The forms of money

When you record debts, you need a unit. And sometimes, an object to pass from hand to hand. History has tried many.

Shells first. Cowries, small shells from the Indian Ocean, circulated in Africa and Asia for centuries.

They had everything going for them: sturdy, easy to count, impossible to make at home.

Salt, cloth and grain served too. And cattle: in Latin, money is pecunia, which comes from the word for herd.

This is commodity money. The object is worth something in itself. But it rots, it dies, or it weighs too much.

Then comes metal. Silver, copper, gold: they do not rot, and a small amount is worth a lot.

At first, it is not counted. It is weighed. The merchant takes out his scales at every purchase.

The problem: every exchange means weighing, and checking the metal is not mixed. It is slow, and people cheat.

The solution came in Lydia, in today's Turkey, in the seventh century before our era: the coin.

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A piece of metal of fixed weight, struck with a seal. The seal says: this weight is guaranteed, no need to weigh it.

The coin is a state idea. It bears the king's mark, and the king agrees to be paid with it, in taxes.

But metal is scarce, and heavy. Carrying a fortune in coins is slow and dangerous.

China found the answer first: paper. Deposit receipts at first, then, in the eleventh century, notes issued by the state.

Europe only came to it in the seventeenth century. More than six centuries later.

European travellers could not believe it: in China, people paid with sheets of paper marked with a seal.

Paper has a huge advantage: it costs almost nothing to make. And that is also its greatest danger.

Chinese emperors ended up printing far too much. Paper lost its value, and trust with it.

Here is the twist: at each step, the object is worth a little less in itself, and rests a little more on trust.

A cowrie is rare. A coin contains metal. A banknote is only paper. Its value is the promise of whoever issues it.

And the question has never changed since: who issues this money, and can they be trusted not to abuse it?

Shell, metal, paper. The form changes. The promise stays at the centre.