Primitive money

The disadvantages of barter are so large that, as specialization of production progressed and the number of products to be exchanged increased, a generally accepted means of payment / medium of exchange was adopted by different continents / countries / kingdoms / fiefdoms / communities, etc. By no means did this occur at the same time; each continent / country / kingdom / fiefdom...had a different history in respect of the adoption a common medium of exchange.

Over the centuries, before metal money, many commodities were used as a means of payment, including cattle, cloth, grain, oil, wine, jade, leather, quartz, whales' teeth, wampum (strings of beads), and so on. Perhaps the best known and mostly used non-metal medium of exchange was the cowrie shell (see Box 3).

Box 3: cowrie shell (with GBP 1)

cowrie shell (with GBP 1)

The development of primitive money is one of the most significant developments in economic history. It was an essential condition for the shift from subsistence farming toward specialization and division of labour. It took place over an extended period of time as the many advantages offered by a common medium of exchange were realised. The advantages include:

• Firstly, money splits a single barter transaction into two separate transactions: a purchase and a sale. The matching of opposing wants problem is eliminated.

• Secondly, money creates choices in terms of the timing of transactions: they can be separated in time. This removes obstacles to trade such as geographical distances.

• Thirdly, speed of execution of transactions rises as a result of the portability of a medium of exchange. In barter trade many large products need to be transported to make an exchange. With money, transactions are undertaken immediately, and delivery of one set, and not two, of goods takes place.

• In the fourth place, if the commodity money was durable and in short supply, it acted as a store of value. A producer of cabbages could sell them for money and therefore store value, as opposed to storing a product that will perish before the sale thereof.

The question arises: did money creation take place in the times of non-metal commodity money? The answer is yes, and it rests on the supply of the commodity used as money. A related question: did the increased money stock lead to inflation? Assuming a large increase in the volume of commodity money, the answer is also in the affirmative.

A fine example is presented by Morgan26: when the Japanese invaded New Guinea in 1942 they took along a large volume of cowrie shells, and freely used them for payments. It caused a sharp fall in the value of the cowrie shell (= the cowrie shell could buy less and less as more and more were introduced = its purchasing power was reduced = inflation), prompting an aggrieved district officer to state that it "endangered [d] the economic and financial stability of the district."

Cowrie shells were also extensively used as money in Africa. Davies cites the example of Uganda: shortly before 1800 it took two cowries to purchase a woman (note: this does not mean a woman of easily-transferable affection). As a result of the amount of cowrie shells in circulation having increased dramatically, on the back of increased trade, by 1860 it took one-thousand cowrie shells to purchase a woman of the same quality.

More or less at the same time, or later in some continents / countries / kingdoms fiefdoms (etc.), as the emergence of non-metal commodity money, primitive (that is, non-coin) metal money also emerged. Prior to primitive man refining his skills as a metallurgist, all metals were regarded as precious - because it was difficult to mine and to make into useful objects. No distinction was made between precious metals and base metals.

Non-coin metal money took on many forms, such as arrow heads, axes, tripods, basins, rings, anklets, gold dust (kept in quills), spears, knives, hoes, spades and so on. It is interesting to speculate on whether excessive money creation could take place under such as monetary system. The answer is probably in the negative, and the reasoning is that metal objects took effort to mine and forge. These objects therefore represented production and it was not possible to replicate them easily. In other words there was a natural limit to their supply.

This brings us to the significant advent the precious metal coin, the age when "money was real money".

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