The use of money is estimated to date back to the 9th century B.C. The first form of money was actually livestock and crops. Other objects such as base metal, nails, shells and swords were also used as money. Around 3100 B.C., writing began in Mesopotamia. One of its chief uses was to keep accounts. In fact, there is some speculation that this was the reason for its invention. Mesopotamia is also credited with the development of banking. Safe places were provided for the storage of valuables such as cattle, farming equipment, grain and precious metals.

Around 2200 B.C., the first ingots appeared. An ingot simply means metal that that is cast into a specific shape by use of a mold. These precious metals were weighed to determine their value. In 700 B.C., the world saw the use of coins. Coins were commonly made of gold, silver and copper. In A.D. 800, China began to use paper money. In the 13th century, Europe became aware of paper money from Marco Polo's travels to China. In 1294, Persia issued paper money in a main city. It failed in Persia within two months. In the mid-14th century, parts of India and Japan issued paper money. The use of paper money in both of these countries failed. In 1455, after over 600 years of use, China stopped using paper money. The reason was most likely the rampant inflation in China.

CS Question #1: Why do you think the use of paper money failed in each of these early attempts?

Inflation occurred within these regions dating back to about A.D. 300 because rulers minted more money as it decreased in value. The first severe inflation occurred in 11th-century China. The Chinese used vast amounts of money to buy off potential invaders and then issued more money to fuel their economy, resulting in severe inflation. Another notable high-inflation period occurred in 12th-century England. Two main factors caused the English inflation: One, barons began issuing money independently. Two, there was a decline in the quality of English silver. A vast inflation swept Europe from the mid-16th century through the mid-17th century. It was caused by the influx of gold and silver from the colonies in America. Another influence was increased population without a supporting increase in output.

From the late 12th century, the English began to use wooden tallies as forms of credit. Originally, tallies were receipts. Tallies were sticks with notches representing the amount of money exchanged between the buyer and seller or the creditor and debtor. Tallies remained in use until 1783.

The 15th century saw the design and modification of the printing press. Notably, Leonardo da Vinci influenced the alteration of the press for use in minting coins. The press used a water-powered mill system that allowed for mass uniform production. Money produced this way was referred to as milled money. The milled edges made coins harder to counterfeit. In 1645, the Paris mint was the first to become fully mechanized.

Other forms of money were commonly used in North America. From the early 17th century through the early 19th century, tobacco notes were used as currency in Virginia. Tobacco notes often took the place of the actual tobacco leaves. Tobacco notes represented the amount of tobacco deposited in a public warehouse. American Indians used wampum, strings of beads made from shells, as money. From 1637 to 1661, wampum was declared to be legal tender by the state of Massachusetts. Legal tender means that it was legally accepted as money. It remained in use in other parts of America until the 19th century. A New Jersey factory began mass-producing wampum in 1760 as both decoration and money. This led to inflation in the early 18th century, as the shortage of British coinage in North America led to the increased use of alternative forms of money. Wampum, tobacco, Spanish coins, Portuguese coins and other resources were used.

CS Question #3: Why was there an increase in alternative forms of money in North America in the early 18th century?

In 1661, the bank of Sweden became the first chartered European bank to issue notes. This began the use of paper money in Europe. It marked the beginning of prolonged paper-money use throughout Europe and eventually the world. Batches of public notes were issued in Massachusetts in 1681. More colonies followed suit. In 1690, Massachusetts issued official paper money. In 1752, Britain banned the New England colonies from issuing bills of credit and declared that all outstanding bills be redeemed. In 1764, Britain further banned all of the American colonies from issuing paper money as legal tender.

During the American Revolution, from 1775 to1783, America financed the war effort by printing money known as continentals. This led to drastic inflation, leaving the continentals worthless. Congress passed the Mint Act in 1786, minting copper coins. The U.S. Constitution of 1789 gave the responsibility of money creation to Congress. States were no longer allowed to issue money or bills of credit. In 1792, the United States Coinage Act proclaimed the dollar as the official unit of money in the United States. The unit is subdivided into 100 cents. The United States coins were to phase out all other foreign coins being used as legal tender in circulation. This was followed by the 1794 opening of the U.S. Mint in Philadelphia. The U.S. Treasury was established in 1840. In 1862, Congress declared paper money legal tender.

CS Question #4: What caused the continentals to become worthless?

Further Thought:

1. With regards to the printing of money, what is the best way to avoid inflation?
2. Can you think of some benefits of paper money over other options?
3. In your opinion will paper money ever become obsolete? Why or why not?