Money, their origin functions. Modern money Part1


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Money, their origin functions. Modern money Part1

  1. 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. 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. 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 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. 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. 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. 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. 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. 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. 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. 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. 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 :,articleId-
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