Money in History Based on Precious Metals

Abstract

From a barter economy to a system of commodity money and finally to paper money economy—this study examines the costs and advantages that are related to different forms of money in history. Barter economy did not need commodity money, but led to increased search costs for all participants, especially when the exchange of different goods got more complex. In contrast, commodity money enabled cheaper economic transactions, but of course caused additional costs in mining, refining and minting due to the need of coins. And finally, the introduction of paper money and the abolishment of banknote convertibility into gold created a development towards intrinsically worthless money. The costs implied by the use of commodity money were now saved, but at the price of strong fluctuations among exchange rates and higher inflation. This development of money will be demonstrated with examples from Antiquity to the modern period, providing theoretical background to different economic systems.