Before the existence of money, people bartered. When did this start? Who knows. Thousands of years ago? Tens of thousand years? The practice of bartering well predates any structured financial system.

According to Merriam Webster, bartering is the trading of goods, resources, or services for goods, resources, or services. You give me 6 apples, I exchange you 4 chicken eggs. You give me 2 ducks, I trade you a movie ticket plus a ride to Spiderman: Away From America.

From 9000 — 6000 B.C., livestock became a standardized transfer of value from one person to another. Instead of purely trading value through goods and services, goods and services were bought with cows. This era marked the first form money took: commodities.

A commodity is a basic good exchangeable for another good with approximately uniform value. That is to say, the value of one cow is approximately the same as the value of any cow. In this way, commodities are loosely fungible.

Fungible means the value of an object by quantity is relatively constant. Art is non-fungible, as one piece of art may be worth vastly different than another piece of art made by another artist. However, a $1 bill will be worth a $1 bill throughout a country. In this way, all currency is fungible.

Fungible items include:

• US Dollars

• Stock Shares

• Bitcoin

Non-fungible items include:

• Houses

• Art

• Pokemon Cards

Some commodities, for their intrinsic value, became more sought after than others. Cattle served the advantages of moving without a requirement of human physical labor, render certain services such as physical labor and sources of food, and the ability to reproduce, creating more cattle. With the emergence of farming, grains also became commodities as currencies.

Salt was another sought after commodity that served the purposes of currency. The intrinsic value of salt was its ability to be used as a food preservative, increasing the longevity of food stock. The word “salary” comes from this history, as the Roman word salt, sal, was the payment of an employer to their employee for their services.

From 3000 — 2000 BC, banking originated in Mesopotamia. These banks originated from activities of temples and palaces, providing security for the storage of value. These value stores were deposits of grains, and later cattle and metals.

From 2250 — 2150 BC, Cappadocian rulers assures the quality of silver ingots. leading to the wider acceptance of ingots as currency. Metals went to become the standard of value for their divisibility, ease of transport, and beauty. Before the silver ingot, each metal transaction had to be appraised for purity and weight. Having guaranteed ingots made transactions much faster.

In 1200 BC, cowry shells were integrated as currency in China, replacing livestock and cattle for many societies. Cowry shells went to become the longest and widely used form of currency in history, as even within a hundred years ago cowry shells were used in certain parts of Africa.

During the 600s BC, coins were prototyped in Lydia, an Iron Age kingdom of western Asia Minor, reaching a true form by production with electrum, a naturally occurring amalgam of gold and silver.

Looking back in each of these transitions currency undertook, each evolution did the same thing. Each iteration of currency was a means to facilitate transfer. Each currency became a means to standardize barter. Instead of trading one item or service directly for another, you can acquire an item or service with a currency. The receiver of that currency can then trade that currency for an item or service at a later point. The innovation of currency was that it allowed value to be acquired in a time far displaced from when value was given when first acquiring the currency. These early forms of money served as a store of value that could be traded for other value in the form of products and services at different points in time.

Money is Monopoly Money

China, 118 BC, issued the first leather money. These notes were made from white deerskin and can be considered the first documented version of a banknote.

But, it wasn’t until 800s AC that the first paper banknotes were issued by China. The official bills were the result of a shortage of copper needed to make coins. In this instance, by 1166, so much paper money was produced, the currency reached hyperinflation, making each bill relatively valueless, making.

The interesting point of this situation is, that before the introduction of banknotes, currencies, typically, had intrinsic value. That is to say, they had value outside of being a medium of exchange. If someone wanted, they could take their cow and use it for other value-producing means than exchange. They could drink the cow’s milk. They could breed the cow and produce more livestock. They could kill the cow, and eat it. For salt, they could use salt as a food preservative. They could also use the salt to flavor their food. For metal coins, they could reshape the coins to produce jewelry, at the very least, and use the jewelry to trade it with someone else.

Monopoly money can’t be used to buy real items in the current world of 2019, because the value of monopoly money is close to valueless. But the intrinsic value of paper banknotes is the same as monopoly money. They both are made of paper. Paper lacks the value previous bartering assistants contained. The intrinsic value of a piece of paper is, it can be burned for a few seconds. This value, relative to a silver coin, is small.

Why did we start using paper notes as money?

Money is an IOU for Value

During the 1800s we saw the introduction of the gold standard. The gold standard was to allow non-inflationary production of banknotes by tying their value to gold. This leads to banknotes becoming legal tender in England. The banknote promised it could be traded for its equivalent represented value in gold. In the mid-1800s, the gold rush started in California, which leads to the US moving towards the gold standard as well.

In the US, the 1920s became known as the roaring twenties. The US economy had expanded rapidly during this time, having US total wealth more than double during this time. During this economy, stocks went up, and so did people who flocked to the stock market. These season of the stock market was marked by heavy speculation and shareholders including millionaires to very average people.

The stock market crashed October 2019, leading to the Great Depression. Many had been buying stocks on borrowed money, so when the value of the stocks they bought dropped rapidly, they faced tremendous debt. With a downturn in spending, many factories reduced production and fired employees.

The Great Depression leads to the fall from the gold standard for many nations, including the US and Britain. Now, we use paper notes to represent money.

Money truly has no intrinsic value now, as it isn’t backed by gold anymore. What money has become is a promise that it can be converted into value as something else. Money is an IOU for value.

Transactions are Transactions of Value

So in the end, the current version of currency we use today, the current version of money, is intrinsically worthless. So why do businesses want it? And why do they want more of it?

Ignoring all the complexities, they want it because it can be converted into something else. It’s not the money they want, it’s what the money can be converted into. The desire for money as the core goal is misplaced.

So if money’s the wrong thing to want, if money is just a means to something else, what is the real thing that should be sought out?

The answer lies in the origins of currency.

Before currency there was barter. You want something I want, so I’ll trade it to you with something you want.

And the first thing that replaced it was livestock. Livestock became a facilitator for bartering because livestock had other utilities, it produced other *value. *So bartering, in its simplest form, is a transaction from value in one form for value in another form.

So, to answer, “How do businesses make money?” we look at what is happening in a transaction. A transaction is trading value. Money is the result of value being transferred. So, to acquire money, value has to be created in some way.

And that’s the core of most business. It’s creating value.

A business who focuses on acquiring money is looking at the system backwards. Money is a result of the process of value creation. For a business to succeed, they must be focused on creating and delivering value that results in money, not in acquiring money. The rest of the puzzle is figuring out how to create value.

Value is Perceived Value

Value is utility, worth, or importance. But those definitions are synonymous, they don’t define what value is. Value is worth placed by a person. That is to say, value is appraised by the agent perceiving the good or service. In this way, it’s simpler to say value is perceived value. Which brings up the first point. Value is not determined by the person selling a good or service, it’s determined by the person buying a good or service.

Because the other person determines value, creating value begins with understanding how the other person values. To make a good or service valuable to yourself does not necessarily mean that good or service will be valuable to the person you are trying to sell to.

This leads to a few steps in creating value.

1. Identify who the value will be for.

“Who the value is for,” or who is perceiving and appraising the value is known as the target audience or target market. So to first create value, you must define the market.

1. See value from the eyes of the other person.

To understand how someone values, you must see the value being created from their perspective. The ability to see from the perspective of someone else is also known as cognitive empathy. So, the next step is empathy.

Once you know who the product is for, you can begin to tailor the product for somebody. When value is created for that market, a transaction of value can be made, by which money is generated. The process of generating money isn’t one of greed and taking, it’s one of creating and giving.