Money, their origin functions. Modern money

1. VILNIUS GEDIMINAS TECHNICAL UNIVERSITY
BUSINESS MANAGEMENT FACULTY
Department of social economics and management
“Money, their origin functions. Modern money”
Macroeconomics
Paper work
First part
2012 m.
Vilnius
CONTENT

2. 1.Introduction…………………………………………………………………….………
2.Defination of Money.......................................................................................................
3.History of Money............................................................................................................
4.Different types of Money................................................................................................
5.Evoluation of Money.......................................................................................................
6.Functions of Money.........................................................................................................
7.Conclusion.......................................................................................................................
8.References.......................................................................................................................
Introduction :

3. At first , on my coursework i would like to make explanation about why history of money matters.
Money changed the world through division of labor and specialization. If we look in our lifes, we
can see that, we efford in our lifes to being happy and for being happy we need money.For example,
why i am doing this coursework?
Because , i want to get a posstive note on subject which will make me closer to get my diplom..to
get diplom brings new job opportunities and new lifestyle quality and of course all this things will
happend with money.
As we can see, in every posstion of our lifes , money has some important role.Money is foundation
of progress..and of course “money is the power” the power evolve mankid , but we have to set
money free to continue enjoying the benefits.
We can think like, why money was invented? , the reason why money was invented is to make life
easier.We are able to buy a wider variety of goods with money than before.In the barter economy
where one good is directly trader for another.Also and expand time, we can save money for future
use to wait for better opportunities.
Defination of Money :
Human beings have always needed to trade things with each other because resources are distributed
unevenly.In our planet resources are distuributed unevenly on the earth.For this case, between
humanity trading which calls “ barter “ started.
People started to hunting, breding , produce things which they need to survive.But because of
conditions of the planet, forced them to look for things which they cant produce theirself.After that ,
exchange trading started naturally.Why are certain objects valued and used as money?
What makes them suitable for this purpose? We can never answer these questions completely. In
some cases it may be a social reason connected with a particular society's idea of attractiveness and
value. For others there may a religious or philosophical reason behind the form chosen. In most
cases, the object valued is limited in its supply, and the value might be linked to the difficulty in
obtaining or making the object.
Some forms of money have been valued for their beauty. Examples include those made from
precious metals, shells and feathers. Feathers were used as money on some of the islands in the
Pacific Ocean, and certain colours were especially popular. The feathers were sometimes sewn into
rolls which could be used to make important payments. These were especially valued as they could
be used in personal adornment and the display of wealth.
Shells have been used as currency in many places around the world. Cowrie shells were first used in
China, where records of their use as gifts date from the thirteenth century BC. The use of cowries
spread to other areas and this included their movement along Arab trade routes into parts of Africa,
where they were often used for decoration.
Shells were also valued in other parts of the world including North America and some of the islands
of the Pacific Ocean.
There are also practical reasons for money taking particular forms. Cowrie shells are portable and
durable, just as metal coins are. Animal skins used in trade could be worn for warmth.Food has
always been valuable as we need it to survive.

