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Money is a "medium of exchange"
That's all. Yet the conception of a "medium of exchange" ranks below only language (with its corollaries - speech and the written word) as the greatest intellectual discovery in history. Without language, the exchange of anything but the most rudimentary ideas is impossible. Without money, the production and exchange of anything but the most rudimentary goods and services is impossible. It is not difficult, or time consuming, or inefficient, it is IMPOSSIBLE!Exchange
Animals don't exchange (or trade) amongst one another. They are self-sufficient, or they take from each other, or they exercise the prerogative of superior strength and/or cunning. There are some human beings who get along in a very similar fashion, but the overwhelming majority recognise the benefits of voluntary exchange. Strictly speaking, the use of the word "voluntary" in this context is redundant. The phrase "your money or your life" is not the precursor to an exchange, whether the person uttering it brandishes a gun or a government identity card.The first rule of any voluntary exchange is simplicity itself. If two people are willing to exchange, each must view the results of the exchange as being beneficial. If either of them is not of that view, the exchange will not take place.
Direct And Indirect Exchange
Direct exchange, or barter, is exactly that - my good or service for your good or service. The problem is that I might want what you have to offer, but you might not want what I offer in exchange. With no "medium" of exchange, there is no deal. Indirect exchange takes place when one party has a "medium" that is always acceptable, not for what it is, but for what can be done with it. If you offer me money, I will accept it, because I know that I can exchange it for what I want, whenever I want it.Indirect exchange involves the use of MONEY - the "medium" of exchange. Money is the universal key, it fits all locks. And the world it has unlocked is the world we live in today. Money has made the division of labour possible. It has made specialisation possible. It has made the accumulation of wealth over periods which exceed a human lifetime possible. Perhaps most important of all, it has hugely advanced the potential for amicable interaction between people. To survive as such, and to prosper, a rational animal must exchange. He or she has language, to exchange ideas, and money, to exchange the fruits of ideas. From that foundation, everything else we see around us has been built.
What Should Be Used As Money?
What is money? It is a medium of exchange. What does it do? It ensures the success of exchange by being the one item on offer that is ALWAYS acceptable. Why is it necessary? Because human beings must exchange to live together in peace, and to prosper. How important was the discovery of the idea of money? Look around you.That covers the concept or idea of money. But an idea, as such, does not exist as a physical entity. Money must be a physical entity. Neither the "electronic" money of today nor the notes and coin which circulate as cash has any official or legal connection with Gold and Silver. But they once did, and most people think that they still do. As long as that situation persists, the modern monetary system will function.
Now, how does one go about choosing what is to be used as money? Simple, one looks for the most tradeable good, the good which is in highest demand, the good that has begun to be accepted, not as an end in itself, but as a means to an end. Money is the good that people do not want to consume, but want to use to make further exchanges easier.
Human beings have lived together for more than two million years. Money in its modern form - coin of fixed weight and denomination - came into use less than three thousand years ago. It took a long time to discover the physical good which best serves the purpose of a medium of exchange.
Early Money in the Country
In the early days, people exchanged goods by 'bartering' for what they needed. Under this arrangement, goods were exchanged for goods. But this is not always convenient. The carpenter must look for a person who can provide him with the right mix of foodstuffs in exchange for the table, which he will make for him. The indivisibility of large items posed a real problem. So did the selection of the right person to barter with. With time, it soon became apparent that a form of medium of exchange would solve the problems. A unit of measure based on something that was valuable, durable, easy to store, homogeneous and portable was required for this purpose. Gold and silver fitted the bill. Thus the use of primitive money in the form of metallic (usually gold or silver) tokens or coins was introduced.Through the ages, money has become not only a medium of exchange and a unit and store of value, but also a historical document on the culture, religion and traditions of the society. Coins have been used to record historical events, such as the reign of kings, or the art and design motifs of the time when the coins were issued. The inscriptions, the designs and motifs used on coins reflected the important events, traditions and social and political changes of nations. With time, money in the form of paper currency or notes were introduced, as these were convenient to issue, use and store, as the economic life of society became more complex.
Early Money in the Malay States
During the Han Dynasty (206 BC-221AD), the merchants of China and India discovered that the best alternative to the overland caravan trade route between East and West Asia was by way of the Isthmus of Kra, the narrow neck of land that separates the South China Sea from the Indian Ocean. The Chinese traders would land their goods in the region of Patani on the east Coast of the Isthmus of Kra, while the Indian merchants and later, the Arab from the Middle East, established their trading centres in the region of present day Kedah in the West Coast.During this period, the local people used cowrie shells imported from the Maldive Islands or Borneo as currency for minor market purchases. For a long time, these shells were valued as amulets to ensure safe childbirth and as fertility charms. They could be strung together to facilitate easy transportation, or to form higher denominations when necessary.
From the eighth century onwards, merchants from China introduced copper cash in bulk into the Malay States and there formed the chief, and at times the sole, currency of the majority of the States of the Eastern Archipelago.
The first native coinage of the Malay States developed from this copper cash. Owing to the monsoons and the shortage of ships to carry out trading, the shortage of the copper cash led local chiefs and merchants to cast imitations of the cash for their own needs. In the east coast states, this copper cash in due course developed into a truly native coinage.
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