as naturally scarce precious metals (such as gold and silver), conch shells, trinkets,
and today’s entirely artificial representation of money: paper banknotes.What is interestand how is it calculated?
In finance, interest can be viewed in two ways: The interest given to a person on
388 money “loaned to” (deposited in) a bank or financial institution, or as a fee (payment)
How did money evolve?
B
efore the advent of money, exchanging goods was merely a matter of barter-
ing. Livestock and grains often were used in ancient times as methods of
barter, with one item exchanged for another. But there were definite limitations
to this. For instance, if a farmer wanted to barter for a horse with wheat in the
winter, he would have to know how to store the wheat in order to get the horse.
Timing became essential, and sometimes meant the difference between surviv-
ing and dying.
Some of the first types of money included limestone coins (ranging in size
depending on their value), tobacco, shells, whale’s teeth, and even bread in
medieval Iraq. The use of gold and silver coins is thought to have started around
650 BCEby the Lydians, who lived in the area between the Black and Mediter-
ranean Seas. Before that, metals were traded as money in other forms, such as
nuggets, rings, and bracelets. Paper currency first appeared about 300 years ago
and was usually backed by some “standard” materials of natural value (such as
gold) that could be converted on demand.Using currency was a great improvement over the bartering system
(although bartering still has its place in many countries, especially throughout
smaller communities). For example, when gold became a trade standard, it was
easier for the farmer to buy the horse in the winter with gold coins than try to
store enough wheat (and keep away mice) to make the trade. In the West, as
more and more people participated in the gold standard, the banking industry
grew, paralleling the growth of trade and industry.Today, monetary systems are deeply entrenched, with various types of cur-
rencies in a multitude of countries. Type of money keeps changing, too. For
example, in 1988 the world’s first durable plastic currency was introduced by
Australia (plastic bills were seen as a way to frustrate counterfeiting). In 2000
the European Economic community introduced the Euro, a monetary unit that
puts much of western Europe under a common currency. All this exchanging
and changing of currency involves, of course, mathematics.