4. Value is also linked to availability. Feathers and skins could only be obtained through hunting,
making their collection difficult. Precious metals were hard to find and difficult to extract. Cloth has
also been used in many places around the world as money, with the intricacies of production often
having an effect on the its value.On the Island of Yap, large stones were brought from an island
many miles away, which was very dangerous for the people manning the boats. They were greatly
valued, but would change ownership often without moving from where they stood.
Paper money was first used in China as the ‘cash’ coins in circulation were too heavy for large
transactions, especially when trade was conducted over long distances. The regional differences in
the use of money also caused problems for traders. The earliest surviving note is the great Ming
circulating treasure note, bearing an image of coins to indicate its value.
Metal currency has not always taken the shape of small round coins. Although today coins
essentially look the same across most of the world, they developed differently in the east and the
west. In China the earliest coins were made in the shape of valuable tools, including knives and
spades.
Different shapes were made in different areas.
By 210 BC, when China was united under the First Emperor, Qin Shi Huangdi, a regular coinage
was enforced. From this point, Chinese coins were all one shape, a circular coin with a square hole
in the centre. Chinese ideas spread and similarly shaped coins began to be used in Japan, Vietnam,
Korea and Uzbekistan. This shape continued to be used in China until the early twentieth
century.The shape of the Chinese ‘cash’ coin was practical as the coins were low value and could be
strung together for making payments. There is also a much more symbolic reason for the shape.
In ancient times, the Chinese believed that the earth was square and heaven was domed. The
emperor was thought of as an agent who could communicate between heaven and earth. By making
the coins this shape, the emperor was reinforcing his place in the system.
It was not just in China that money was made in shapes that seem usual to us today. Kissi pennies
were used in Liberia and Sierra Leone in Africa until the early twentieth century. They seem to be
an extraordinary shape, but they are, in many ways, very practical. The shape is made through
twisting, hammering, working into a blade and drawing the metal into points. If the iron can be
worked in these four ways, it is proved to be good quality.
As the civilization progressed and exchange increses people needed to make higher amount of trade
but with metal or silver money , it gets much harder..they try to find other easier way to do it..after
that they found out gold money which is easier to carry out.But the problem, it was dangerous to
carry out gold always with it.hey began to offer to store people's gold safely if one didn't want to
keep it in one's house. This was the beginning of modern banking.The goldsmiths issued paper
receipts when they accepted gold for storage. Soon people began trading the paper receipts instead
of bothering to trade their gold.This was much easier to carry in one’s pocket.As long as a person
knew the goldsmith, they would accept the paper receipts as being equal in value to the gold itself.
This was the beginning of paper money, which soon became the dominant trading medium.
USES OF MONEY :
From past until this time, we used money for various areas and for various things.It was not used
just for needs which survive also for warfare which currently problem of our timeline. If we can
look to our time zone, we can see that , governments are paying such amounth of money to buying
guns or such descruction stuff.We can give an current exmaple that about situtation of Greece that,
they are paying a lot money for their protect and buying guns and their economy took a dangerous
impact because of it. Also United states of america is giving so much attention to arms industry.For
a strong army, countries needed huge amount of money.Warfare rarely occurs without the
involvement of money. Troops have to be paid, weapons and provisions bought. The effects of war

5. also have their costs, both in repairs to physical damage, and in damage to the economy caused by
the instability of war. War also affects the way we use money. People may save their money rather
than spend it, prices may rise and unusual types of money have to be created to provide for
temporary emergencies. Paying for warfare is one of the ways in which money is used to retain
power, but there are less brutal ways of doing this. Gift giving has often been a way for
governments to retain good relations with neighbours and allies.
And other way to use money is politics.Money and politics have always been closely linked.In
every sections parties spends lots of money to be winner of the section. If we should give an
example for that, The United Kingdom's Labour Party spent over twelve million pounds during its
election campaign of 2010, proving that this continues up the present day.
In many political systems, power has been restricted to the wealthy. Equally, political authority has
allowed people to get rich personally, while working for the state. Those in power have often
fiercely guarded their control over the production of money and a large part of government is
concerned with money. Taxes or tribute are paid to a government, which then pays out money on
defence, health, and other services. Public support can often be won through public spending.
And other part of spending money, we can call display which is about material confort or social
status.In many societies people have been reluctant to show off personal wealth.
For example when we buy a new car ,its attractive for us until we see that our next door buys a
higher level of our car. After that , we start to think to buy a new car.We can say same thing about
clothes too, we always want to buy newer one even we dont need of them.We like to wear things
which has brand. People like to show that they are able to buy such things.In many societies people
have been reluctant to show off personal wealth, because of moral objections to moneymaking. For
this reason, instead of flaunting money, wealth is often displayed indirectly, for example by erecting
magnificent buildings.
Money continues to be used for private displays of wealth and status, reaffirming the individual’s
place in society.
Money and religious or philosophical beliefs are central to how some societies work and can affect
our behaviour. Money and belief do not necessarily conflict.
The giving of money plays an important part in a variety of rituals, and the power of many religions
has been built in part on their wealth. However, most religions have been concerned about the moral
implications of the use of money.
Protection has been sought throughout history by using money as an amulet or lucky charm. In
many cultures, money is linked to luck, perhaps as money is thought to make life easier.
Also, money has been, and still is, important for making a variety of social payments. These include
money forming part of many funerary and wedding ceremonies, and payments being made as
compensation for wrong-doing. Although some of these rituals may appear unfamiliar to us today,
many still exist. Examples include receiving money in return for milk teeth, or throwing coins into
‘wishing’ wells.

