How Goldsmiths Created Money Page 1 of 2
Money: Banking, Spending, Saving, and Investing The Creation of Money How Goldsmiths Created Money Page 1 of 2 If you want to understand money, you have got to start with its history, and that means gold. Have you ever wondered why gold is so valuable? I mean, it is a really weak metal that does not have a lot of really practical uses. Maybe it is because it reminded people of the sun, which was worshipped in ancient times, that everyone decided they wanted it. Once everyone wants it, it is capable as serving as a medium of exchange. That is, gold can be used as money, and it is an ideal commodity to serve as a medium of exchange because it’s portable, it’s durable, it’s divisible, and it’s standardizable. Everybody recognizes what they want, it can be broken into little pieces, carried around, it doesn’t rot, and it is a great thing to serve as money. So, before long, gold is circulating in the form of coins. When gold circulates as coins, it is called commodity money, that is, money that has intrinsic value made out of something people want. Now, once gold coins begin to circulate as the medium of exchange, we have got another problem. That problem is security. Imagine that you are in the ancient world, lugging around bags and bags of gold. You are going to be pretty vulnerable to bandits. So what you want to do is make sure that there is a safe place to store your gold because you can store all of your wealth in the form of this valuable commodity, but you do not want it all lying around somewhere that it is easy for somebody else to pick off.
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