Praxeology

Economic Literacyfor Children

Nicholas the fisherman holding a fish, Peter holding a stone axe and Helen holding a sheaf of wheat smile and wave in a meadow by a lake. Above them, like a path through time, float a little ox, silver wire and a ring, a small lump of gold and a sheet of paper.
Ages 6–9

Picture book

How Money Came to Be

Based on Carl Menger’s essay On the Origin of Money

The people in the story

  • Nicholas the fisherman
  • Peter, who makes stone axes
  • Helen, who has grain
  • and friends from other times: Anna the potter, Philip the beekeeper, Sarah with her salt, Mary the weaver, Joseph the merchant and his daughter Sophia, Demetrius the craftsman, Andrew the sailor, Thomas the goldsmith, John the merchant and little Zoe

Today we hand over a few coins or tap a card, and we get bread. But once there was no money at all. Who invented it? Carl Menger, a wise economist from Austria, gives a simple and surprising answer: nobody!

We will follow money from the first villages to the present day. On every page the times change, but the reason stays the same: everyone is looking for an easier way to get what they need.

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A Neolithic village of round mud-and-thatch huts beside a lake. Nicholas the fisherman holds a big fish up high. Peter sits by a rock with two stone axes on it and raises his hand to say “no, thank you”; in a little cloud above his head there is a sheaf of wheat.

The Stone Age

The fisherman needs an axe

Nicholas the fisherman has caught a big, shiny fish. Now he wants a stone axe to chop wood. He goes to Peter, who makes the best axes in the village. “I’ll give you my fish for an axe!” he says. Peter smiles and shakes his head: “Thank you, but I don’t want fish. I want grain!” What a shame! For the trade to happen, each of them must want exactly what the other has, and at the very same time. That rarely happens.

That is the big problem when people swap one thing for another. Carl Menger noticed it: many trades that would make both people happy never happen at all.

The Neolithic village by the lake on a hot day with a bright sun. Nicholas the fisherman offers his fish to Anna the potter, who sits among clay jars; in a little cloud above her head there is a honeycomb. Behind them, Philip the beekeeper holds a wooden bowl of honeycomb beside two hollow logs used as beehives; in his own little cloud there is a clay jar.

The Stone Age

All around the village

Nicholas does not give up. He takes his fish and walks all around the village. Anna the potter has lovely clay jars. “Would you like a fish?” Nicholas asks. “No, I want honey!” she says. Philip the beekeeper has honey. “Would you like a fish?” Nicholas asks again. “No, I want a jar!”

Nicholas runs here and there. The sun climbs high and it gets hot. The fish will not stay fresh for long. Nobody wants what Nicholas has, at the moment he has it. How hard it is to find someone who wants exactly your thing!

The same Neolithic village. Nicholas hands Peter a basket full of ears of wheat, and Peter, smiling, gives him an axe with a round head of polished stone tied with cords to a wooden handle. A second stone axe lies on the rock. Further back, Helen walks happily away holding the fish.

The Stone Age

A clever detour

Nicholas thinks and thinks. Then he sees Helen, who has a basket full of grain. “Would you like a fish?” he asks. “Very much!” she replies. Nicholas gives her the fish and takes the grain, even though he does not need it himself. Then he runs to Peter, gives him the grain and at last gets his axe!

With two trades he managed what he could not do with one. Almost everyone needs grain and it does not spoil quickly, so people accept it gladly: it is easier to sell than fish. Nicholas found a clever way: he took something he did not want, so that he could then get what he did want.

The Neolithic village in the afternoon. On the left, Peter holds two fish giving off green smell lines, and a girl next to him holds her nose. In the middle, Helen offers a big clay jar to a small boy who holds a little basket with a few walnuts and looks at her, puzzled. On the right, Nicholas, sweating, drags a heavy tree trunk on a rope.

The Stone Age

Which thing works best?

Soon everyone in the village tries Nicholas’s trick. They take something in between, to trade it on later. But what? Peter takes fish. By the evening the fish smell, and nobody wants them.

Helen wants just a few nuts, and she offers a big clay jar. But the jar is worth much more than a few nuts, and it cannot be cut in two! Nicholas drags a heavy tree trunk. How will he carry it to the next village? So they learn: the best thing does not spoil, can be split into small pieces and is easy to carry.

A small open-air market in the green highlands of Ethiopia, with round huts with conical thatched roofs, acacia trees and blue mountains; far away over the mountains a grey cloud lets down a light rain. Sarah, in a white dress and a white headscarf, leads a grey donkey loaded with white bars of salt. She hands a bar to a man in a white shawl, who gives her a clay pot of honey. Beside them, a woman holds cloth and a basket of grain. On a mat, a salt bar has broken into two smaller pieces.

