Two chickens for a pig – or why we started using money?

I was frantically looking for my wallet to pay for dinner one day when my friend asked: “are we going to have to do the dishes?” And for a split second I wondered if the maitre would accept our humble dish washing services in exchange for the succulent lobster soup and Argentinean steak we had just had…
Of course my friend was only teasing me but it got me thinking. When did we start using money to pay for goods and services? And when did we decide to pay a price instead of the actual value of these goods and services?
In the beginning, people bartered. They exchanged goods and services they had surplus for other goods and services they needed. This meant people had to find other people willing to barter. And they had to agree on the things exchanged and their worth. Two chickens for a pig. A bag of rice for a bag of beans.

A means to an end

It was quite an unproductive system. What if you didn’t find a pig owner who wanted chickens, but a cow, and a cow owner that wanted chickens? You could sell the chickens for the cow, then the cow for the pig. But what if the cow owner was in a different town and you had to travel there and back again?

People started using common goods used by almost everyone, also called commodities, as a basis for their exchanges: rice, mussels, seeds, salt. But these items were difficult to store or perishable.

So they turned to metal and started making coins. Metals were an excellent alternative: their value was generally accepted as they could be melted to be used for other purposes. This made comparing the cost (i.e. price) of different items possible.

A little piece of paper

Carrying coins around was a risky business in the 9th Century. And a difficult one if you recall that the coins were oftentimes made of exactly the weight in metal they represented! Until an ingenious Chinese merchant decided to leave all his coins under the custody of a bank; in return he received a paper document stating the value of the metal deposited.

The merchant knew how much money he had and could easily have access to it by turning in his paper document. At the same time, the merchant could use his coins in exchange for goods and services by simple moving the piece of paper – such is its value.

The difference between price and value

From then on, building a fortune and spending parts of it became the simple exercise of exchanging a piece of paper of negligible price compared to the value it represented.

And so it is still today, where we know that money cannot buy happiness but it can help us in acquiring things to make like easier. At the end of the day, it’s about understanding the difference between what these things cost and the value they have for us.

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