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Commodity Money

With the decline in the Barter system as a reliable and useful form of trade or business transaction, it was replaced by the use of commodity money.

So what is commodity money?

Commodity money can be defined as a commodity which value is recognized as a legal form of payment. They are objects of value which is used as “money” or “mediums of exchange” in the trade of goods and services. A key feature is that both the buyer and seller of goods and services recognize and accept the value of the tokens as if there were the actual goods themselves.

Commodity Money can take many form and they include gold, silver, copper and other precious metals. They also include precious stones, shells, arrowheads, grains and other forms of uncommon objects.

One of the major problems with commodity money was the consistency of quality. Items such as grains or tobacco deteriorate over time. Farmers also tend to sell or trade their highest quality produce while the poorest products were offered as commodity money.

Another problem was that value of commodity money may go up or down according to supply. Commodity money such as barley or cotton may increase exponentially with a bumper crop or deliberate excessive planting.

Transportation and storage of some forms of commodity money is also a huge issue. While shells, gold, silver is easier to store and transport, items such as beaver pelt, grains, cotton or alcohol quickly created a nightmare for the recipients.

More information on Commodity Money can be found here:

• http://en.wikipedia.org/wiki/Commodity_money
• http://www.coins.nd.edu/ColCoin/ColCoinIntros/Commodity.intro.html

It was clear that the concept of commodity money was not desired as a stable means of conducting trade and commerce.

There are 5 main transitions in the evolution of money (click to read more):

• The Barter System
• Commodity Money
• Coins
• Paper Money
• Electronic Money