The man got along quite a long time without money. He used what we call the “barter system”. If a man wanted something he did not make or raise himself, he found another person who had what he wanted and offered him something in exchange.
The first kind of “money” used by primitive man usually consisted of things to wear or eat. The American Indians used carved shells called “wampum”. Other types of “money” have been tobacco, grains, skins, salt, and beads.
The First People to use the money!
Eventually, pieces of metal replaced the other kinds of money. The first people to use coined money were the Lydians, a people of Asia Minor. In the eighth century B.C., pieces of metal money were made they were uniform in weight and design and which could be easily recognized.
Gold and Silver had been used as money long before that, but not in the form of coins. They had circulated as bars from which pieces were cut and weighed, but there was no guarantee of purity or weight. It was the Lydians who first thought of stamping pieces of metal with some symbol as a guarantee. Other people imitated them and gradually the use of coins became widespread.
After the Middle Ages, it was found that a “promise” to pay money, if there was confidence in the person who made the promise, would serve as well as real money. So Goldsmith, merchants, and money lenders began to issue notes, which were written promises to pay cash on demand.
This credit currency, since it was in the form of paper, was safer and more convenient to handle than gold. Soon banks, and then governments began to issue such promises, and paper money came into existence.