6. The origins of coinage :
Lydia and the earliest coins
According to the Greek historian Herodotus, writing in the fifth century BC, the Lydians were the
first people to have used gold and silver coinage.
He was almost correct. The earliest coins are found mainly in the parts of modern Turkey that
formed the ancient kingdom of Lydia, but are made from a naturally occurring mixture of gold and
silver called electrum.
These coins were first produced in the seventh century BC and had a design on one side only; the
other was marked with simple punches.
A Strict weight system
Although irregular in size and shape, these early electrum coins were minted according to a strict
weight-standard. The denominations ranged from one stater (weighing about 14.1 grams) down
through half-staters, thirds, sixths, twelfths, 1/24ths and 1/48ths to 1/96th stater (about 0.15gm).
It cannot have been easy to tell some of the smaller denominations apart. We must assume that for
many transactions the coins were weighed rather than counted.
The spread of electrum coinage
From Lydia electrum coinage soon spread to the Greek cities of coastal Asia Minor. From there it
reached the Greeks of the islands and the mainland.
It is often difficult to tell where a particular coin was produced, because none of these early coins
was inscribed with a place-name. Educated guesses are possible, however. One type of coin has the
design of a seal on its obverse. The Greek for seal is 'phoce' and the coins are usually attributed to
the Greek city of Phocaea.
Names on electrum coins
Some of the earliest Lydian electrum coins are inscribed with names in ancient Lydian script. Two
individuals are known: Walwel and Kalil. It is unclear whether these are names of kings or just rich
men who produced the earliest coins.
The earliest legend in Greek on an electrum coin reads 'I am the badge of Phanes'. We cannot be
certain who this Phanes was, but it seems that he was placing his badge on coins as a guarantee of
their quality.

7. The earliest coin hoard
The earliest known hoard of electrum coins (and thus the earliest known coin hoard) was found
during the British Museum excavations of the Temple of Artemis at Ephesus in 1904-5. The hoard
consisted of 19 coins which had been placed in a small pot and buried alongside another 74 coins in
the foundations of the temple, one of the seven wonders of the ancient world, in about 600 BC.
Functions of Money :
Specific functions (mostly micro-economic)
Unit of account (abstract)
Common measure of value (abstract)
Medium of exchange (concrete)
Means of payment (concrete)
Standard for deferred payments (abstract)
Store of value (concrete)
General functions (mostly macro-economic and abstract)
Liquid asset
Framework of the market allocative system (prices)
A causative factor in the economy
Controller of money
Unit of Account
The first function means that is money is being used as the common benchmark to designate the
prices of goods throughout the economy. Unit of account, or measure of value, means money is
functioning as the measuring unit for prices. In other words, prices of goods are stated in terms of
the monetary unit.
If Duncan Thurly is heading off to the market in search of hamster hats or tailored knickers, then he
will find each has a price in terms of the medium of exchange. If his society make use of U.S.
dollars, then hamster hats carry a U.S. dollar price. If he lives in a land that uses German marks,
then knicker prices are in terms of marks--German marks.
The reason is that sellers are willing to trade for, and buyers are willing to give up, THE medium of
exchange--money. That is why money is THE medium of exchange. It is used for exchanges.
Using money as the unit of account for prices, however, also provides a measure of value--how
much value buyers and sellers place on a good. If tailored knickers carry a $10 price, while hamster
hats go for $5 each, then this indicates a measure of the relative value of each commodity--knickers
have twice the value of hamster hats. Buyers are willing to give up twice as much money to buy a
pair of knickers as to acquire a hamster hat and sellers incur twice the opportunity cost of producing
a pair of knickers as that of hamster-hat production.

