{"id":26017,"date":"2023-01-10T17:14:44","date_gmt":"2023-01-10T17:14:44","guid":{"rendered":"https:\/\/research.reading.ac.uk\/research-blog\/?p=26017"},"modified":"2023-02-02T12:10:14","modified_gmt":"2023-02-02T12:10:14","slug":"money-matters-what-if-we-told-you-that-everything-you-knew-about-money-wasnt-quite-as-it-seems","status":"publish","type":"post","link":"https:\/\/research.reading.ac.uk\/research-blog\/2023\/01\/10\/money-matters-what-if-we-told-you-that-everything-you-knew-about-money-wasnt-quite-as-it-seems\/","title":{"rendered":"Money matters: what if we told you that everything you knew about money wasn\u2019t quite as it seems?"},"content":{"rendered":"

Money matters was the theme of the University of Reading\u2019s annual Children\u2019s Christmas Lecture. With puzzles, questions and role play it was enthusiastically received. Here, economic historians Adrian Bell and Tony Moore summarise some of the key ideas from the lecture, which explored the development of money as a concept over time.<\/em><\/p>\n

\"'Money<\/strong><\/p>\n

<\/p>\n

Different forms of money<\/strong><\/p>\n

History shows us that money can be many things: from sea shells<\/a> (used in the Americas, Africa, Asia and Australasia for long periods), to paper notes<\/a> (from Chengdu in China c.900AD, the first paper money in history), salt<\/a> (widely used, for example in Ancient Egypt and nineteenth-century Ethiopia), coins, and cryptocurrencies such as bitcoin. Some economic historians even consider mobile phones to be money<\/a>.<\/p>\n

Most money today is not in the form of coins and notes but exists as deposits in bank accounts which we access by electronic means such as bank cards, phones and watches.<\/p>\n

Money does not have any inherent value \u2013 it is worth whatever we believe as a society it is worth. We accept lots of different things to represent money, and as we can see from examples such as cryptocurrencies, it doesn\u2019t even have to exist in physical reality.<\/p>\n

Money is not fixed forever but linked to the culture and beliefs of different times. Money can be seen as a distributed form of \u2018social credit\u2019 \u2013 simply put it is an agreed unit of account or measure of value that can be used when allocating and exchanging resources.<\/p>\n

The concept of credit<\/strong><\/p>\n

Money changes value over time and not always to our benefit.<\/p>\n

We can earn money by working, investing, or starting a business. We can buy things with cash but also with credit \u2013 and pay it back with interest added. And although it can be appealing to pay small amounts over a longer time, it is more expensive in the long run. I can pay \u00a350 today for something or agree to pay \u00a35 per month for 12 months. This is easier for me to manage in my budget, but will cost me \u00a360, so I will actually pay much more for the same thing.<\/p>\n

The concept of credit was the same for our ancestors \u2013 and sometimes they had sophisticated methods of moving money around without any money changing hands. In medieval Europe this would be achieved via a bill of exchange, the precursor of the cheque and chequebook.<\/p>\n

Some fellow economists have described the development of money as following a historical process that moves from barter to coins to credit. However, the discovery of clay tokens recording debts<\/a> from around 2000 BC in Mesopotamia (modern-day Iraq) suggests that credit came before coins and accountancy (keeping a record of financial transactions), predating the development of writing.<\/p>\n

Credibility and trust<\/strong><\/p>\n

So, money is just a concept \u2013 it works if we all believe in it \u2013 like Tinkerbell from Peter Pan. Problems arise when credibility or trust in the system is lost.<\/p>\n

As an example, let\u2019s look to the actions of our former Chancellor of the Exchequer, Kwasi Kwarteng. Many commentators argue that his mini budget panicked the financial markets as they lost trust in the UK\u2019s fiscal stability and as a result destroyed the UK\u2019s financial credibility. He himself now admits he \u2018got carried away\u2019 and was too impatient<\/a>: \u2018There was a brief moment and the people in charge, myself included, blew it\u2019.<\/p>\n

For political impartiality we should also acknowledge that the current Chancellor, Jeremy Hunt, quickly acted to calm the markets \u2013 by reversing almost everything Kwarteng had proposed and thus restoring some element of financial credibility.<\/p>\n

Financial innovations<\/strong><\/p>\n

As economic historians of medieval Europe, we have researched how this period saw trade networks expand and the first banks and accounting introduced via Italy. We have looked at medieval financial innovations involving wool forward contracts<\/a>, sovereign credit and defaults<\/a>, foreign exchange<\/a> and real estate bubbles<\/a>.<\/p>\n

We will conclude by asking you to think carefully when people tell you that things related to money are new and have never happened before. \u00a0As we have explored in this blog \u2013 we can often find a historical parallel.<\/p>\n

Professor Adrian Bell<\/a> is Research Dean for Prosperity and Resilience at the University of Reading and Dr Tony Moore<\/a> is Lecturer in Finance at Henley Business School.<\/p>\n

Watch the lecture<\/h3>\n