Why Was Money Created?

money-created Credit: Nick Ares/CC-BY-2.0

Money was originally created to serve as a substitute store of value to bypass problems with the barter system. If you had an apple tree but needed eggs, you needed to find someone with a chicken coop who wanted apples. Currency allows you to perform barter by proxy. You sell your apples for currency, and then you can buy anything you like from traders who accept that currency.

Currency also serves as a store of wealth. In the early days of civilization, a wealthy man might have massive herds or large parcels of land. The care of these would require considerable effort. Selling goods for currency allows a person to increase their wealth in an easily portable format. Instead of needing to take several cows to market to trade for other goods, a wealthy man might simply take a purse of coins instead.

The first recorded use of money occurred around 1000 BC, when the Chinese made small bronze replicas of knives and tools to use as representations of trade goods. Coins were developed independently in China, India and Greece between 700 and 500 BC. China created the first paper money, currency that was not dependent on its inherent value, in the 11th century.