Whenever people pay for goods or services, they use some form of money. Money can be almost anything, as long as everyone agrees on its value.
One of the earliest forms of money was metal, such as gold or silver. In North America, Native Americans used beads made of shell, called wampum, as a form of money.
Before people used money, they bartered, or traded things they had for the things they wanted. For example, a person may have traded five goats for one cow.
Bartering was not always simple, though. Each person had to agree that the items being traded had an equal value. Also, each person had to have something that the other person wanted.
People invented money to avoid bartering. Someone with five goats could exchange them for a certain amount of money instead of a cow. The person could then exchange that money for grain, cloth, or other goods of the same value.
Today the metal coins and pieces of paper that people use for money have little real value. In other words, people do not use the paper for writing or the metal for making tools.
The value of paper money and coins comes from an agreement between all people. They agree that they will accept certain forms of money in exchange for their goods and services. This agreement between people is the reason money works.
People have used money for more than 4,000 years. In the 600s BC the kingdom of Lydia in what is now Turkey began to make coins. It was probably the first government to do so. These coins were a combination of silver and gold, called electrum. Many ancient peoples, including the Greeks and the Romans, also used coins.
The first types of paper money were used in China more than 1,000 years ago. Early paper money was simply a written promise to pay a certain amount of gold or silver money.
The paper money was valuable because it could be traded for gold or silver. Later, governments began printing paper money. In the 1900s most governments made paper money valuable on its own. It no longer stood for gold or silver.
Watch the clip from the film money makes the world go round.doc “Cabaret” Moneymoney.flv