What is Money?

Money is a crucial invention of mankind. Without it the development of an economy that goes beyond the fulfilment of the immediate individual needs would not have been possible. The classical "definition" of money is given in terms of the functions it provides to the society and economy, such as:
- Unit of Account (measure of value and credit)
- Means of Payment
- Store of Value.

From Barter to Credit

Whenever two persons or two groups of people realize that one of them has something which the other might like to also have, some sort of trade will be initiated, assuming a peaceful settlement of the situation. If the two parties only meet for the moment but will go different ways afterwards, barter will do the job, in which a number of goods will be exchanged on the spot. This is only possible if an agreement is found how to determine the "value" of supposedly very different objects so that in the end everyone is satisfied with the transaction. An ad hoc attribution of value to objects will give way to a common agreement as soon as the transactions do not occur in isolation. Whenever similar goods are exchanged repeatedly between different parties a system of relations will emerge that specifies how many pieces of object "A" are commonly exchanged against how many pieces of object "B". In sedentary societies where specialization leads to a division of labour, a value needs to be given to a service, a piece of work. Obviously such is only conceivable if the value of goods and services is determined in relation to a common reference, and not by endless lists of pair-to-pair relation. The so-called Unit of Account used to measure and describe values is the the primary function of money, probably also the first that has emerged in history. It is closely related to the occurrence of deferred settlement. If people repeatedly meet over time there is no need settle a deal immediately. It is more plausible that the different members of a society will build "credit accounts" among each other that are balanced over time by the various goods and services they exchange. In fact, no example of a society is known that was based exclusively on direct and immediate barter (see e.g. in the book "Debt" by D. Graeber).

From Barter to Payment

The need for a commonly accepted unit of account is obvious but less so what it actually could be. One option is a standardized amount of one of the goods that is known to all members and frequently traded among them (means that it is "liquid", in modern terms), like a measure of grains or beans. Alternatively, the unit of account could be an object that serves only this purpose and does not have a lot of other practical uses, for instance natural objects like shells, gemstones, or lumps of metal. If now for some reason the two parties engaged in a transaction cannot agree on a direct exchange of goods but still need to settle the deal right away, so that no credit account serves the purpose, they might agree to exchange goods against the objects that constitute the unit of account, like a lump of metal of a certain size. The the material object that constitutes the unit of account becomes a Means of Payment, provided the object is readily available and fairly easy to handle (i.e. "liquid" again). It is historically unclear why and how the need for payments has emerged. Maybe, certain goods and services were considered inappropriate for credit (see again the book "Debt" by D. Graeber) or transactions at larger distance and between persons without direct relationship, therefore with little base for credit worthiness, were the trigger. In any case, the vast majority of transactions are done against credit or settled in payment.

From Payment to Wealth

Wealth is accumulated by hoarding goods, land or any possession which is considered valuable in the given economic and social framework (and measured in the agreed unit of account). One could also hoard the objects that constitute the unit of account, the means of payment may also serve as Store of Value. This works, of course, best if the objects do not degrade over time and are not consumed or used for other purposes. Value is preserved best if the hoarded objects do not have any use beside offering the possibility to be exchanged against goods and services at a later time.

Coins, Banknotes and Beyond

The use of metals for the determination of units of account dates back to antiquity. The metals considered "precious", such as silver and gold, were frequently as base of the accounting system, as they are durable and have no deeper function than being pretty and desired. In the first millennium BC coins emerged in the Mediterranean, lumps of metal that were "legalized" in the sense that a ruler determined the value and declared their validity in trade so that the individuals did not have to use scales themselves. Through ancient Greece and Rome coins spread throughout Europe, to such an extent that money was synonymous to coin for long time. The societies of other regions like ancient Egypt and China or classical Mesoamerica went different ways and took over gold and silver coinage only through contact with European imperialism. The use of "specie" coins, whose value is exactly determined by the amount of precious metal contained, is met with two challenges. Everyday transactions may occur at small fractions of the unit of account so that specie coins would have to be produced in tiny sizes. As this would be unpractical both for the manufacturer and the user, the need for "subsidiary" coins emerged. Their value is not determined by the precious metal content, they may not contain any such, but has to be declared by law or mutual consensus. Subsidiary coins carry a denomination (value indication). Sometimes, only subsidiary coins are in use while higher-valued transactions are done in bullion or as credit, like medieval Europe or China throughout its entire history. The second challenge are transactions that would require large amounts of specie coins or to transport loads of coins over distances. It is then more appropriate to exchange "certificates of ownership" rather than the actual coins themselves. This ultimately led to the emergence of commercial banks, which hoard the specie for their customers, and "banknotes" as certificates not of individual ownership but the sum of all deposited money. The practical aspects did catch on so much that money has meanwhile become synonymous to banknote while coins have become purely auxiliary.

With the emergence of bank-to-bank transfers and electronic payments between individuals money has become neither banknote nor coin, it is rather synonymous to transaction or unit of account. Two of the three classical functions of money have largely disappeared, payments are money-less and the storage of value is done otherwise, so that they are no longer used in the definition of money according to modern monetary theory. The value of a unit of account, however, still needs to be determined. For centuries, it was uniformly defined as an amount of silver or gold that could be traded by individuals, only the exact amounts varying from country to country. Next, the value was determined by law so that the state promised to guarantee it, frequently with uncertain outcome. Since the mid 1970s, the different currencies (the countries' units of account) are traded so that the economic and political strengths determine the relative values, together with speculation and other factors that render system subject to recurring instability.

Language of Money

As money always had a high significance for the everyday live of people, it was and is a topic to be spoken about.

Etymology of Currency and Coin Names

The units of account in which value is expressed had to be given a name, and such names can still be traced in the etymology of modern currency names. The origins of currency and coin names are manifold, many are derived from weight units like Pound or Mark (accounting was done by weighing precious metals) or from the metal that was the base of accounting (Gulden, Rupee), sometimes from the place where the metal came from (Thaler, Dollar). Modern currencies names were sometimes formed after a historically significant person (like Somoni) or created as neologisms supposed to carry a meaning (like Euro or Naira). To understand the language of money means to understand how the different names for money have emerged.

Numbers and Counting in the World's Languages

To determine the value of an object one needs to count or measure how many units of account it corresponds to. The actual payment act, by which goods or services are exchanged against coins or other means of payment, consists in counting. To understand the language of money means to understand how numbers and counting in the different human cultures.

Representation of Authority

For most of time, money has been "legal tender", which means that its valued is certified and to some extent guaranteed by a central authority. Originally this was the local ruler, or his representative, in whose realm the money had been issued. Later on, this function has been gradually taken by private or state controlled central banks. To understand the language of money means to understand how authority is expressed on the means of payment issued and certified by a state, its rulers, or financial institutes.