Money presumes a future payment of a commodity. In antiquity, money meant cattle and grain. A “drachma” was a weight of grain. Japan's feudal system was based on rice per year – koku. Today, this system is still in effect for most farmers, who borrow against a future crop to gain money today for seed and operational expenses. Well, the demand for metals or precious stones to fund this credit system allowed mines to become profitable, and as people dug deep into the earth looking for shiny things that farmers could exchange for seed money. The mines were too complex to be owned and operated by a single person, and quickly came under the management of the government. The government found it important to support farmers with seed money, developing the process of modern agricultural subsidy.
The farmers who borrowed from their future crop to gain seed money today and the investors who lent money for a future crop eventually learned how to form a corporation, a business entity in which investors own the farms and hire the farmers, and the profits are divided into equal shares based on investment and labor. With labor becoming valued as highly as investment, the labor union was invented, allowing workers equal bargaining power to the investors. With the organizational power of a corporation, suddenly private ownership of mines was possible and gradually governments got out of the mining business… and got into the banking business.
The banknote was first developed in China in the Tang during the 7th century, with local issues of paper currency. Its roots were in merchant receipts of deposit during the Tang Dynasty (618–907), as merchants and wholesalers desired to avoid the heavy bulk of copper coinage in large commercial transactions. Before the use of paper, the Chinese used coins that were circular, with a rectangular hole in the middle. Several coins could be strung together on a rope. Merchants in China, if they became rich enough, found that their strings of coins were too heavy to carry around easily. To solve this problem, coins were often left with a trustworthy person, and the merchant was given a slip of paper recording how much money he had with that person. If he showed the paper to that person he could regain his money. The King was the most trustworthy person around, and soon banks were governmentally licensed.
But corporations began to offer their own notes, representing shares of future revenues (called “stock”) and debt notes (called “bonds”). Non-farm and non-mine businesses gained the ability to earn investment money through bonds and stock. Stocks and bonds have intrinsic value, just like the shiny objects that they can be traded for. Marketplaces evolved where stocks and bonds were traded, just like farm products or construction materials. Bought and sold, these markets facilitated the exchange of shiny objects to those who needed them most, who could pay them back best.
Times were good. People began to bank, or save, excess money, and the banks in which they deposited the money found they could loan out banked money at interest and still be able to get enough money to those depositors when it was called for. This doubled the money supply: the same dollar could be loaned and banked. With a doubled money supply, economies grew and farmers found they could sell their production for a higher value: people had more money! This encouraged more farming, which led to more babies being born, which allowed more people to undertake industry and bank more money.
But this is the rule for free economies when banks are owned or regulated by the government to be non-profit. Our own economy is somewhat different. There is not free competition between banks to keep interest rates low, and banks here have a tendency to increase interest to the highest amount the market will bear, shrinking money supply, decreasing agricultural prices.