Embedded Files
Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 6.1.1 Money systems, which describes the parts, relationships and functions of money systems
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems and the importance of systems thinking
Section S.2 Systems thinking patterns, which outlines the core components of systems thinking: distinctions (thing/other), systems (part/whole), relationships (action/reaction), and perspectives (point/view)
Learning objectives:
outline the historical origins of different money systems and their functions
You’ve probably heard the story. A long time ago, to meet their needs, people would barter with others. They swapped what they had, such as grain, for the thing they needed, maybe shoes. But what if the shoemaker didn’t need grain? What if they wanted fish instead? We are told that this is why we had to invent money, to make trade easier.
Textbooks tell this story, and it’s likely that almost everyone you know will explain the origin of money this way. But historians and anthropologists have found almost no evidence that whole societies used barter before money. People did occasionally swap goods, especially with strangers, and the history of economic exchange varies from place to place. But most communities had very different systems for exchanging things they needed.
The barter myth gives the impression that money came from a natural, logical process. In fact, the real history of monetary systems tells a more complex story about relationships, memory, rules, and power. History also shows us how the various functions of money (Section 6.1.1) emerged.
Figure 1. Maori bartering a crayfish, from illustrations from Captain Cook’s first voyage. Barter occurred in isolated cases and between people who didn’t know each other well. It was not widely used for exchange in early civilisations as many people believe.
(Credit: British Library, public domain)
What came before coins and cash?
What came before coins and cash?
Before formal markets or coins existed, people met their needs through social commitment and cooperation. In many early societies, and in some societies today (Section 4.2.4), daily life didn’t run on trade or instant payment. Instead, people helped one another over time. You help me harvest my crops and I’ll help you build your house next season. These obligations were built on trust or power and remembered by the people involved. Everyone knew who had contributed what, and when help might be needed in return.
However, when societies grew and became more complex, people felt the need to record these obligations. Some groups used notched sticks called tallies (Figure 2), shells, or strings to keep track of obligations. On the island of Yap, indigenous communities used round stones, some as large as several metres (Figure 3), where the record of obligations associated with the stones was maintained through oral history.
These tools worked because people shared an understanding of what they meant. They are a kind of social technology, a shared method that helps a group track and manage cooperation over time. The objects were less important than the relationships and responsibilities behind them. These were monetary systems even though no physical money changed hands.
Figure 2. A split tally stick, a money system used in England during the Medieval period.
(Credit: Winchester City Council Museums, CC BY-SA 2.0)
Figure 3. Rai stones were used on the Island of Yap to keep track of social obligations. A photograph from 1904.
(Credit: Furness, public domain)
Who controlled the first formal monetary systems?
Who controlled the first formal monetary systems?
Some of the earliest known systems for managing value and resources appeared in Mesopotamia over 5,000 years ago. These were not created by markets or traders. They were designed and controlled by temples and palaces.
In cities like Uruk and Babylon, temples stored grain, tools, and textiles. People gave part of their harvest or labour to the temple and, in return, received food, cloth, or other goods. These exchanges were carefully recorded on clay tablets, using one of the world’s earliest writing systems called cuneiform.
These tablets worked like ledgers, a recording of what each person had given (credits) and what they owed (debts). There were no coins or notes. Instead, value was measured using agreed references like weights of grain. These measurements made it possible to compare the value of different goods and to decide what counted as a fair exchange.
This kind of recording allowed people’s obligations to become debt, something specific and written down, rather than a vague expectation of obligation. And once a debt was recorded, it could be used in other transactions or passed on to someone else. In this way, the system of recording and measuring debts functioned like money. It created shared understandings of value and allowed people to settle what they owed using common standards.
Figure 4. A Sumerian tabled recording the receipt of livestock.
(Credit: Library of Congress, public domain)
As you read in Section 6.1.1, money is part of a system with parts, relationships, and functions. In these early civilisations, religious and political leaders designed the monetary system’s rules, controlled the recording of information about debts and credits, and decided how resources and goods would flow in the economy. They used monetary systems to manage society and achieve their own aims. From the beginning, money systems were shaped by power.
