A Brief History of Finance

As anyone who's had to deal with a pocketful of change knows, coins can, in the aggregate, be annoyingly heavy. Tired of the rattling weight of too many coins, some unsung genius in China imprinted a few patterns on paper, assigned it an arbitrary value, and thus currency -- paper money -- was invented. This was a big improvement over having to trade a wheelbarrow full of coins for a cow or a shipment of rice. The ancients called currency "Flying Money," since a sudden stiff breeze could take it right out of your hands. Money has remained hard to hold onto ever since.

At first, currency could be redeemed for a set value of gold or silver or some other precious commodity, such as grain or sow bellies. Eventually it evolved into "fiat money," which isn't backed by anything, as such; its value is based on people's trust in the authority (usually a government) that issues it. That's where most societies stand today. At some point, possibly during the Coin Age but more likely after currency came on the scene, banks were invented so that people could have safer places to put their excess money than under the mattress.

Flying Money" was nifty and all, but it was even easier to steal than coins, and really big purchases still required huge quantities of cash that were difficult to transport. It soon became clear that there had to be something even better, but it took six hundred years for that something to come into general use.

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