Money And Interest: The Evolution Of Money

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Interest was generated as the outcome of transactions between borrowers and lenders, one of the earliest financial activities that have ever appeared in human history. However, the functionality of interest is developed by the evolution of money, an idea that in fact appeared later than interest. The modernization of money and interest never takes a monotonous path: sometimes it breeds financial prosperity, but the next time it may bring catastrophe. As with fire, economists and policymakers throughout the history keep monitoring and intervening in money and interest, trying to grasp these tools but not get hurt. People interpret underlying signals sent by interest and implement monetary policies to boost economies and avoid aberrations.
Past …show more content…

As a result, the abstraction of money made its first step; however, the “reproductive interest” lagged behind and led to the first financial crises. The appearance of coinage made it more convenient to do transactions—people didn’t need to carry whole bunches of products to trade face to face; coinage, rather than specific products, was more universally accepted in trades; and compared with other products with immeasurable values, the intrinsic values of coinage made from metal, such as gold and silver, were more stable. These advantages began the abstraction of money, changing money from the terminals of transactions in the calf case to the media of trades for the first …show more content…

As a result, interest rates not only show the temporal value of money, but also works as a tool to get the functionality of money realized. Since the beginning of the abstraction of money, coinage has benefited transactions through its loose tie to value/products. This is the idea of fiat money, paper money made legal tender by government decree. A formal gold standard was established in 1821, when the value of fiat money was defined in terms of gold. However, nobody realized that it adumbrated the dusk of connection between money and its intrinsic value. When the expansion of gold reserve grew more slowly than that of national economy, the existing amount of money, which was based upon the gold reserve, couldn’t satisfy the needs of increasing transactions. As a result, this contraction of money shackled the economic growth. Therefore, the gold standard was abandoned after the Great Depression in the

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