Ethiopia, long ago

Bars of salt

Far from the village, in the high mountains of Ethiopia, people use something else: salt. Sarah loads her little donkey with white bars of salt. With them she gets honey, cloth and grain.

Everyone needs salt for their food. It does not spoil quickly, and a bar can be broken into smaller pieces. But it has a weak spot: if it gets wet in the rain, it melts away! And many bars together are heavy on long journeys.

A herders’ settlement of mud-and-thatch huts among green hills. A herdsman with a staff hands a brown ox on a rope to Mary the weaver, who gives him a stack of colourful folded cloth in return. Behind them, a herd of cattle stands in a wooden pen beside clay storage jars, and further off two men are exchanging calves.

Ancient herding peoples

Something everyone accepts

Among many ancient peoples who lived with their herds, everyone wanted cattle. Mary the weaver gives her colourful cloth for an ox. Does she need an ox? No! But she knows that later she can easily trade it for something else. The ox has become something everyone will take, so with it you can get whatever you want.

The more people accept a thing, the more easily it passes from hand to hand. And the more easily it passes, the more people accept it. Nobody decided this: people saw that others were doing better and did the same. Language still remembers that time: in Latin, money is pecunia, from the word pecus, which means “herd”.

A market in front of the gate of a Mesopotamian city, with mud-brick walls, date palms and a ziggurat in the distance. Joseph the merchant sits on a reed mat weighing silver wire on a balance with two pans; in the other pan is a stone weight shaped like a duck. In front of him on the mat lie silver rings and coils of wire. A woman holding cloth and a man with a little donkey carrying sacks wait their turn.

Mesopotamia, about 4,000 years ago

Silver on the scales

But an ox cannot be cut in two! It does not travel easily, and it can fall ill. In the cities of Mesopotamia, merchants are paid more and more often in silver: rings, coils of wire and little pieces. Joseph the merchant weighs it carefully on his scales at every payment.

Silver is ideal: it does not spoil, it can be cut into small pieces without losing value, it is easy to carry, and it is wanted everywhere. That is why, as Menger explains, the precious metals, like silver and gold, in time became money among all the peoples who traded a lot.

The market in front of the gate of the Mesopotamian city, with date palms and the ziggurat in the distance. Sophia, a little girl in a blue-green dress, holds a handful of pebbles from the stream. A laughing seller with a white cloth on his head and a striped robe sits behind a basket of dates. Joseph the merchant, kneeling, shows Sophia a tiny silver ring on his palm; beside him stands a big, full sack of grain.

Mesopotamia, about 4,000 years ago

Pebbles nobody wants

Sophia, Joseph’s daughter, has an idea. She gathers pretty pebbles from the stream and goes to buy dates. The seller laughs: “Pebbles? They are everywhere! I can pick up as many as I like myself.”

Joseph explains: “You don’t find silver lying on the road. It is rare, and it takes a lot of hard work to dig it out of the ground. That is why a little silver is worth a lot. A small ring can be worth as much as a whole sack of grain, and it fits in your little pouch!”

A market in Sardis, in Lydia, with mud-brick houses and the steep acropolis hill in the distance. A trader with grey hair and a grey beard weighs little lumps of metal on a balance with two pans and, with a sly look, secretly presses one pan down with his finger. A long queue waits: a woman with a basket, a man with a rope, a little boy yawning and an old man with a white beard. Demetrius the craftsman stands nearby, his hand on his chin, thinking.

Lydia, about 2,700 years ago

Is the weight right?

In the markets of Lydia, everyone pays with little lumps of precious metal. But at every payment, the metal has to be weighed. The queue in front of the scales grows longer. Everyone waits, and a little boy yawns.

And something worse: the trader at the scales secretly presses one pan down with his finger! Others mix cheap copper into the precious metal. How can you know what you are getting? Demetrius the craftsman sees all this and thinks: “We need a quicker and safer way.”

A workshop courtyard in Sardis, in Lydia, with mud-brick houses; behind them rises the steep acropolis hill. Demetrius the craftsman, bent over a stone anvil, strikes a stamp with a hammer onto a tiny lump of electrum. Beside him, a clay dish is full of such lumps. An official in a chiton and himation holds one of them up and looks at it curiously. To the right, under an awning, people trade in the market.

Lydia, about 2,700 years ago

The stamp came later

In Lydia, in the seventh century BC, Demetrius the craftsman strikes a stamp with his hammer onto small lumps of electrum. Electrum is a metal found in nature: a mix of gold and silver. The stamp has a lion’s head and shows everyone that the lump has the right weight and is pure. This is how the first coins are born, and nobody has to weigh the metal at every payment any more.

Yet the rulers did not invent money; they found it already in use. People had been paying in metal for centuries. As Menger says, the rulers only improved something that people had already worked out for themselves in the market.

