Here is your essay on the origin of ‘Money’!
The distance between centres of manufacture and consumers created problems of exchange.
Earlier, in the preindustrial barter system, goods and services could be traded in exchange. This required face-to-face interaction between the buyers and sellers.
In such a situation, the buyer is also a seller, since they exchange their products in exchange for another person’s products.
This is a simplistic way of explaining the barter system because there were many other factors, mainly social, that determined the relationship between buyer and seller.
The value of a particular product could change depending on whom it was being exchanged with. The upper classes/ castes would give less for receiving more, and the lower classes/castes would give more and receive less of the same product.
For example, a barber in the village would receive different proportions of goods/services from the different clients with whom his services were exchanged for goods. A Brahmin might recite a few prayers in exchange for services throughout the year, whereas people belonging to lower castes might have to give more to receive the same barbers services. This in broad outline was what was known as jajmani system.
In order to exchange goods over large distances, a simple system of barter would be insufficient. Hence, a new form of exchange had to be developed. This is where the use of money came in. Money became the medium of exchange for goods and services. For example, when a consumer in Assam buys mill-made cloth produced in Mumbai, they use money as the medium to pay for the value of the cloth. This makes exchange easier for both the producer and the consumer.
The second aspect of money is that it is a store of value. In other words, the value of all goods or services is determined by their cost in monetary terms. This does not change, irrespective of who the consumer is. We mentioned earlier that the value of services or goods in jajmani relations varied with the social status of the consumer. In the new system, this value remained unchanged. In other words, the price of a designer sari would be the same for a rich person or for a slum dweller (provided she could afford it).
The use and circulation of money was possible only after industrialisation because machines added uniformity and precision in the production of currency notes and coins. This is most needed or else there would be counterfeiting of currency if produced by hand.
Mohammed-bin-Tughluq was the first to introduce coins as a medium of exchange. The idea was novel, but way ahead of its time. Since coins were handmade, they could be copied easily, and very soon the market was flooded with counterfeit coins.
The difference between coins that existed in the pre-industrial period and those available now is that the worth of the metal (like silver or gold) used to be equivalent to the value attached to the coin. The present system of coinage is different; a one-rupee coin may contain metal which is worth less than its value.
Similarly currency notes are also worth less than their value. Hence in the current system, units of currency are merely a medium of exchange and financial transactions and they are legal tender because they are backed by the treasury/ national bank of the country concerned.