Why Money Is No Longer Worth What It Used To Be

Posted by Allison on 6 April 2009, 14:22

We've come a long way in the world since we first started trading cattle for sacks of grain back in the very old days.  There is far more money in the world now than there has ever been before – millions and millions of units of various currencies changes hands on a global basis every day.  And yet despite this, the currencies we use are essentially worth nothing.

Why is this?  When you compare the modern world to the ancient one it seems to make no sense at all.  How could it be that with the complex economies and monetary systems we have in place today, we are actually worse off than we used to be hundreds and hundreds of years ago?

Essentially of course we are looking at this from just one angle.  We are not worse off at all; it's simply a question of altering our focus to get to the bottom of why money isn't worth anything near what it used to be.

The focus we need to take here is to look at what coins were actually made of back then.  Banknotes were different; paper money is traditionally worth more than coins, which is why the notes were invented in the first place.  However they are just that – paper.  Therefore they have no value as compared to the coins which were familiar to our ancestors at the time.

So what did they make their coins out of?

The answer is precious metals.  Gold, silver and bronze were used to make many coins hundreds of years ago, and while some of our coins today retain the colour of what are now ancient artefacts rather than actual currencies, their composition is very different.

If we take a journey back in time we can see that there is plenty of evidence of coins made from these precious metals.  Bronze and silver coins were used in Italy as far back as around 270 BC.  There were differences though – sometimes the coins were not purely of just one metal.  Lydia created coins out of a mixture of gold and silver, for example.  This mix is known as electrum and meant that even though early makers of coins often tried to keep the weight between them consistent, they were deemed to be worth different amounts, depending on how much of each metal was present in them.

So it was logical then that a coin which contained 75% gold and 25% silver was worth more than a coin which contained both metals of equal measure.  Today we know that the same weight of gold is worth more than the same weight of silver, so nothing much has changed.  Our ancestors knew what each metal was worth in relation to other metals, and they used this as their basis of exchange, and for determining what metals different coins would be made of.

As such the earliest examples of coins did not have any value stamped on them.  Their value was purely down to what they were made from.  The coin might have the head of an emperor or ruler on one side and some other picture on the other, but that was all. 

Even as currency continued to develop through the years, precious metals remained at the centre of the whole system.  Augustus of Rome brought in coins made from gold and silver during his reign in the early Anno Domini years; indeed the Romans in general stand alongside the Greeks as being the two groups that did the most to retain the high level of precious metals present in all their coins.

As time went by it became less common for coins to contain so much gold, silver and bronze.  These metals began to be mixed with other metals and therefore their face value wasn't as high as it had been.  This was essentially the start of the long road of change towards the fiat money we exchange with each other today.  Fiat money basically means a system in which the actual currency itself is worth nothing; it is simply a means of agreement between parties that a particular coin or banknote will be worth what it states it is.

But even though the precious metal content in coins became less and less pronounced, they were still backed by the two most valuable metals, gold and silver.  People understood that even while the coins they held in their hands were not worth as much as they used to be, they could still be exchanged for an amount of gold if they wished.  This leads to the Gold Standard of backing a currency to ensure it had a value, which came into being in the 1700s and finally met its end in the 1970s.

So you see, money as we know it today is an entirely different animal to the one it used to be.  If we were to do anything illegal regarding coins today, it would be to forge fake versions of the highest valued coin in a currency.  But back when coins were literally worth something, people used to actually deface them to make more money.  This might sound bizarre, but it does make sense.  The earliest coins didn't have any ridges on the sides, which meant that if you had a gold coin you could scrape a little off the edge of it to keep for yourself, while still handing it over in payment for something else.  Over time, you could quite literally create 'money for nothing'.

It seems hard to imagine nowadays what it must have been like to walk around with coins made from pure gold and silver in your pockets – or probably more likely in a pouch, back then.  Suddenly the money we deal with now doesn't seem so valuable after all, does it?