Money can be any article agreed upon as a store of wealth by any number of people and used as a common medium of commerce to exchange what they have for what they want. Whenever the article fails to maintain people’s confidence in its power to purchase, it fails to remain money.
Whatever is agreed upon and used as money is relied upon because of convenience and accepted because of confidence. If something new comes along that is more convenient, and can still retain the confidence of the people as to its purchasing power, it has the possibility of becoming a new form of money.
The desire for convenience motivated people to begin to use pieces of paper as money instead of lugging around bags of heavy metal bars or clumsy coins. That took a huge leap of confidence until people began to trust in the fact that other people would accept their pieces of paper as payment for goods or to satisfy debts.
In the beginning, paper money looked a whole lot more like a receipt. For safety and convenience, people would take their gold or silver to a business (like a goldsmith) that was equipped to store the metal there for “safe keeping.” Sometimes, they would place the metal in a local bank vault.
The goldsmith or banker would give the owner of the metal a receipt to prove ownership. When that person wanted to make a purchase or pay a debt he would simply sign off the receipt and hand it over to the new recipient. Should the new owner of the receipt want to take physical possession of the metal he would go exchange his receipt for the real metal. Or, for convenience sake, he might simply sign the same receipt over to another person when making a purchase or paying a debt.
Over the years we have moved in the direction of a cashless society, but certainly not a moneyless society. Convenience and confidence will always determine what will be used as money. Is each article used as money always backed up by gold or silver somewhere in a vault?
(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)