Introduction
Money can be defined as something that is accepted in the society as a medium of exchange and also acts as store of value as well as measure of value. Interest, on the other hand, is the amount paid by the borrower of money to the lender for receiving the benefit or privilege of holding the money for a period of time. In this study we attempt to trace the origin and evolution of money and this history is also closely related to the origin and history of interest on loans.
Origin and Evolution of Money
Before money came into being barter system existed where one good was exchanged for the other. Barter system had its inherent difficulties like indivisibility of some bulk commodities and problem of reciprocity of demand. The system involved complex calculations as every good has to have an exchange ratio with the other good. Apart from these difficulties there were other problems as the commodities could not be used as a store of value or even standard for deferred payment as the quality or value tends to deteriorate with time.
Later on in history we find the emergence of commodity money where some goods were treated as medium exchange or even store of value. Goods whose quality remained unchanged for a long time would act as commodity money. These goods included cattle, dried fish, axes, cowry, shells, leather, food grains and such others . But these had their disadvantages as they were too bulky to be carried for regular trade and lacked in uniformity.
The next phase of evolution was the metallic money where gold, silver and copper were used as medium of exchange and store and measure of value. This later on gave way to the formation of coins that had standard weight and value. With time metallic money gave way to token money whose face value is higher than the intrinsic value of the metal. The coins we use today are token money.
Paper money originated from the receipts issued by goldsmiths which could be exchanged for goods. Later on the guilds started issuing promissory notes against gold deposits. This led to the origin of paper currency that we see today.
Today we have arrived at the age of electronic money where payments can be made through bank transfers on the internet or through debit or credit cards.
History of Interest
In ancient times loans were taken in the forms of grains like wheat, barley or rice . Since one grain could produce a plant that yielded multiples of grains, the borrower paid back the loan along with some more grains that were borrowed, thus giving rise to the concept of interest.
Later on, with the innovation of metallic money, interest was paid in terms of metals or metal coins .
Money lending against interest was despised in the past by many scholars Aristotle .
With the advent of capitalism interest on loan was justified in economic terms.
The study of origin of money and interest shows us how the evolution of money has also affected the mode of taking loans and paying interests. But interest also has some ethical considerations attached to it as it was condemned by the church around the middle ages. But with new ideas flowing in the modern ages and with the study of economics coming into existence interest was justified as a payment to the lender for bearing risk and inconvenience for doing away with money for some time.
References
Branco Central Do Brasil. (n.d.). Origin and Evolution of Money. Retrieved April 4, 2016, from Branco Central Do Brasil: http://www.bcb.gov.br/?ORIGINMONEY
Zarienga, S. (2010, December 18). A Brief History of Interest. Retrieved from AMerican Monetary Institute: http://www.monetary.org/a-brief-history-of-interest/2010/12
