Money

German idiom,
“Wes Brot ich ess, des Lied ich sing”

Talker: Paola Maria Sciortino

Scuola Secondaria di Primo Grado
“Giosuè Cardubcci” - Bagheria

ITALY
 Money
Three roles it plays in an economy:
1. It’s a store of value, meaning that money allows you to defer
consumption until a later date.

2. It’s a unit of account, meaning that it allows you to assign a

value to different goods without having to compare them. So instead
of saying that a Rolex watch is worth six cows, you can just say it
(or the cows) cost $10 000.

3. And it’s a medium of exchange—an easy and efficient way for

you and me and others to trade goods and services with one another.
 Define the structure of social relations
● In tribal and other “primitive” economies, money
served a very different purpose—less a store of
value or medium of exchange, much more a social
lubricant. As the anthropologist David Graeber puts
it in his recent book “Debt: The First 5000 Years”
(Melville House, 2011), money in those societies
was a way “to arrange marriages, establish the
paternity of children, head off feuds, console
mourners at funerals, seek forgiveness in the case of
crimes, negotiate treaties, acquire followers. Money,
then, was not for buying and selling stuff but for
helping to define the structure of social relations.
 Barter
● Imagine doing a trade in the absence of money—
that is, through barter. (Let’s leave aside the fact that
no society has ever relied solely or even largely on
barter.) The chief problem with barter is what
economist William Stanley Jevons called the
“double coincidence of wants.” Say you have a
bunch of bananas and would like a pair of shoes; it’s
not enough to find someone who has some shoes or
someone who wants some bananas. To make the
trade, you need to find someone who has shoes he’s
willing to trade and wants bananas. That’s a tough
task.
 Mesopotamia
● In Mesopotamia during the third millennium B.C.E.,
that society already had a sophisticated financial
structure in place, and merchants were using silver
as a standard of value to balance their accounts. But
cash was still not widely used
 Metal Coins
● In the seventh century B.C.E., the small kingdom
of Lydia introduced the world’s first standardized
metal coins. Money is here being used in a
recognizable way.
● Located in what is now Turkey, Lydia sat on the
cusp between the Mediterranean and the Near East,
and commerce with foreign travelers was common.
And that, it turns out, is just the kind of situation in
which money is quite useful.
● With a common currency, trade becomes easy: You
just sell your bananas to someone in exchange for
money, with which you then buy shoes from
someone else. And if, as in Lydia, you have
foreigners from whom you’d like to buy or to whom
you’d like to sell, having a common medium of
exchange is obviously valuable. That is, money is
especially useful when dealing with people you
don’t know and may never see again
 Standardized Metal Coins
● The Lydian system’s breakthrough was the
standardized metal coin. Made of a gold-silver
alloy called electrum, one coin was exactly like
another—unlike, say, cattle. Also unlike cattle, the
coins didn’t age or die or otherwise change over
time. And they were much easier to carry around.
Other kingdoms followed Lydia’s example, and
coins became ubiquitous throughout the
Mediterranean, with kingdoms stamping their
insignia on the coins they minted. This had a dual
effect: It facilitated the flow of trade, and it
established the authority of the state.
 Rise and Downfall of Money
● The spread of money throughout the Mediterranean
didn’t mean that it was universally used. Far from it.
Most people were still subsistence farmers and
existed largely outside the money economy.
● As money became more common, it encouraged the
spread of markets. Governments were quick to
embrace hard currency because it facilitated the
collection of taxes and the building of military
forces.
 The Roman Empire
● In the third century B.C.E., with the rise of Rome,
money became an important tool for unifying and
expanding the empire, reducing the costs of trade,
and funding the armies that kept the emperors in
power.
● The decline of the Roman Empire, starting in the
third century C.E., saw a decline in the use of
money as well, at least in the West. The circulation
of money became less central, as cities shrank in
size and commerce dwindled.
 The Middle Age
● The rise of feudal society also undercut money’s
role. The basic relationship between master and
vassal was mediated not by payment for services
rendered but rather by an oath of loyalty and a
promise of support. Land was not bought and sold; it
belonged, ultimately, to the king, who granted use of
the land to his lords, who in turn provided plots of
land to their vassals. And feudalism discouraged
trade; a feudal estate, or fief, was often a closed
community that aimed to be self-sufficient. In such
a setting, money had little use (money tends to
corrode traditional social orders, fostering a curious
kind of equality).
● It’s unsurprising, then, that feudal lords had little
use for the stuff. In their world, maintaining the
social hierarchy was far more important than
economic growth (or, for that matter, economic
freedom or social mobility). The widespread use of
money, with its impersonal transactions, its
equalizing effect, and its calculated values, would
have upended that order.
 The Banking Industry
● By the 12th century, even as the Chinese were
experimenting with paper currency, Europeans
began to embrace a new view of money: Instead of
being something to hoard or spend, money became
something to invest, to be put to work in order to
make more money. This idea came with a renewed
interest in commerce. Trade fairs sprang up across
Europe, frequented by a community of merchants
who had begun to do business across the continent.
This period also saw the emergence of a banking
industry in the city‑states of Italy.
 The Bill of Exchange
● The invention of the bill of exchange, which laid the
groundwork for the emergence of paper money in
the West, also occurred during this period. The bill
of exchange was a sort of precursor to the traveler’s
check: a document representing a quantity of gold
that could be exchanged for the real thing in a
different city. Traveling merchants liked the bills
because they could be carried around with far less
risk (and exertion) than the precious metal.
● By the 16th century in Europe, many of the ideas
about money that shape our thinking today were in
place. Still, money remained a physical thing—that
thing being a piece of gold or silver. A gold coin
wasn’t a symbol of value; it was an embodiment of
it, because everyone believed that the gold had
intrinsic worth. Likewise, the amount of money in
the economy was still a function of how much gold
and silver was available. The rulers of Spain and
Portugal led them to plunder their New World
colonies and accumulate vast hoards of precious
metals, which in turn triggered periods of rampant
inflation and enormous tumult in the European
economy.
 The Gold Standard
● These days, countries have central banks to oversee
their money supplies, as well as to set interest rates,
combat inflation, and otherwise control their
monetary policy. Money is minted and put into
circulation as needed. The gold standard, promising
to redeem the notes for gold upon request, has been
adopted at times by Goverments to cut back
inflation, yet ultimately abandoned after periods of
deflation and economic recession. Currencies today
are “fiat” currencies, meaning they’re backed by the
authority of the issuing government, and nothing
more.
 A Cashless Society
● Over the course of history, the material substance of
money has become less important, to the point that
these days people talk easily about the possibility of
a cashless society. The powerful combination of
computers and telecommunications, of smartphones
and social media, of cryptography and virtual
economies, is what fuels such talk. The German
sociologist Georg Simmel described money as
“pure interaction,” and that description seems apt
—when money is working as it should, it is not so
much a thing as it is a process.