Money is a good servant, but a bad master

KONICA MINOLTA DIGITAL CAMERA

The Meaning of Money

The American Federal Reserve System of Federal Reserve Banks is one of the government institutions that attempts to control inflation so that we Americans will continue to accept our money as having value. According to the Federal Reserve Bank of Minneapolis, money has three functions:

1. it’s a medium of exchange. We accept coins and currency in return for goods and services.

2. it’s a standard of value. We can use it to determine the value of a good or service.  For example, a computer selling at $2500 has a value 2 1/2 times what one selling at $1000 would have.

3. it’s a store of value. We can save our money and spend it for something we want in the future. [Reference: http://library.thinkquest.org/28718/history.html%5D

The History of Money

The history of money begins around 2500 years ago with the first minting of coinage in about the seventh to sixth century BC. Money is any clearly identifiable object of value that is generally accepted as payment for goods and services and repayment of debts within a market or which is legal tender within a country.

Since ancient times people have swapped items of value either in the exchange of gifts or else in markets where a commonly shared system of tokens is more convenient.

Many things have been exchanged in markets including, for example, livestock and sacks of cereal grain (from which the Shekel is derived) – things directly useful in themselves, but also sometimes merely attractive items such as cowry shells or beads were exchanged for more useful commodities. Precious metals from which early coins were made fall into this second category. [Reference: http://en.wikipedia.org/wiki/History_of_money%5D

Barter

The first people didn’t buy goods from other people with money. They used barter. Barter is the exchange of personal possessions of value for other goods that you want. This kind of exchange started at the beginning of humankind and is still used today. From 9,000-6,000 B.C., livestock was often used as a unit of exchange. Later, as agriculture developed, people used crops for barter. For example, I could ask another farmer to trade a pound of apples for a pound of bananas.

Shells

At about 1200 B.C. in China, cowry shells became the first medium of exchange, or money. The cowry has served as money throughout history even to the middle of this century.

First Metal Money

China, in 1,000 B.C., produced mock cowry shells at the end of the Stone Age. They can be thought of as the original development of metal currency. In addition, tools made of metal, like knives and spades, were also used in China as money.  From these models, we developed today’s round coins that we use daily. The Chinese coins were usually made out of base metals which had holes in them so that you could put the coins together to make a chain.

Silver

At about 500 B.C., pieces of silver were the earliest coins.   Eventually in time they took the appearance of today and were imprinted with numerous gods and emperors to mark their value. These coins were first shown in Lydia, or Turkey, during this time, but the methods were used over and over again, and further improved upon by the Greek, Persian, Macedonian, and Roman empires. Not like Chinese coins, which relied on base metals, these new coins were composed from scarce metals such as bronze, gold, and silver, which had a lot of intrinsic value.

Leather Currency

In 118 B.C., banknotes in the form of leather money were used in China. One-foot square pieces of white deerskin edged in vivid colors were exchanged for goods. This is believed to be the beginning of a kind of paper money.

Noses

During the ninth century A.D., the Danes in Ireland had an expression “To pay through the nose.” It comes from the practice of cutting the noses of those who were careless in paying the Danish poll tax.

Paper Currency

From the ninth century to the fifteenth century A.D., in China, the first actual paper currency was used as money. Through this period the amount of currency skyrocketed causing severe inflation. Unfortunately, in 1455 the use of the currency vanished from China. European civilization still would not have paper currency for many years.

Potlach

In 1500, North American Indians engaged in potlach, a term that describes the exchange of gifts at banquets, dances, and various rituals. Since the trading of gifts was so important in figuring the leaders’ community status, potlach went out of control as the gifts became more extravagant in an effort to surpass others’ gifts.

Wampum

In 1535, though likely well before this earliest recorded date, strings of beads made from clam shells, called wampum, are used by North American Indians as money. Wampum means white, the color of the clam shells and the beads.

Gold Standard

In 1816, England made gold a benchmark of value. This meant that the value of currency was pegged to a certain number of ounces of gold. This would help to prevent inflation of currency. The U.S. went on the gold standard in 1900.

Depression

Because of the depression of the 1930’s, the U.S. began a world wide movement to end tying currency to gold. Today, few nations tie the value of their currency to the price of gold. Other government and financial institutions now try to control inflation.

Today

At present, nations continue to change their currencies. For example, the U.S. has already changed its $100 and $20 banknotes. More changes are in the works.

Tomorrow

Tomorrow is already here. Electronic money (or digital cash) is already being exchanged over the Internet.

Reference: http://library.thinkquest.org/28718/history.html?tql-iframe

Why do we use money?

We use money as payment for goods or services. Today people use coins, banknotes (bills), checks, credit cards, and debit cards (the cards used at automatic teller machines, or ATMs) to pay for things. Before money was invented, you could only get something from another person by bartering or trading something else for it. It was hard to make even trades and the deal had to be made on the spot. The introduction of money offered people greater flexibility when trying to get goods or services: it made it possible to put standard values on things, and money could be saved and used for future purchases. [Reference: http://www.answers.com/topic/why-do-we-use-money#ixzz2UXjTicdl%5D

Money Wears Out

It doesn’t take long for money to wear out. In fact, money can wear out in as little as 15 months. The Federal Reserve Bank of Atlanta shows the approximate life of paper currency denominations and coins.  A table based on its information follows:

Denomination

Length of Time

$1.00

18 months

$10.00

18 months

$5.00

15 months

$20.00

2 years

$50.00

5 years

$100.00

8 1/2 years

Coin

25 years

Commercial banks send worn-out notes to a Federal Reserve Bank to be replaced. Then, the Reserve Banks sort the money they get and decide whether or not it can be reused. If it can be, they put it in vaults until it recirculates again through the commercial banks. Reserve Banks then burn the unusable paper money and return the damaged coins to the U.S. Treasury.

17 comments on “Money is a good servant, but a bad master

    • Your most welcome dear..I am glad that you liked it…..I am quiet concerned about how people treat money these days and we loose our close friends or family relations sometimes when we give more importance to money…I am trying to understand the dynamics of us with money and hopefully I will be able to free up myself from this web of dire need to have money all the time and the way we cling to it and don’t realise its just a tool and there is no need to give it the uttermost important all the time in life..once we realise this I guess world can be a better and happier place 🙂
      Regards,
      Kavita

  1. “The American Federal Reserve System of Federal Reserve Banks is one of the government institutions that attempts to control inflation”

    It should be noted that on this issue of preserving the purchasing power of the dollar the Federal Reserve’s record has been appalling. Between 1790 and the foundation of the Federal Reserve in 1913 the difference in prices is about 8%, a trivial difference in a 123 year time span. However, from 1913 the dollar has inexorably declined losing over 90% of its value.

    • wow..thats quiet an insight Malcolm…I am not sure what as an individual I can do but I would love to minimize the impact of money on every aspect of life as much as possible…yesterday in WordPress event I saw that in open source area people are developing/contributing for nothing and gettting benefit from it as well…similary if we can contribute and money can be second priority at times then we can come back to the level where money was actually devised to ease the exchange of objects and not to rule mankind really

  2. Pingback: Is money more important than happiness? | Talking Experience

  3. Money, and the chains in which it binds me and so many others, is my most constant worry. The words you wrote here struck home. I’ve enjoyed the other posts I’ve read on your blog as well. Thank you so much!

  4. First of all . I thanked to all. Today i m saying about is money or happiness important? I think happiness is more important than money becaus if we have money but we can’t bring happiness if we are happy every day so we don’t need money. So thanks i ll write letter.

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