The Magic Coin

Chapter 3

THE ORIGIN OF MONEY

Lily and Newton were peering over a stone wall. Just on the other side, a woman had some eggs laid out on a wooden table. People carried different goods around in carts and baskets, and Lily could tell that the woman was looking for something or someone.

“She’s looking for some fabric to make clothes for her family,” Newton said. “Her family is well-fed with all the eggs their chickens produce, but their clothes are in tatters.”

Lily scanned the crowd but didn’t see anybody carrying fabric or clothes.

A man with a basket of shoes approached the table of eggs and said, “Good morning, Abigail! I sure would like a basket of eggs. Can I interest you in a pair of these shoes?”

“Good morning, Joshua!” Abigail responded. “I don’t need any shoes today, but I would like some fabric. Do you have any?”

Joshua frowned. “No, but I just saw Lauren with a big stack of fabric and clothes across town. She was very interested in my shoes, but my family doesn’t need new clothes these days, so I went on my way.”

“Watch this,” Newton whispered. “Something amazing is about to happen!”

Abigail was thinking. It looked like she was doing some complex calculations in her head. Then her face lit up.

“I’ll take your whole basket of shoes, Joshua!”

Joshua was about as perplexed as Lily was when she had first seen Newton levitate. But he was not about to let this opportunity go by. “Sure, here you go.”

“Thanks! You can take as many eggs as you can carry,” Abigail said gleefully and ran off with the shoes.

After Joshua left, Lily said, “I SEE WHAT HAPPENED!”

Newton giggled with excitement as Lily continued. “Abigail realized she could use Joshua’s shoes to trade with Lauren. Joshua had shoes but wanted eggs, Lauren had fabric but wanted shoes. Abigail connected the dots and traded with Joshua so she could get the clothes she needed!”

“That’s right!” Newton exclaimed. “This is the first time anybody thought about indirect exchange. Barter—direct exchange—is tough because you have to find somebody who has what you want to buy but who also wants what you have for sale. Abigail realized she could use the shoes as a medium of exchange. She didn’t want them for herself, but only to trade them for the thing she wanted. Pretty clever!”

“Yeah,” said Lily. “But we still haven’t seen where money comes from. I thought we’d see a king putting his face on a coin or a piece of paper, not people trading shoes and eggs.”

“Au contraire, mademoiselle. This is the origin of money. People didn’t go straight from bartering to using coins—it started with that basket of shoes. But as you can imagine, shoes would make a lousy money. They’re too big to put in your pocket, and they get smelly and worn out over time. Also, it would be tough to buy something small like a piece of candy with a shoe. You can’t divide a shoe into smaller parts and expect people to accept that.”

“Oh, I see,” said Lily. “Over time, people figure out that some things work better as media of exchange, and eventually everybody starts using the same thing.”

“RIGHT AGAIN!” Newton started spinning and glowing. Lily realized that they were on their way to another episode in the history of money.