The Starting Point – What is Money?
by Dave · Published · Updated
Let’s begin with something that archaeologists believe was happening 5,000 years ago in Mesopotamia. People were making tiny clay models of sheep and bundles of crops – to represent real sheep and crops being traded. These were put into a little clay packet. The outside was scribed to indicate what was inside – who owed the value of the sheep – and who was the beneficiary. Once baked in the sun, this became a tamper–proof packet, or contract.
Eventually, people gained confidence in this system and realized that they didn’t need to put the tiny models inside, as long as everyone trusted the marks on the outside. People holding clay receipts for goods held in storage found they could trade and transport the receipts in place of the physical goods. In time this evolved into a fully flexible system of money and financial management.
In modern day Ghana, the local currency is the Cedi – an Ashanti word meaning cowrie shell. Their coin is engraved with this image, which reminds people that the paper money can be trusted because it is based on the traditional ‘real’ money – bags of shells. On the back of the US one dollar bill is written: “In God we Trust”.
In the UK, the paper money carries a promise and the signature of the Chief Cashier of the Bank of England. For example, the ten pound note says “I promise to pay the bearer on demand, the sum of ten pounds” – in other words, a promise that you can exchange your hard earned ten pound note for a ‘real’ ten pounds.
These examples emphasize the point that money is not really worth anything – it’s all about trust. Money is a store of value – and a medium of exchange. It avoids the difficulty of a ‘co-incidence of needs’. For example, without a system of money, if you were trying to sell your company’s latest product – the Wheel – your prospect may offer you two goats and five sacks of flour. If you had no need for goats or flour then you would not have a ‘co-incidence of needs’.
You would have a hard job bartering with various third parties trying to find somebody who needs goats and flour in exchange for something that you actually need. Just in case this ever happens to you, remember that RDC also offers modules on Negotiation!
The Evolution of Money and Modern Finance
A thousand years later than our first example in Mesopotamia, there was an empire which modern archaeologists call the Neo-Sumerian (UR3) – in what today is southern Iraq.
The epic of Gilgamesh dates from this period. Among the archaeological finds, there are thousands of clay tablets recording the High Finance and accounting arrangement for commerce and the financial administration of the empire. From these, we see that goods were flowing into and out of the empire from right across the known world – Globalisation is not new – and the salespeople and financial boffins were there, along with the taxman.
Thousands of years later, Luca Pacioli was born to a modest family in Tuscany around 1445. He became the first lecturer to hold a chair in mathematics at the University of Perugia. One of his pupils was Leonardo da Vinci. Before 1500 he published a book on Mathematics – with one section on Accounting.
His system became known as the Venetian method – and it revolutionised economics and business so it could deal with the European Renaissance and a new period of economic expansion and globalisation. Today, every organisation aims to use its resources wisely, either to maximise profit or to provide best value.
As a result, they need to plan and control their activities and investments. When you come into contact with your clients and with managers in your own organisation, this will most likely include dealing with some financial issues, whether it is helping to build a compelling business case, planning the budgets they need, or understanding financial data in reports.
Salespeople who need to make presentations to boards or committees will benefit from knowing some of the key financial concepts so they can present their ideas with confidence. To be fully effective, you need to be familiar with basic financial terms and techniques.