(information taken from The Wall Street Journal Guide to Understanding Money & Investing, by Kenneth M. Morris, Virginia B. Morris (The GUMI))
At the beginning, human beings were completely self-sufficient, a family taking care of all of its needs for food, clothing, and shelter. As time went on, families which had a surplus of goods, after a good hunt, for example, realized that it made sense to give their excess to their neighbors. In turn, when their neighbors had excess, they showed goodwill to the one(s) who had shared with them. It didn’t take long for neighbors to begin sharing goods all the time. A farmer who had a good cow, would barter his excess milk, with a neighbor who had a good fish trap. Thus, bartering began.
“As societies grew more complex, barter flourished. The most famous example may be Peter Minuit’s swap in 1626 of $24 in beads and trinkets for the island of Manhattan. Its (Manhattan’s) property value in 1998 was assessed at $23.4 billion”. The Guide to Understanding Money & Investing (GUMI)
The GUMI explains that it takes time to find someone who has exactly what you want, and who is willing to take what you have to offer, and who agrees with the value you put on your goods. “So, as trade flourished, money came into use. Once buyers and sellers agreed what was acceptable as a means of payment, they could establish a system that assigned different values to coins or other durable or transportable items…The term currency, another word for money, means anything that’s actually used as a means of exchange…Using money also meant that buying and selling didn’t have to happen at the same time. Sellers could wait until they were ready to make a purchase to spend the money they had received. What’s more, they could accumulate money from a number of sales to give them more buying power,” states the GUMI.
The GUMI says that “as early as 2500 BC, metals such as gold, silver, and copper were being used as money to purchase goods in Egypt and Asia Minor. The kingdom of Lydia was minting coins made of electrum in 700 BC.
“Although the idea of paper money can be found in bills and receipts recorded by the Babylonians as early as 2500 BC, the earliest bills can be traced to China. In 1282, Kubla Khan issued paper notes made of mulberry bark bearing his seal and his treasurer’s signature. The Kuan is the oldest surviving paper money. The currency, about 8.5 by 11 inches, was issued in China by the Ming dynasty between 1368 and 1399.
The first European banknotes were printed in Sweden in 1661. The first paper money in the British Empire was in the form of promissory notes given to Massachusetts soldiers in 1690, when their siege of Quebec failed and there was no booty to pay them with…(US) dollars were once backed by gold and silver reserves…Today they are Federal Reserve notes, backed only by the integrity of the US…”
Finally, from the GUMI: “Paper money has had its ups and downs because its value changes so quickly with changing economic conditions. When there’s lots of money in circulation, prices go up and paper money buys less…For example, during the American Revolution paper money dropped in value from $1 to just 2.5 cents. In Germany in 1923, you needed 726,000,000 marks to buy what you’d been able to get for 1 mark in 1918. [The Mark was the name of German currency, up to 2002. Germans now use the Euro.]”