About 9,500 years ago in the Mesopotamian region of Sumer, ancient accountants kept track of farmers’ crops and livestock by stacking small pieces of baked clay, almost like the tokens used in board games today. One piece might signify a bushel of grain, while another with a different shape might represent a farm animal or a jar of olive oil. (See the face of a 9,500-year-old man).
Those humble little ceramic shapes might not seem have much in common with today’s $100 bill, whose high-tech anti-counterfeiting features include a special security thread designed to turn pink when illuminated by ultraviolet light, let alone with credit-card swipes and online transactions that for many Americans are rapidly taking the place of cash.
But the roots of those modern modes of payment may lie in the Sumerians’ tokens. Such early accounting tools ultimately evolved into a system of finance and money itself —a symbolic representation of value, which can be transferred from one person to another as a payment for goods or services.
Civilization existed before money, but probably wouldn’t have gotten very far without it. Ancient humans’ invention of money was a revolutionary milestone. It helped to drive the development of civilization, by making it easier not just to buy and sell goods, but to pay workers in an increasing number of specialized trades—craftsmen, artists, merchants, and soldiers, to name a few. It also helped connect the world, by enabling traders to roam across continents and oceans to buy and sell goods, and investors to amass wealth. (Read a primer on human evolution.)
Over the centuries, money continued to evolve in form and function. The ancient world’s stones and shells gave way to coins, and eventually to paper currency and checks drawn upon bank accounts. Those physical tokens, in turn, gradually are being superseded by electronic ones, ranging from credit card transactions to new forms of digital currency designed for transferring and amassing wealth on the Internet.
Even as money has enabled humans to survive and thrive, it’s also harmed them. The greed for riches has enticed nations to launch bloody wars of conquest, and driven some humans to exploit or cheat others. And as a sort of language that we all speak, money and our continual need for it exert a powerful behavioral influence upon all of us, from the humblest shop clerk to Wall Street financiers.
Since ancient times, humans have utilized all sorts of items to represent value, from large stones to cakes of salt, squirrel pelts and whale teeth. In the ancient world, people often relied upon symbols that also had some tangible value in their own right. The ancient Chinese were among those who used cowrie shells, which were prized for their beauty as materials for jewelry, to make payments.
Even today, many characters in Chinese writing that relate to money include the ancient symbol for the cowrie shell. They were used as money in other parts of the world as well. As Glyn Davies noted in his book A History of Money from Ancient Times to the Present Day, cowries “are durable, easily cleaned and counted, and defy imitation or counterfeiting.”
But gold gradually became a universal currency. The gleaming precious metal was stable, yet also could be combined at high temperatures with other metals to create alloys, and was easy to melt and hammer into shapes. It became the raw material for the first coins, which were created in Lydia, a kingdom in what is now Turkey, around 2,700 years ago. Lydian coins didn’t look much like today’s coinage. They were irregular in shape and size and didn’t have denominations inscribed on them, but instead used a stamped image to indicate their weight and value.
The result, explains banker-turned-author Kabir Sehgal, was an economic system in which “you knew the value of what you had, and what you could buy with it.” Unlike modern money, ancient coins were what economists call full-bodied or commodity money, whose value was fixed by the metal in them. If the gold or silver in them became worth more, people tended to melt them down.
Money’s convenience also made it easier for ancient merchants to develop large-scale trade networks, in which they bought and sold spices, grain and even slaves over distances of thousands of miles. In the ancient Greek city-state of Corinth, banks were set up at which foreign traders could exchange their own coins for Corinthian ones. And the Greek historian Herodotus, writing in the 5th Century B.C., describes Carthaginian traders unloading their wares on beaches, and after setting smoky fires to signal shoppers, accepting the locals’ gold as payment.
In the centuries that followed, trade routes forged more cultural connections between nations and regions. Besides exchanging money and goods, traders also spread religious beliefs, knowledge and new inventions, creating cross-pollination among far-flung cultures.
The hazards of moving money and goods over distances—whether it was from storms at sea or bandits and pirates—led humans to develop increasingly complex economic organizations. In the 1600s, for example, investors who gathered in London coffeehouses began buying underwriting traders and colonists venturing across the ocean to the New World, financing their voyages in exchange for a share of the crops or goods they brought back.
Investors would try to reduce their risk by buying shares of multiple ventures. It was the start of a modern global economy in which vast quantities of products and money flow across borders in the search for profits.
By the 1700s, the economy had grown so much that it was inconvenient to transport, store and dispense large quantities of bulky coins, so societies shifted toward paper currency. The earliest paper bills literally were receipts that gave the bearer ownership of gold or silver coins that could be collected upon demand.
But as Lloyd Thomas explained in his book Money, Banking and Financial Markets, the bankers eventually realized that since relatively few people actually redeemed their notes on a given day or week, they didn’t actually need to have enough gold on hand to cover all the notes they issued.
That revelation, Thomas says, eventually led to the concept of fiat money, which governments issue currently, and that has value essentially because they government says that it does—and because they control the supply of money so that its purchasing power remains relatively stable. That’s why a U.S. $100 bill is worth $100, even though it only contains a few cents worth of raw materials.
It’s a system with a key advantage, in that human judgment—rather than how much gold has been dug out of the ground—determines the amount of money in circulation. By the same token, that also can become a disadvantage, if a government decides to issue too much money, and triggers an inflationary spiral that raises the price of goods and services.
In the 20th century, new methods of payment began to emerge as alternatives to cash. The creation of the Federal Reserve System in 1913 also set up a nationwide clearinghouse, which helped banks to process deposits of checks drawn against accounts at other institutions. And starting in the 1920s, oil companies and hotel chains began to issue credit cards, which enabled customers to make purchases and pay what they owed later.
In 1950, Diners’ Club, Inc., issued the first universal credit card, which could be used to purchase things at a variety of different places. Using plastic to make purchases eventually proved more convenient than bills, coins or even checks.
In 2009, yet another high-tech successor to money emerged. Bitcoins are a sort of unofficial virtual Internet currency that isn’t issued or even controlled by governments, and which exists only in the cloud or on person’s computer. (As CNN Money reports, bitcoins can be exchanged anonymously, which makes them attractive to people engaging in illicit activities.) Parag Khanna, a policy expert and CNN contributor, explains: “The real future is technology as money. That’s what Bitcoin is about.”