Presumably bartering came first. Who first thought of using money (coins and/or notes) of specific denominations, and on what basis was its worth decided upon?
To use a relatively recent example, when was the US dollar created, and what was used before its invention? When America was originally colonized, did the immigrants use the money from their countries of origin? How was the original dollar valued?
After coinage became commonplace, how were exchange rates worked out? For example, when rich young Englishmen did the continental tour in the eighteenth century, did they take English pounds (£) with them? Did the Italians, for example, convert them, and, if so, on what basis?
When countries colonized other countries, did their currency supplant the indigenous one?
Basically, how does money originally find its value, and how was money first traded?
Up until the 19th Century or so, coins were just a way of measuring precious metals. A silver coin, for instance, would be worth precisely as much as the silver it contained. If a silver coin from Country A weighed 10% more than a silver coin from Country B, it would be worth 10% more.
In places like Colonial Amerca, they traded with whatever coins were available.
Coins go back to the Lydian stater, and it was originally a marked designation of a certain weight of precious metal. The use of precious metal as a medium of exchange goes back much earlieer – there are references to the use of silver in Hammurabi’s Code, for instance. It’s not hard to see why – precious metal looks pretty and doesn’t corrode (or doesn’t corrode fast). It’s smaller and easily carried.
Once the king/government started “minting” it – producing guaranteed weights of the medium, with the king’s mark on it – people trusted it more than random lumps that might be any weight or composition. And it helped organize the state more tightly. The development to different weights/denominations and then to exchanges was pretty straightforward after that.
As for the US – we used to use other country’s currency a lot at first, most notably the Spanish Dollar. Not surprising that we ended up using the same name for our own money. The real stroke of genius was adopting a decimal currency, with 100 cents to the dollar.
There’s a lot of fascinating history to currency, including where that name dollar comes from, but it’s too broad for a single post, and I haven’t the time. There are oodles of sites on this on the internet.
For the vast majority of history, and even today to a large extent, none of this stuff is “set” by anyone: even once there was currency, nothing was standardized, and it’s my understanding that if you were in Boston in 1750, you might well stand inside a store with a handful of various coins from different places and times and haggle with the clerk over what he would take for what, as the actual silver content and size would vary. In 1870, you’d have stood there haggling over which bank notes are equivalent and which ones would need to be discounted.
A standardized, uniform, trustworthy currency system is a tremendous boon to commerce, but a complicated thing to arrange and maintain. That’s why the Spanish dollar was so valuable: if you accepted a dollar in payment, you really knew what it was worth. It’s why every Roman emperor who had any sense at all prioritized reforming the currency.
If I had a hundred lives to live, one of them would be a economic historian. It’s fascinating stuff.
According to another source (I don´t have it), it is a stylized “SP” from the mines of San Luis de Potosi, on Bolivia, from where came the silver to coin the pieces of eight.
And dollar comes from taller, a german coin from the mines of Joachminstall. From there came Joachminstaller Silber, finally abbreviated to taller.
With the advent of mass-produced, standardized goods during the Industrial Revolution. Before that, most stuff was custom–you’d ask a blacksmith to make a particular tool, or a tailor to make clothing out of particular material. Haggling was inevitable.
In the United States, until the 1790’s (and in some places in the Northeast, well into the 1800’s–see this article), in pounds, shillings, and pence. After that, in dollars.
Keep in mind, how you measured the price and how you paid were two different things. You’d agree on a price in shillings, and then dicker about how many shillings your French gold goins were worth.
Yes, Spanish dollars were very common and almost always equal in value to eight shillings. That’s why, after the Revolution, when British things went out of fashion, the dollar was a natural substitute unit of account.
That’s a fascinating article. Having such a huge range of coins from so many different countries must have been a nightmare. While merchants may have had that chart, I suspect that the ordinary Joe would not have had a very good idea of which coins were what, and what they were worth. (A ‘promiscuous’ Russian Zervonitz, anyone?)
I just want to point out that fixed prices are really a cultural thing and not a money thing. Industrialization helped make fixed prices feasible, but industrialization hasn’t wiped out haggling.
If you go to Mexico, they’ll haggle over the price of Coca-Cola, which is standardized, mass-produced and paid for in standardized currency.
Immigrants here in Seattle still expect to haggle over virtually everything. I hate to stereotype too much, but when I rented apartments, I would just sigh when Korean families came in because I knew we’d have to debate the price of the apartment, the price of the security deposit, whether we’d repaint or recarpet first, whether the lease term could be knocked down to 10 or 11 months instead of 12… someone raised in America wouldn’t even think to ask.
Average people didn’t make nearly as many purchases then, though. But really, the whole idea behind the free market is that people are actually pretty good at figuring out the value of what they have. We are much more efficient about it now, of course, but we have better information.
They wouldn’t need to know the value, they could just measure the weight. That’s when the coins were precious metals - the face value was just the value of the weight of that metal in the currency of choice. Don’t know that currency? Weigh the metal and define in your own currency.
Paper money was trickier - you did have to know the conversion.
Oh man, the Asian immigrant parents we dealt with at the old tutoring company…
One Indian parent refused to deal with me, as he apparently was convinced the owner was a softer touch, and he never sent a check to cover the cost of his daughter’s SAT class. He just refused to put up with the idea that he’d signed a contract for a service and agreed to a price. I had to kick his daughter out of the class (nicely). She’d been there for other tutoring repeatedly, but we never saw her again. What a jackass that guy was.
Sort of. St. Joachim’s Valley (thal) was in the German-speaking area of Bohemia (Czech Rep.) – Joachimsthal. The coins were Joachimsthalers, shortened to thalers, whence dollars. (The -th- was sounded /t/, and in modern writing the -h- is omitted – much as the skeletons found in Neumanns Valley were called Neanderthals, now -tals.)
Well, except everyone adulterated the currency to one degree or another. As far as paper money goes, it’s not a matter of knowing the conversion, it’s a matter of determining the conversion anew every time as perceptions of relative value changed.