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Nowadays most value/price of goods and services are determined by the supply and demand in the market. And most of the time we use money which back by the credit/trust of the country to exchange these goods and services.

But one thing keep puzzling me. When money first created by the country (let say a new country just form and they start making their own currency/money), without any credit or trust for the newly created currency and any reference whatsoever. How did anyone can determine the price/value for goods using that money. Did the government of the country just announce or set the price for some high demand commodities (say foods/water that everyone needs) as a anchor for everyone to reference? Or did the people just make there own assumption and start a complete chaotic process of natural selection in the market until most of the price settle?

I just can't figure what process did the first country in the past, that created money go through to settle market. It would be very helpful if anyone could give me some insight about this question.

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  • $\begingroup$ Welcome to Economics:SE. Thank you for your question; please consider revising it to be more in line with our community expectations. Like many other stacks, we expect questions to provide evidence of prior research. That helps us to understand the question, and avoids our repeating work you've already done. Our help center, and other stacks provide additional resources to assist with revisions. $\endgroup$
    – 1muflon1
    Mar 5 at 8:52
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No prices exist even without money when you barter. Early money was just some sought-after commodity that was originally bartered (like grain/livestock/metals), but people just figured that such commodity can be used in all transactions to avoid double coincidence of wants. Simple forms of money precede countries, as we understand them today.

As the first ancient states developed this just got better organized. Coins developed from state stamping pieces of metal to certify its quality. A more complex form of money such as Mesopotamian clay tablets that were exchangeable for barley at harvest time developed from the government starting to enforce contracts. At that point, the value of money started to be also underpinned by the fact that the government required taxes to be paid in its money which created a demand for it.

So at the point when money was created, all goods and services already had prices in terms of money. Relative prices exist irrespective of whether money exists, and early money was just some commodity that already had all relative prices to other commodities. Once it was selected as money just other values started to be expressed per unit of the selected commodity as well. You can have look at The Ascent of Money by Ferguson, it is a nice overview of the history of money from ancient times to the present day.

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