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Malthusian Growth

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Preindustrial Europe and the Road to Modern

Economic Growth – Money and Finance

Seminar: The Pre-Industrial Experience: Malthusian Stagnation or Growth through Innovation

Humboldt University of Berlin

Institute of Economic History

Vedad Avdagic
Matriculation Number: 535 686
Assistant Professor: Paul Sharp, PhD

Berlin, 23.07.2011

Origins of Money

The first form of money was introduced approximately five to six thousand years ago in the form standardized ingots of metal which where usually accepted as a means of payment. The stamped coin which resembles the ones used today was introduced by the Chinese and Greek civilizations. However to fully appreciate the purpose and role of money we compare it to its historical alternative, barter.

Barter, or direct exchange of one good for another, had many flaws. The biggest was that it required a coincidence of wants from both parties, meaning if one party wanted to exchange a loaf of bread for some spice, then that party would need to find someone possessing and willing to exchange the spice for bread. This leads to a high search cost and reduces the volume of trade below its potential level. The volume will thus be constrained by the minimum trader, the trader willing to exchange the least amount. In a barter economy the price pattern is not very translucent, because the prices are not expressed in one unit of account, for example the dollar. The price is the number of units of various goods that a certain good can be exchanged for.

Money can be characterized as commodity money throughout most of history. Commodity money means that money is tied to a certain commodity which has alternative uses and an intrinsic value, such as gold or silver. In general any commodity can be used as money but it should posses several important features. It is of importance to exclude perishable and volatile

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