The Origins of Money
Money is much more than an idea cleverly conceived by ancient philosophers, politicians, or economists. To understand what money truly is, why physical gold has taken the form of money for millennia, and why Bitcoin is poised to radically transform our concepts of money in the 21st century, we must analyze its origins in ancient economies.
Dating back to some of the earliest civilizations, trade has been used as a way for people to satisfy basic human needs. An example of this was ancient Mesopotamia, a region limited in its abundance of natural resources, in which people relied on trade for survival.
Over time, the proliferation of trade in the region led to the development and expansion of early economies, challenging the efficiency of legacy trade channels (e.g., barter markets) and forcing the evolution towards more sophisticated, monetary systems.
To understand the factors that drove this transition, let’s look at a conceptual example of a trading system, with and without a common currency.