Evolution of Money

EVOLUTION OF MONEY :-

            Increasing difficulties and inconveniences of the barter system led to the invention of money. As transactions and trade widened, a need arose to develop common medium of exchange and a common measure of value, namely 'money'. The evolution of money has undergoes a diversified change. The stages in the development of money are as follows :-

(a)       Animal Money :- In primitive agricultural communities, domestic animals were used as money. Cattle were considered the common inducement of exchange.

(b)       Commodity Money :- In many countries, primitive money took the form of commodity money. A number of commodities like, bows, arrows, animal skins, shells, precious stones, rice, tea, etc., were used as money. The selection of a commodity to serve as money depended upon different factors, like, the location of the community; climate of the region; cultural and economic development of the society etc. For example, communities living by the sea shore chose shells, or fish-hooks as money. In the cold regions like, Alaska and Siberia, people adopted animal skins and furs as money. In the tropical regions of Africa, elephant tusks and tiger jaws were used as money.

(c) Metallic Money :- With the growth of society, the composition of money also changed from commodity money to metallic money. Standard money is the form of gold and silver coins were evolved with the growth of civilization. Metallic money overcome most of the difficulties commodity money. As the demand for money grows the supply of gold and silver in relation to demand becomes less.

(d) Paper Money :- Paper currency is the modern evolution of money, the need of it arose due to the scarcity of metals, expansion and diversification of trade. Paper money these days is in convertible in all countries of the world.

(e) Credit Money :- Along with the paper money, credit money or bank money also emerged due to development of banking institution and their credit activities. It is also known as bank money. This consists of deposits of the people held with the depositors. Cheque, drafts, bills of exchange etc. are example of credit money.

(f) Near Money :- Near money refers to all such financial instruments (Like Kisan Vikas Patra, National Saving Deposits etc.

Meaning Of Money :-

            Although there is widespread agreement among economists about the importance of money, they have near agreed on the specific meaning of money, how to define and how to measure money. The term money is derived from the Latin word 'Moneta'. Different economist and what is not money. In the narrow sense it includes only those commodities that may serve the purpose of money like gold. In the widest sense it includes all the medium exchanged-gold, silver, copper, paper currency, hills of exchange etc. Money was not a sudden discovery of invention like most other social institution. During this process of historical evolution, a variety of things had been used as money. Commodities like hides and skin of animals, cattle, goats and agricultural product such as wheat, rice had been used as money in different stages of economic evolution.

            In more recent times, metallic coins and paper notes have been used as money. As regards the actual contents of money, there were are wide difference among economists. According to the traditional economists, money includes not only paper notes  and metallic coins, but also demand deposits of the commercial banks.

DEFINITION OF MONEY :-

            The legal definition of money be put like this "Money is what the law says it"

            According to Prof. Walker "Money is what money does".

            According to Dr. Robertson "Anything which is widely accepted in payment for goods or discharge of other kind of business obligation".