their currency plummet in value. The Iranian Rial, for instance, has an exchange rate of 42,000 to one US Dollar because there is so much uncertainty and mistrust of the Iranian government.
The book “Debt: The First 5,000 Years”, an in-depth look at history of debt, bartering, and the use of currency, notes that things like coins and such became useful for outsiders not a part of a community’s internal systems of debt. If we’re in the same community I know where you live as does everyone else and you’re not really gonna go anywhere because your life is HERE and we all exchange goods and services in our own way; no need for coins that have no intrinsic value. But those passing through and not part of that insider system, coins were a sort of widespread standard “currency” and a way to assign value to things that more or less everyone in a larger region understood.
I promise, the literature explains it better 😀
During the crusades the Templar order offered a service where a person could deposit money in e.g France, get a paper receipt, and withdraw the same amount in Jerusalem.
That’s another abstraction on top of the question you’re asking but it’s still paper representing a monetary asset. And the reason was for security during the crusaders journey.
Paper money starts as notes of promise (bond) to allow retrieval of a named amount of valued substance from safe storage. Coins are stamped for certification of a degree of purity and amount of weight of the metal in question. With some metal currencies, eg. copper, the monetary item itself was used as raw stock for tool making. Needless to say, paying for something substantial in copper coinage might require a wagon and a strong draught animal to pull it. So much lighter to use a paper note.
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Hi!
In addition to all the excellent replies, try this link. It goes to “Extra Credit”‘s video series on money. It’s fun, well done, and fairly short.
[https://www.youtube.com/watch?v=-nZkP2b-4vo](https://www.youtube.com/watch?v=-nZkP2b-4vo)
It’s easier to trade small bits of metal where everyone agrees on a value instead of trading whatever unwanted, perishable, heavy stuff you happen to have.
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Very basic: If someone had potatoes and wanted a fish, he’d have to be lucky someone that has a fish wanted potatoes. If there is one exchange item good for everything it’s much more convenient. One could sell potatoes to whomever and just get something in exchange they could use to get fish, a table, vine, fruit, a smartphone or whatever.
Let’s say that you repair roofs for a living. You go around your village repairing roofs, and people pay you in food, which you then use to feed your family. Simple enough.
But there’ll come a point at which the people growing food don’t need any roof repair. What do you do then?
The problem with barter systems is that they assume that everyone has something that someone else wants, and that’s simply not the case. Money certainly isn’t a perfect solution, but it ensures that people with more niche specialties are able to particular in trade.
Tl;dr bartering runs into the problem of people not needing what you’re bartering. Money solves this by acting as a labor credit.
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