The development and significance of coins

Author: Utrust

Compiled by: ChainCatcher

Well, hello, and welcome back to class.

We believe you remember that last week we introduced how humans came up with the concept of money. If you ahem forgot, then we suggest you check out Chapter One.

Are we up to date?

Alright.

It's time to understand coins.

I know you all can't wait to learn about fiat currency, banks, and stocks, but before we get into those, we need to understand why coins made one form of currency more popular than others.

Because you do remember representative money and commodity money, right? We discussed them in the previous chapter. So, why did people mostly stop using paper notes backed by assets (yes, we will get back to this) and shells, and turn to marked metal pieces?

Understanding this timeline is very important. We previously explained how debt appeared before currency, and complex economies developed in very similar ways before any standardized currency emerged.

Representative money is a form of currency that is easier to regulate, so large ancient economies like Babylon (from 1760 BC) or Mesopotamia (as early as 3300 BC) tended to prefer it and began regulating economic activities very early on.

So what’s the problem?

The kind of proof that temples or local authorities used to guarantee the safe storage of collateral was only valid within the region. If you wanted to trade with anyone outside that area, there was no way to do so. People from elsewhere neither trusted your local authorities nor had a way to retrieve the actual goods you stored at home.

Therefore, if you wanted to trade with people from other places, what you wanted was something they would want regardless of whether they could exchange it back for what it represented. This brings us back to commodity money, like shells or precious metals.

Precious metals were especially favored. They are easy to weigh, relatively easy to divide, you can mark them to set quantities, and they are almost infinitely durable.

But there was a reason they didn't initially become popular. They are not edible. You can't grow anything with them. Unless you are wealthy enough and willing to use them as jewelry or for further business, they are really of no use to you. Worse still, different people valued them differently, and there was no authority to ensure their price… you had no guarantees.

That’s why you find very ancient metal currencies (like those from the Shang Dynasty), but no real monetary systems. As early as 1000 BC, you could find metal currency in China, India, and elsewhere.

There are many early prototype coins. There is reliable archaeological evidence that modern China, India, and other countries along the Aegean developed their own round metal discs for use as currency.

So what made Lydian coins different?

History can be unfair sometimes. Lydia was an Iron Age kingdom located in Asia Minor (modern-day Turkey).

You would think that inventing standardized currency would make you famous. People get famous for being good at TikTok, yet…

Hardly anyone remembers the Lydians.

They created the first stamped silver and gold coins, and not only that: they were also among the first to open retail shops at permanent locations. Now, we could bore you with details about Lydian achievements in numismatics (they might have been stamping coins as early as 700 BC!), but this is why their coin idea was so revolutionary:

By stamping recognizable shapes on metal (they started with animal images but soon began using human features), you could determine the value of each minted coin without weighing or measuring it. This effectively created a monetary system.

Within a hundred years of the Lydian invention, the Greek mainland, the Etruscans, and the Persian Empire (which would assimilate Lydia, wow) were all using standardized coins.

From that moment on, all these nations would expand significantly and begin extensive trade, and Lydia's invention would become immortal. To this day, we still use stamped round metal discs as currency.

We will tell you everything about banknotes and the composition of fiat currency.

Don't miss it!

Have you ever wondered why we used soft metals like silver and gold in the past instead of hard metals like steel to make money? You would think we need more durable and resilient materials, right? Just like we do now.

That’s because assay, the development of assay is another key moment in making money.

Assaying is a simple process through which you can analyze the chemical composition of something to understand the presence of specific elements. Sounds complicated, right? Well, sometimes it is. For certain assessments, you need a modern laboratory.

But don’t figure out if you are in front of soft metals. It is well known that soft metals (like gold and silver) leave marks on a sufficiently abrasive touchstone. Once people figured this out, they realized how easy it was to verify the quality of metal ingots, jewelry, and of course, coins.