We spend much of our lives chasing money to make a living and accomplish our dreams. Money is so integral to our society and our global economy that it’s true nature remains the mystery to most. If you trust your money just as it is, we have a lot of stories to share.
The story of money is as old as the history itself. When we lived in small tribes, keeping track of debt was easy. You owed somebody a load of firewood and they owed you a piece of meat. It would be kept in your head, a mental ledger.
When humans wanted to trade outside their tribe or village, they needed something everyone could agree to have value, something scalable. That was the beginning of commodity money. There were many kinds but each had to embody the same 5 characteristics.
What are the characteristics of money?
The characteristics of money are durability, portability, divisibility, uniformity, limited supply, and acceptability.
What is durability?
The durability of money means that it can be used over and over again. After passing through sufficient hands, dollar bills will start to suffer wear and tear. Some of them are going to be damaged and become useless.
What is portability?
Portability means that money must be able to go wherever and that it is easy to transport as people travel. There’s a limit to how many dollar bills you can bring to you on a trip out to the market or to take an extreme example, buy a house or a car.
What is divisibility?
Divisibility means that money must be easily divided. Every time you break a dollar into cents, you actually decrease the portability of money on you as weight and space go up but the value of money goes down. There’s a limit to how many merchants are going to be willing to accept 100 pennies as a dollar regardless of their equal value.
What is uniformity?
Uniformity of money calls for standardization of money so that it looks the same. Due to reprints and different minting years, not all dollar bills are going to look alike!
What is a limited supply?
Limited supply states that money is only valuable if it is in limited supply. Due to the increase in printing, a dollar bill is worth less and less every single year because the supply grows tremendously.
What is acceptability?
Acceptability means that the form of currency must be acceptable. As we mentioned above, it is the question if merchants are going to be willing to accept 100 pennies as a dollar regardless of their equal value.
Currency is a language that allows us to express transactional value between people, it’s a technology that’s older than the wheel, as old as fire.
Money does not originate from governments but it arises naturally as markets begin to develop and as people realize that if I have eggs and you have a cow, we may need some medium of exchange in order for you to buy my eggs and for me to buy your cow.
People invent currency when they don’t have any other currency. We can use the Weimar Republic (Germany) as an example in the 1930s when people used cigarettes as a means of payment because due to hyperinflation their national currency lost value.
