People were mostly self-sufficient before the invention of money. Certain forms of trade were practised, but they were limited to bartering, or were simply part of ceremonies or rituals. Money first came about as these rituals gradually evolved, and people started to need to replace bartering with something that was scarce and durable and that could be used as an exchange currency. Today, money is not simply an accounting tool that simplifies exchanges and saving; it has become an essential part of the social fabric of every civilisation.
In the strictest sense of the term, money first appeared in Mesopotamia more than 5,000 years ago, when simple clay tokens were used to represent debts between people. Later, in the great city-states of Ancient Greece, money became an indispensable method of regulating daily exchanges, as trade became increasingly specialised. The inhabitants of Lydia, a territory on the modern Turkish-Greek border, were the first to produce small coins in electro, a gold-silver alloy. Each piece had a specific value, depending on its size, and this is how coins were invented. Once they took hold in Greece, these coins soon caught on in the rest of the world.
Paper money, on the other hand, first originated in China. In 995, a merchant in Sichuan came up with the idea of using pieces of paper as standardised receipts that could be exchanged for the previously used bronze coins. The pieces of paper were transferable, and became the forerunners of modern banknotes. It was a huge success, if only because paper was extremely light compared to bronze: trade grew, and by 1200, the Chinese were arguably the most technologically advanced civilisation in the world. This trend continued with the invasion of the Mongols in the 13th century: Emperor Kublai Khan created a new type of banknote, the worth of which no longer depended on precious metals, but held a specific value of its own. For the first time in history, people realised that paper could function as money, not because it was equivalent to a certain value in gold or silver, but simply because everyone agreed that it was worth that specific amount.
The Ming dynasty drove out the Mongols in 1368, and dragged China back in time to their idealistic past of sharing and self-reliance: by the mid-1400s, paper money had completely disappeared from China. Today, we tend to take economic growth for granted, and get nervous when it stalls even for just a few years, but this regression in China teaches us that economic progress is by no means guaranteed.
