A Look Back at Payments Through the Years

The way we pay for things has evolved over the years, and followed a natural progression that's taken us all the way to the point where we make online payments using our cell phone without thinking anything of it. Obviously things weren't always that simple, and payments started out in a significantly more primitive state. Here is a brief history ranging from barter to PayPass, from strung beads to credit cards that will give you an idea of just how far our methods of payment have come.

Bartering is thought to date back over 100,000 years, and was seen across practically every culture. Farmers might trade livestock for clothing, or someone skilled in weaving might trade one of his baskets so he'll have something to put in one of his other baskets. The transactions were usually completed by two people and the amounts were determined almost solely on what each party agreed would be a fair exchange. However, because you can't exactly stuff everything you own into your pocket and have it readily available for barter, there was a strong need for an easier way to purchase things.

Typical Transaction:

"Those apples look awfully delicious, and I could use a break from eating nothing but red meat. How about a stick of beef jerky for a dozen granny smiths?"

"Make it two sticks of jerky and you've got yourself a deal."

"Done."

Commodity money evolved out of bartering, and is based around the idea that the commodity itself has a specific value to it. The earliest examples of commodity money include dyes, strung beads, and shell jewelry. In fact, the term Shekel, which is still used today, originally referred to a specific mass of barley and dates in Mesopotamia right around 3000 BC. Probably the most famous form of commodity money is gold, which was swapped by the Egyptians in bar-form and has frequently taken on monetary functions throughout history. One can only assume this is because gold is just so pretty.

Typical Transaction:

"I've got a necklace made of shells, which anyone can clearly see is quite breathtaking. How about you give me a large amount of wheat and then you can turn around and use the same necklaces I'm giving you to buy that sailboat you always wanted."

"Sounds great."

Modern scholars estimate the first gold and silver coins were introduced by the Lydians somewhere around 650 BC. Obviously, having a relatively light weight and fixed-value form of payment made buying things considerably easier. However, since having only one standard coin is likely to leave everyone stuck overpaying or buying in bulk, lower denominations of coinage were quickly developed.

Typical Transaction:

"I would like to purchase a Shekel of barley."

"Perfect, that'll be one Shekel coin."

"Wow, how convenient!"

As a logical stepping stone from commodity money, paper money initially came about as a form of representative money. Banks would issue a receipt, or note, to the depositor that was redeemable for whatever gold or silver they had stored. Since these notes were basically the same as gold, they eventually began to be traded. The first widely accepted paper money appeared in China right around 960 AD, when the Song Dynasty issued what were essentially promissory notes because the country was suffering a shortage of the copper necessary to make coins.

Typical Transaction:

"I want to buy your horse for a thousand gold coins."

"I can't carry that many coins back home. Especially without a horse."

"Well what if I gave you a piece of paper worth one thousand coins so you could go pick them up from a bank whenever you'd like?"

"That sounds great!"

The increasing use of bank notes and paper money as currency allowed banks to take up the practice of fractional reserve banking and begin loaning out money while trusting that not everyone would want all their money back at the exact same time. With banks beginning to lend out more notes than they could back with actual reserves, credit became available to people who could assure banks they were going to be able to provide a timely repayment of the loan...with interest, of course. Goldsmiths were some of the first to embrace this idea, using a portion of the reserves they were holding in order to become creditors and make money off of investments.

Typical Transaction:

"There's a stake of land that I know has gold on it, but I don't have the money to buy it. If you loan me the money, I'll do all the work and pay you back your money and then some."

"You got yourself a deal, partner."

The first mention of credit cards comes from the 1887 novel Looking Backward, although the description is more on par with what would be considered a debit card. Although there were some early forms of payment that could definitely be thought of as a precursor, the modern day credit card didn't really appear until the 1950s. Diners Club was the first general purpose charge card, but it required that people pay the entire balance at the end of each statement period. The idea of credit cards as revolving debt didn't really start to take off until the launch of the cards that would eventually become Visa and MasterCard in the mid to late ‘60s.

Typical Transaction:

"I'd love to have that fancy new electric typewriter, but I don't have the money."

"Would you like to use your credit card?"

"Certainly!"

Over the past couple of decades, new technologies have changed the way people purchase things. Payments can be scheduled and made online.  These payments not only involve accepting credit cards, but enable the use of PayPal, Google Checkout and a slew of other payment portals.  This digital payment allows you to shop on your own terms so you can avoid long lines cranky clerks and creepy customers.

Typical Transaction:

"I won the bid on eBay and now I just need to send the money through via PayPal. Unfortunately, first I'm gonna have to add more money to my account using one of my credit cards."

Taking these purchases a step further, advancements now allow you to manage bank accounts and transactions directly from your cell phone.  Different applications allow you to not only bank from your mobile phone, but to accept credit cards on your Blackberry. 

Typical Transaction:

“Hey Mr. Plumber – do you take AMEX?

Not here, but I’ll SMS you a link so you can get paid.”

Conclusion: The Future of Payments

We have come a long way in 100,000 years, but if you feel like getting in touch with your primitive barter-based roots, you can peruse craigslist and look for an interesting trade.

Basically, if you want to buy something there are now more ways to pay for it than at any other time in history. Of course, that's assuming you have the money, credit, or random valuable commodities to back it up.