Understanding Money: The World of Coins
Well, hello there 👋
Welcome back to class.
As we’re sure you’ll remember, last week we told you all about how humanity came up with the concept of money. If you’ve *ahem* forgot, then we’d recommend you check out the first chapter.
Are we up to date?
Time to learn about coins.
Coins predate the fiat
I know y’all can’t wait to learn about the fiat, and banks, and stocks, but before we can get to any of that, we need to understand why coins popularised one form of money over others.
Because you do remember about representative money and commodity money, correct? We discussed them in the previous chapter. So why did people mostly stop using pieces of paper backed by assets (yeah, we’ll get back to this one) and cowry shells in favour of pieces of marked metal?
Some nations already had functioning economies
It’s very important to understand the timings of this. We explained before how debt predated money, and in very much the same way there were sophisticated economies happening before any kind of standardised money came into existence.
Representative money was the one that lent itself to easier regulation, so large ancient economies like Babylon (from 1760 BC) or Mesopotamia (as far back as 3300 BC) tended to prefer it, and started regulating economic activity from very early on.
So what was the problem?
Representative money didn’t travel
The kind of certificates that temples or local authorities used to produce to guarantee that the collateral was safely deposited with them was only valid regionally. If you intended to trade with anyone that was outside that region, there was no way to do so. People elsewhere had neither the confidence in your local authority nor the means to withdraw the actual goods you deposited back home.
Metal travels just fine, though
So if you wanted to trade with people elsewhere, you wanted something they would want anyway, regardless of whether they could trade it back for what it represents. That brings us back to commodity money, like cowry shells, or precious metals.
Precious metals were particularly favoured. They are easy to weigh, relatively easy to split, you could mark them to set quantities, and they’re almost infinitely durable.
But there was a reason those didn’t catch on in the first place. They can’t be eaten. You can’t grow anything with them. Unless you’re wealthy enough that you would want to use them as jewelry or for further business, they’re really no good to you at all. And to make things worse, different people valued them differently, and without an authority ensuring their prices… you had no guarantees.
This is why you find metal money that is quite ancient (like Shang dynasty ancient), but no real monetary systems. You can find metal money in China, India and elsewhere as early as 1000 BC.
Standardisation is what changed everything
There were many baby proto-coins. There’s decent archaeological evidence that nations in modern day China, India and others around the Aegean Sea developed their own versions of round metal disks to use as money.
So what made Lydian coins different?
Every coin you’ve ever seen descends from Lydian money
History is sometimes unfair. Lydia is an Iron Age kingdom that was located in Asia Minor (modern day Turkey).
You’d think inventing standardised money would make you famous. People become famous for being good at TikTok, and yet…
Almost no one remembers the Lydians.
They created the first stamped gold and silver coins, and not just that: they were also the first to establish retail stores in permanent locations. Now, we could bore you to death with details about Lydian accomplishment in numismatics (they may have stamped coins as early as 700 BC!), but here’s why their idea of coin was so revolutionary:
By stamping the metal with an immediately recognizable shape (they started with figures of animals, but would quickly start using human features as well), you made it possible to ascertain the value of every minted coin without weighing or measuring it. This would effectively create a monetary system.
The world would catch up really quickly after that
All of these nations would vastly expand and start trading extensively from that moment forward, and the Lydian invention would become immortal. We still use stamped round metal circles as money to this day.
We will be telling you all about banknotes and what constitutes fiat money.
Don’t miss it!
Oh, before we go!
Have you ever wondered why we used to use soft metals, like silver and gold, instead of hard metals, like iron and steel, to make money? You’d think we want the more durable and resistant materials, right? Like we do now.
That’s because of assaying, the development of which was another key moment for money.
Assaying is a simple process, by which you analyse the chemical composition of something for the presence of a specific element. Does it sound complicated? Well, sometimes it is. For some evaluations, you need a modern lab.
But not to figure out whether you’re in the presence of a soft metal. Soft metals, like gold and silver, are known to leave marks on touchstones that are sufficiently abrasive. Once people figured that out, they realised how easily you could verify the quality of ingots, jewelry, and, yes, coins too.