In the early stages of any culture cycle, barter is replaced by a money economy.  Money is a medium of exchange, usually issued by a public authority and used in daily transactions, to pay tribute or taxes and to meet other general expenses.  In its earlier forms it is made of relatively scarce materials that are in general demand, limited in supply and easily divisible into smaller units.  Gold, silver and other metals meet these requirements and have been used as money through the ages.

Cash money and promises to pay speed up wholesale and retail exchanges in the market place.  They fill the bill in normal times.  But there are emergencies and other exceptions.  One of the commonest of the emergencies is war.

In a previous chapter we pointed out that war is a characteristic feature of a civilization that has passed the top-point of its expansion and begun to decline.  Then the chickens come home to roost.  Civil war, colonial wars and wars between imperial rivals follow each other, creating emergencies in which demand for certain strategic goods and services rises steeply, with no corresponding increase in supply.  Prices increase.  The common defense requires immediate purchase of supplies.  The public treasury is exhausted.  The government borrows from money lenders (bankers).  It also prints paper money and puts it in circulation.

If the credit of the government is good, if the emergency is of short duration, matters right themselves and the economy survives without serious derangements.  But war-emergency disrupts and sometimes destroys an economy.  This outcome often results from military defeat.

Another exception to normal economic transactions is buying on credit—­buying today and paying tomorrow.  The temporary gap between purchase and payment is filled by credit—­a promise of the purchaser to pay later and the confidence of the seller that the bill will be paid.  Such credit transactions are covered by notes, bonds and mortgages made out by the buyer and accepted by the seller.  Until the debt is settled, the borrower pays the seller interest at an agreed rate.  Bankers enter the picture, providing capital and collecting interest on their loans.

Where credit is abundant and relatively cheap, borrowers spend beyond their incomes, hoping to pay later when the loan falls due.  Borrowing and over-spending are among human frailties.  They are also forms of risk-taking or gambling.  Who knows whether the banker who promises to pay on demand will be alive and doing business next week when his promise to pay is presented for settlement?  When the promise to pay is issued by a government which decides the value of currency, and accepted by that government as payment for taxes and other obligations, it is more readily acceptable than paper issued and guaranteed by an individual money lender or banker.

Each civilization has had a background of simple use economy—­food gathering, animal husbandry, agriculture—­in which most of the people produced what they needed and consumed what they produced.  Such an economy employs money rarely.