What has served as money?, Macroeconomics

As people went from barter societies to more advanced economies, money had to be invented. Several things successively served as money in the course of economic evolution. Arrowheads were used in some early societies. They easily served as a medium of exchange because they were fairly standard items, they required effort to manufacture and they could also serve as a store of value

Not all primitive moneys were hard or durable. In some instances, hides were served as money. Earlier periods, the beaver skin was often used as money and as settlements developed, the hides were not used directly, but trappers would place their hides in a warehouse, and only the warehouse receipt was actually passed around. Being smaller, lighter and less smelly than hides, the receipts were readily acceptable.

Not all early monies were necessarily useful. In India, strings of beads, known as wampum, which could serve as decoration and had no other immediate use were used as money. While anyone could make wampum, it was not easy to do so. The right stones and shells had to be found, polished into beads, drilled and strung on the Sinews. If wampum was in short supply, an Indian would gladly make a little more, since it could be exchanged for deer meat or whatever was wanted. A little could buy enough. If it were plentiful, it might be easier to shoot the deer rather than take the trouble of making large quantities of wampum. Thus, there was a tendency for the amount of wampum to be self-regulatory.

Not all early monies were necessarily useful. In India, strings of beads, known as wampum, which could serve as decoration and had no other immediate use were used as money.

Some money had no practical usefulness at all. In South Pacific, huge stones, carved in the shape of a doughnut were used as money. As it was impossible to move them, when a transaction occurs, ownership of the money used to change, but it did not circulate. The society was such that all members were aware of who owns which pieces of money and when the ownership changes.

Commodity money re-emerges during times of severe crisis, as in post-World War II, Germany, when cigarettes served as money for the first couple of years.

Notes and coins, called as fiat money should be included in the money supply. Though notes and coins are important they are not the largest component of the money supply. Bank deposits are far more significant.

Posted Date: 9/18/2012 6:12:26 AM | Location : United States

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