Why were coins invented?
Why were coins invented?
Coins began appearing in ancient kingdoms like Lydia, in what is now Türkiye, around 600 BCE. These coins were part of a wider system of military power, taxation, and state control. Some historians believe rulers first issued coins to pay soldiers, who then spent them in local markets in newly conquered areas. To make sure these coins would be accepted, rulers required that taxes be paid using them. This created a demand for coins across the population.
Over time, people began to accept coins as money, not because the metal was valuable in itself, but because people accepted it as a means of payment. Some economists propose that one of the reasons for a state to implement a tax system, where payment must be made in the state’s currency, is to ensure that the currency is widely accepted. This kind of money is called legal tender, a type of money that the law says must be accepted to settle debts. It’s a good example of how money systems are shaped by rules, institutions, and power.
Figure 5. A coin from the Lydian empire, in modern-day Türkiye.
(Credit: München, Staatliche Münzsammlung, CC BY-SA 4.0)
How did colonisation reshape money systems?
How did colonisation reshape money systems?
Money was also a key tool in colonial expansion. In many parts of Africa, Asia, and the Americas, people used local systems of trade, gifting, or credit. These systems worked in ways suited to their culture and needs.
European colonial powers replaced these systems with colonial currencies. In French-controlled parts of Africa, for example, people had to pay new taxes in money issued by the colonial power. The only way to get this money was to work for colonial companies, plantations, or mines, working the land that was taken from them by colonial powers, a process known as enclosure (Section 4.3.2). This forced people into slavery, or wage labour (Section 5.3.5). In this context, money became a tool of control over labour, land, and other material resources.
Figure 5. Colonial currencies like these francs issued for French West Africa, were a tool of control of colonial powers.
(Credit: Numizon)
What came after coins and colonial currencies?
What came after coins and colonial currencies?
As early as the 11th century, people in China used paper notes backed by the state to simplify trade and collect taxes. These were some of the world’s first widely accepted paper currencies.
In parts of Europe, from around the 17th century, banks began issuing paper notes that promised the holder of the notes could exchange them for coins made of gold or silver. These notes were easier to carry and use than heavy coins. Because people trusted the banks and believed the notes would be accepted, they often didn’t ask for the coins back. This allowed banks to lend out more paper notes than the amount of metal they actually held.
Over time, these paper IOUs became accepted as money in everyday life. People used them to make payments, even though the paper itself wasn’t valuable. Like earlier systems in Mesopotamia and China, these notes were based on promises, trust, and shared rules. This shift helped banks become powerful actors in modern money systems.
After colonial rule, many newly independent countries kept the same monetary systems, including central banks, currencies, and laws. These often continued to serve global trade and powerful financial actors rather than local communities.
Figure 6. Most money exists as numbers in a bank account, not as coins or cash.
(Credit: Anna Shvets, Pexels license)
At the same time, money systems continued to shift. Coins and notes remained, but more payments were made using cheques, bank account transfers, and credit cards. Money, still based on promises, was now managed mainly by banks rather than temples or states. By the late 20th century, most money existed only as numbers in bank accounts, created and erased through loans and repayments (Section 6.1.3). Though digital, this money still relied on shared rules, relationships, and trust.
Activity 6.1.2
Activity 6.1.2
Concept: Systems, Power
Skills: Thinking skills (critical thinking)
Time: 25 minutes
Type: Individual, pairs, or small group
Figure 7 shows the functions of money and monetary systems from Section 6.1.1. These functions didn’t all appear at once. They emerged over time as societies and power changed and as people developed new ways to manage value, obligations and exchange
Individually, in pairs or small groups, answer or discuss the questions below using historical examples from this text section. If you write answers, be ready to share your responses with others.
In the early historical examples (e.g. tally sticks, Yap stones, temple records), which functions of money and monetary systems do you think were already present?
Which functions only became important later, for example with the rise of coins or colonial currencies?