The harbour of Piraeus in the fifth century BC, on a sunny day. A wooden merchant ship with a square sail and an eye painted on the bow is moored at the quay, beside clay amphorae; high on the hill stands the Acropolis with the Parthenon. Andrew the sailor, in a light-blue chiton, hands a tiny silver coin to a smiling old woman who sells olives and loaves of bread. In his other palm he shows a bigger silver coin with an owl on it.

Athens, about 2,500 years ago

Coins that travel

Everyone likes the idea of the stamp. In Athens, the silver coins have an owl on them. Andrew the sailor takes them with him on his ship. In faraway harbours people accept them gladly, because everyone knows the owl.

There are big coins for big things and tiny coins for small things. With a tiny coin, Andrew buys olives and bread. Nobody needs to cut or weigh the silver any more.

Night in a wood-panelled room in seventeenth-century London. A candle burns on the table; through the leaded window there are houses under the moon, and a cat sits on the windowsill. John the merchant, in a black broad-brimmed hat and cloak, kneels beside an iron-bound chest full of gold coins, trying to lift it and sweating. In a little cloud above his head, a masked thief runs off with a sack.

London, 17th century

A heavy chest

Many centuries later, John the merchant has saved lots of gold coins. He keeps them in a chest. But the chest is so heavy! He cannot carry it everywhere with him.

And at night he cannot sleep a wink. “What if thieves come?” he wonders. Where can he keep his gold safe? Then he remembers Thomas the goldsmith, who has a strongroom with iron locks.

A goldsmith’s shop in seventeenth-century London, with wooden walls, leaded windows and shelves of jugs. Thomas the goldsmith, behind the counter, hands a handwritten receipt to John the merchant, who wears a broad-brimmed hat and a cloak. In front of the counter, an iron-bound chest is full of gold coins. Outside the window, a man pays a woman with a similar receipt.

London, 17th century

From metal to paper

In seventeenth-century London, John the merchant leaves his gold with Thomas the goldsmith for safekeeping. Thomas gives him a piece of paper, a receipt: “With this, you can take your gold back whenever you like.” Soon people pay with the receipt instead of the gold, because whoever holds it can go and collect the gold.

In Europe, paper banknotes, which everyone took as money, grew out of receipts like these. (China had paper money even earlier, from around the year 1000.) The paper had value because you could swap it for gold, a money people had already chosen.

A cosy neighbourhood bakery in a Greek town today, with shelves full of loaves and a tray of sesame bread rings. Zoe, a little girl with a brown ponytail, a yellow jumper and a backpack, hands coins to the smiling baker with a moustache and a white apron, who gives her a sesame bread ring. Beside her, her mum holds a blue card to a small payment machine, for a loaf of bread.

Today

And today?

Zoe goes to the neighbourhood bakery. She hands over two coins and gets a warm sesame bread ring. Her mum pays for the bread with a card.

The baker takes the coins because he knows he can spend them somewhere else too. People worked that out by themselves, long before there were states.

But today’s money can no longer be swapped for gold or silver. The state prints it, and when it prints a lot, the sesame bread ring gets dearer. Zoe’s grandma remembers when the same coins bought two!

A child’s bedroom in the evening, with a lit bedside lamp and a window full of stars. Zoe sleeps with a smile, an open picture book on her blanket. Above her bed, inside a big dream cloud, the friends from the story wave at her: Nicholas with his fish, Peter with his stone axe, Helen with her grain, Sarah with a bar of salt, Joseph with his scales and Andrew with a silver owl coin.

Today

A long journey

In the evening, Zoe reads a book about money in bed. She closes her eyes and dreams. She sees Nicholas with his fish, Peter with his axe and Helen with her grain. She sees Sarah with her salt, Joseph with his scales and Andrew with his silver coin. They all smile at her.

None of them invented money. Each of them was just looking for an easier way to get what they needed. Step by step, all together, they made something that nobody planned. “Thank you, friends!” Zoe whispers, and falls asleep.

The End

The Lesson

Nobody invented money! Each person thought only about their own problem: how to get what they needed. So they accepted the thing that passed most easily from hand to hand. Those who did so did better; others copied them, until one thing was accepted by everyone. Nobody planned it: money grew all by itself, out of what all these people did together.

The state came later. It could stamp money, make rules for it and, in the end, replace it with paper. Yet even its paper took its value from a money that people in the market had already chosen. And when it prints too much of it, everything gets dearer, just like Zoe’s sesame bread ring.

For grown-ups: sources and further reading

Where each page comes from

Further reading

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Note

The pictures are illustrations for children, not faithful historical reconstructions. Pages 1–4 and 14–15 are hypothetical examples, and the names of the people are made up. The rest present, in simplified form, well-known milestones in the history of money; these did not follow one another in the same way everywhere.

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