8. Medium of Exchange:
Function of money is to act as THE medium of exchange. People use money to buy and sell goods.
Buyers give up money and receive goods. Sellers give up goods and receive money. Money makes
transactions easier because everyone is willing to trade money for goods and goods for money.
The most important function of money is to serve as a medium of exchange or as a means of
payment. To be a successful medium of exchange, money must be commonly accepted by people in
exchange for goods and services. While functioning as a medium of exchange, money benefits the
society in a number of ways:
(a) It overcomes the inconvenience of baiter system (i.e., the need for double coincidence of wants)
by splitting the act of barter into two acts of exchange, i.e., sales and purchases through money.
(b) It promotes transactional efficiency in exchange by facilitating the multiple exchange of goods
and services with minimum effort and time,
(c) It promotes allocation efficiency by facilitating specialization in production and trade,
(d) It allows freedom of choice in the sense that a person can use his money to buy the things he
wants most, from the people who offer the best bargain and at a time he considers the most
advantageous.
Money eliminates the need for double coincidence of wants because EVERYONE is willing to
accept money in payment for goods. Duncan can trade his hamster hats for money (that is, sell),
trade this money for the knickers (that is, buy), then returned home for further hamster-hat
fabrication. With a generally accepted medium of exchange, trades are easier, more efficient, and
resources can spend more time doing production.
Measure of Value:
The third function, measure of value, emerges because money is one way of postponing the
satisfaction obtained from using or consuming goods until a later time. Value is obtained from a
good when it is consumed, when it is used to satisfy wants and needs. The value from consuming
goods can be stored in several different ways, one of the best is money.Money serves as a common
measure of value in terms of which the value of all goods and services is measured and expressed.
By acting as a common denominator or numeraire, money has provided a language of economic
communication. It has made transactions easy and simplified the problem of measuring and

9. comparing the prices of goods and services in the market. Prices are but values expressed in terms
of money.
Money also acts as a unit of account. As a unit of account, it helps in developing an efficient
accounting system because the values of a variety of goods and services which are physically
measured in different units (e.g, quintals, metres, litres, etc.) can be added up. This makes possible
the comparisons of various kinds, both over time and across regions. It provides a basis for keeping
accounts, estimating national income, cost of a project, sale proceeds, profit and loss of a firm, etc.
To be satisfactory measure of value, the monetary units must be invariable. In other words, it must
maintain a stable value. A fluctuating monetary unit creates a number of socio-economic problems.
Normally, the value of money, i.e., its purchasing power, does not remain constant; it rises during
periods of falling prices and falls during periods of rising prices.
The problem with storing value in money is price changes. If the price of the hot fudge sundae rises
during this week, then Duncan's money becomes a less effective means of storing value. As a
general rule, price is the nemesis for the store of value function of money.
Standard of Deferred Payments:
This fourth function means money is used as a standard benchmark for specifying future payments
for current purchases, that is, buying now and paying later. This function may seem obscure, but it
is a direct result of the store of value and unit of account functions.
A common example of deferred payments is a car loan. Duncan Thurly get a loan to buy a car today,
then pay off the loan with payments deferred into the future. The amount of those future payments
are stated in terms of money.
Using money as a standard of these deferred payments is a direct consequence of the unit of account
and store of value functions of money. If money is the standard for current prices, then money is
also the standard for future payments based on those prices. But, for money to function as a
DEFERRED payment standard, it must retain value, it must store value. The key to storing value in
money is price inflation.
This means that deferred payments need to anticipate future money values based on future inflation.
If inflation is, for example, 10 percent next year, then deferred payments need to be adjusted for the
resulting decline in money value. This inflation adjustment is accomplished by through interest
rates.
When money is generally accepted as a medium of exchange and a unit of value, it naturally
becomes the unit in terms of which deferred or future payments are stated.
Thus, money not only helps current transactions though functions as a medium of exchange, but
facilitates credit transaction (i.e., exchanging present goods on credit) through its function as a
standard of deferred payments. But, to become a satisfactory standard of deferred payments, money
must maintain a constant value through time ; if its value increases through time (i.e., during the

