Money
Stdents name
Institution
1
, Money
For the early forms of money, the intrinsic value of the commodities provided the basis for
general acceptability: For instance, corn, salt, tobacco, or cloth were widely used because they had
obvious value themselves. These could be regarded as commodity money.Commodity money had uses
other than as a medium of exchange (e.g. salt could be used to preserve meat, as well as in exchange).
But money commodities were not particularly convenient to use as money. Some were difficult to
transport, some deteriorated overtime, some could not be easily divided and some were valued
differently by different cultures.As the trade developed between different cultures, many chose
precious metal’s mainly gold or silver as their commodity money. These had the advantage of being
easily recognizable, portable, indestructible and scarce (which meant it preserved its value over time).
The value of the metal was in terms of weight. Thus each time a transaction was made, the metal
was weighed and payment made. Due to the inconvenience of weighing each time a transaction was
made, this led to the development of coin money. The state took over the minting of coins by stamping
each as being a particular weight and purity (e.g. one pound of silver). They were later given a rough
edge so that people could guard against being cheated by an unscrupulous trade filling the edge down.
It became readily apparent, however, that what was important was public confidence in the
“currency” of money, it’s ability to run from hand to hand and circulate freely, rather than its intrinsic
value. As a result there was deliberately reduced below the face value of the coinage.
Any person receiving such a coin could afford not to mind, so long as he was confident that
anyone to whom he passed on the coin would also “not mind”. Debasement represents an early form of
2
Stdents name
Institution
1
, Money
For the early forms of money, the intrinsic value of the commodities provided the basis for
general acceptability: For instance, corn, salt, tobacco, or cloth were widely used because they had
obvious value themselves. These could be regarded as commodity money.Commodity money had uses
other than as a medium of exchange (e.g. salt could be used to preserve meat, as well as in exchange).
But money commodities were not particularly convenient to use as money. Some were difficult to
transport, some deteriorated overtime, some could not be easily divided and some were valued
differently by different cultures.As the trade developed between different cultures, many chose
precious metal’s mainly gold or silver as their commodity money. These had the advantage of being
easily recognizable, portable, indestructible and scarce (which meant it preserved its value over time).
The value of the metal was in terms of weight. Thus each time a transaction was made, the metal
was weighed and payment made. Due to the inconvenience of weighing each time a transaction was
made, this led to the development of coin money. The state took over the minting of coins by stamping
each as being a particular weight and purity (e.g. one pound of silver). They were later given a rough
edge so that people could guard against being cheated by an unscrupulous trade filling the edge down.
It became readily apparent, however, that what was important was public confidence in the
“currency” of money, it’s ability to run from hand to hand and circulate freely, rather than its intrinsic
value. As a result there was deliberately reduced below the face value of the coinage.
Any person receiving such a coin could afford not to mind, so long as he was confident that
anyone to whom he passed on the coin would also “not mind”. Debasement represents an early form of
2