What kinds of relationships, rules, or institutions helped bring those new functions into being?
Figure 7. Functions of money and the monetary system.
(Credit: Icons from Noun Project, various artists)
Click the arrow to reveal sample answers, but have a go yourself first!
1. In the early historical examples (e.g. tally sticks, Yap stones, temple records), which functions of money and monetary systems do you think were already present?
In early systems like tally sticks and temple records, unit of account was already present. People used common measurements (like weight of grain) to compare value, even if no coins were used.
There was also a store of value function when obligations were recorded and could be used or settled later — this happened with temple debts and tally sticks.
Medium of exchange was less clear. Early systems were often about delayed return rather than immediate trade. In some cases, goods or obligations were passed on, but exchange wasn’t always the main goal.
For money systems, early systems helped settle debts and allocate resources — especially in temples or palaces that organised production and distribution.
2. Which functions only became important later, for example with the rise of coins or colonial currencies?
Coins helped establish a medium of exchange for quick trade. Soldiers and merchants needed money that could be accepted widely.
Legal tender became important when rulers declared that coins must be accepted, especially for paying taxes. This was a money system function that helped expand use of money.
In colonial times, money systems were designed to concentrate power and control labour by forcing people to earn money to pay taxes. This shows how money systems served political goals.
3. What kinds of relationships, rules, or institutions helped bring those new functions into being?
Temples and palaces created rules for tracking value, managing resources, and recording debts. These institutions were early monetary authorities.
States and empires invented and spread coins. They used rules like taxation to make people accept coins as money.
Colonial governments introduced new currencies and laws that forced people into wage work. The relationship between coloniser and colonised shaped how money systems worked.
Ideas for longer activities and projects are listed in Subtopic 6.5
Checking for understanding
Checking for understanding
Further exploration
Further exploration
Which objects have been used as money throughout the ages? - A short video from the Bank of England about the different forms that money has taken in history. Difficulty level: easy
How the world's first accountants counted on cuneiform - An article from the BBC explaining how writing first emerged in ancient Mesopotamia to manage debts, taxes, and trade. It describes how early accountants used clay tokens, tablets, and contracts to record economic obligations, laying the foundations for today’s financial systems. Difficulty level: medium
Money for Beginners: An Illustrated Guide - A graphic introduction to money systems written by economist Randall Wray. It explains how money is created, how it works in modern economies, and how our understanding of money has changed over time. A great way to dive deeper using storytelling and illustrations. Difficulty level: easy/medium
Where did money REALLY come from? In this ca. 30 video, an excerpt from a longer talk, anthropologist David Graeber explains why the common story about bartering leading to money is misleading. He shows how money began as a way to record promises and debts, and how quantifying those obligations helped create systems of value, law, and even war. A useful summary of key ideas from this section, told in an engaging and sometimes funny way. Difficulty level: medium-high
Sources
Sources
Bank of England. (2025). What is legal tender? https://www.bankofengland.co.uk/explainers/what-is-legal-tender
Bank of England (2025). How has money changed over time? https://www.bankofengland.co.uk/explainers/how-has-money-changed-over-time (Note: this source repeats the barter myth for which there is no real evidence)
Graeber, D. (2014). Debt: The first 5,000 years. Melville House.
Hochschule für Gesellschaftsgestaltung. (2024). Was ist Geld? https://hfgg.de/impact/digitaler-transformations-campus/
Martin, F. (2014). Money: The unauthorised biography. Vintage.
Raworth, K. (2017). Doughnut economics: seven ways to think like a 21st century economist. London: Penguin Random House.
Reardon, J., Caporale, M. M. A., & Cato, M. S. (2018). Introducing a new economics: Pluralist, sustainable and Progressive. London: Pluto Press.
Wray, L. R. (2022). Making money work for us: How MMT can save America. Polity Press.
Wray, L. R. (2023). Money for beginners: An illustrated guide. John Wiley & Sons
Terminology (in order of appearance)
Terminology (in order of appearance)
coming soon!
Page updated
Google Sites
Report abuse