The invention of money

The invention of money

The invention of money

Ancient historian, Dr Gil Davis, takes us through the story of money. He and his colleagues in the European Union are using a combination of history, numismatics and science to unravel the secrets of this most useful of inventions, with a $4 million grant from the European Research Commission (ERC).

Surprisingly, the origins of money are uncertain. Nowadays it is hard to imagine a world without money. But at one time everything from small communities to great empires used barter, and sometimes this became very sophisticated. We have records from the Neo-Babylonian Empire for instance, of a fully-fledged commodities exchange, with daily-published exchange rates for things like wheat, barley, figs, dates and precious metals. It was so sophisticated that when money was invented, it did not catch on in the Near East, probably because it was seen as a retrograde step at the big end of town.

At the lower end however, things were not so simple. We have a terrific example in the Bible when Abraham the Patriarch bought a plot of land from Ephron the Hittite to bury his late wife Sarah. In his negotiations with Ephron, the local real estate tycoon who seemed to have a number of bargains available, he asked for a field for “as much silver as it was worth”. After some negotiations, he weighed 400 shekels of silver “current money with the merchant”.

A shekel was a measure of weight of the silver bullion, even though it later became a coinage denomination, pointing to the connection between weighing and money. The silver filled some functions of money being acceptable, portable and durable. But it was not homogenous, readily divisible, and fungible – that characteristic of money meaning every bit of currency of the same denomination is able to be exchanged. And more problematically, it was not guaranteed as to its value. Just how pure was it - 50, 75, 100 percent silver? You could not tell just by looking. This presumably was the function of the merchant, who must have acted as some sort of honest broker.

Skip forward a few hundred years and our literary sources tell us that it was the Lydians, with their empire in north west Turkey, who were the first to invent money. We can see precursors. Merchants started stamping bits of metal presumably to guarantee it with cute messages such as: “I am the badge of Phanes”.

The Lydians used electrum, a combination of gold and silver, but this made the problem even more acute – gold was roughly 10 times more valuable than silver, so even a small change in percentages could lead to a big change in value. Ancient sources also tell us that the Pactolus River, which flowed right through Sardis, the Lydian capital, had natively occurring electrum in nice, coin-sized nuggets. Thus, the prevailing theory has been for 200 years that the Lydian kings kindly, altruistically, stamped these nuggets and guaranteed their value in their domains – in other words, the coins could be redeemed at their guaranteed value from the state. The Greeks got hold of this innovation, and money spread like wildfire. And that is what is in all the textbooks and articles about the invention of money.

However, a few years ago, some geologists conducted an extensive survey of the Pactolus River, and found no electrum, just deposits of gold dust, as you might expect in a river. So what really happened? In fact, it is now clear that electrum never occurred there naturally in nuggets. Tests on the composition prove that it was deliberately made to a controlled formula. A bit of gold, a bit of silver, add some copper so it looks more golden and hey presto, you have artificial electrum.

Therefore, the cynical among you will be astonished to learn, the motivation for inventing money, and requiring that it be used in all the king’s domains, was none other than profit to the government. The weight of coins is about 5% less than their bullion value. This was profit to the crown, and later to all governments who issued coins. A very handy innovation indeed, but one that reminds us that profit is one of the big drivers of innovation, 2,500 years ago and today!

And this brings me to the ERC project. Macquarie has a major numismatics centre – the Australian Centre for Ancient Numismatic Studies (ACANS) headed by Associate Professor Ken Sheedy. In an ARC-funded project, Ken, Professor Damian Gore and I analysed over a 1,000 Archaic Athenian coins using a new application of EDXRF – a form of chemical analysis – in a ground-breaking study. My research has led me to specialise in archaeometallurgy and to combine it with historical and numismatic insights to question other major paradigms about the sources of ancient silver and its diffusion in the ancient world.

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