10. period of falling price level), it will benefit the creditors at the cost of debtors; if its value falls (i.e.,
during the period of rising price level), it will benefit the debtors at the cost of creditors.
Store of Value:
The third function, store of value, emerges because money is one way of postponing the satisfaction
obtained from using or consuming goods until a later time. Value is obtained from a good when it is
consumed, when it is used to satisfy wants and needs. The value from consuming goods can be
stored in several different ways, one of the best is money.
Money, being a unit of value and a generally acceptable means of payment, provides a liquid store
of value because it is so easy to spend and so easy to store. By acting as a store of value, money
provides security to the individuals to meet unpredictable emergencies and to pay debts that are
fixed in terms of money. It also provides assurance that attractive future buying opportunities can be
exploited.
Money as a liquid store of value facilitates its possessor to purchase any other asset at any time. It
was Keynes who first fully realised the liquid store value of money function and regarded money as
a link between the present and the future. This, however, does not mean that money is the most
satisfactory liquid store of value. To become a satisfactory store of value, money must have a stable
value.
Transfer of Value:
Money also functions as a means of transferring value. Through money, value can be easily and
quickly transferred from one place to another because money is acceptable everywhere and to all.
For example, it is much easier to transfer one lakh rupees through bank draft from person A in
Amritsar to person B in Bombay than remitting the same value in commodity terms, say wheat.
Distribution of National Income:
Money facilitates the division of national income between people. Total output of the country is
jointly produced by a number of people as workers, land owners, capitalists, and entrepreneurs, and,
in turn, will have to be distributed among them. Money helps in the distribution of national product
through the system of wage, rent, interest and profit.
Maximization of Satisfaction:
Money helps consumers and producers to maximize their benefits. A consumer maximizes his
satisfaction by equating the prices of each commodity (expressed in terms of money) with its
marginal utility. Similarly, a producer maximizes his profit by equating the marginal productivity of
a factor unit to its price.

11. Basis of Credit System:
Credit plays an important role in the modern economic system and money constitutes the basis of
credit. People deposit their money (saving) in the banks and on the basis of these deposits, the
banks create credit.
Liquidity to Wealth:
Money imparts liquidity to various forms of wealth. When a person holds wealth in the form of
money, he makes it liquid. In fact, all forms of wealth (e.g., land, machinery, stocks, stores, etc.) can
be converted into money.
Conclusion :
Its unrejectable truth that money has the bigest role in our lifes and humanity efford many ways to
get it.from the past until our timeline, it had some step by step evulations at first it was an exchange
of goods which people were producting and they needed higher amount of changes which cant be
anymore with goods and they started to find symbols which support as money at first like silver or
metal coins and then gold and later it gets like papers which much more usefull than stone.Also it
was first step of banking because it was dangerous to carry out gold always with together.After
civizilation gets progress, people needed money in such different areas like warfare or politics or
even for their satisfaction to impress their ego against other people.
References :
http://library.thinkquest.org/28718/history.html
http://www.pbs.org/wgbh/nova/ancient/history-money.html
http://www.moneyreformparty.org.uk/money/about_money/history_of_money.php
http://www.slideshare.net/reinis/characteristics-of-money-1203494
http://www.slideshare.net/helyipenzek/thomas-h-greco-jr-the-evolution-and-transformation-ofmoney
http://projects.exeter.ac.uk/RDavies/arian/money.html
http://www.cliffsnotes.com/study_guide/Functions-of-Money.topicArticleId-9789,articleId-

12. 9745.html