The Birth of Coinage

The gold of the river

Down the slopes of Mount Tmolus, in Asia Minor, ran a small river the ancients called the Pactolus, and in its sands glittered a yellowish dust that the local people had gathered from time immemorial. It was not pure gold, but a natural alloy of gold and silver that the Greeks called electrum for its pale colour, like that of amber. On that river and on that wealth there rose, in the seventh century before our era, the power of the kingdom of Lydia, and the last of its kings, Croesus, became in Greek memory the very symbol of opulence: “rich as Croesus” would be said for centuries, and is said still. Legend — for legend it largely is, handed down by Herodotus a couple of generations after the events — would have it that the gold was the poisoned gift of King Midas, who by bathing in the Pactolus had washed away there his curse of turning to metal everything he touched. It is worth bearing in mind, from this opening, that the sources on Croesus and Lydia are steeped in story and moral, and that the modern historian handles them with caution: but beneath the patina of myth there remains a solid fact of enormous consequence. It was there, in the Lydia of those kings, that the first coined money of which we have evidence appeared [Davies 2002].

They were small lumps of electrum, of determined weight, on which an authority had pressed a mark — at first rough punches, then figures such as the famous lion’s head of the Lydian kings. That mark changed everything. For the first time, whoever accepted that metal in payment no longer had to weigh it or assay its purity at every passage: the stamp guaranteed, to anyone who recognised it, that the piece contained a fixed quantity of precious metal. Trust, which until then had to be placed in the scales and in the expert eye of the money-changer, now passed into the seal of whoever had struck the piece. Coinage was born, and with it a new form of money: no longer merely a unit of account in which to write debts, like the weighed silver of Mesopotamia, but a pocketable, standardised, anonymous object, passing from hand to hand carrying with it the guarantee of an authority.

It is worth saying at once why this invention deserves a chapter, and why it must be framed with precision. In the previous chapter we saw that money, as a unit of measure of value and as a record of debt, had existed for millennia before Croesus. Coined money did not therefore invent money: it invented a new support for it, extraordinarily effective, which would dominate the scene for the following twenty-five centuries. To distinguish the two things — money as a function and the coin as an object — is essential if we are not to fall back into the fable that has everything born from metal. And yet it would be unjust to underrate the significance of what happened in Lydia: to make money a physical object, identical to itself and transferable to a stranger without need of personal trust, was a leap whose consequences unfolded across the politics, the warfare, the civic life of the whole ancient world. To that leap, and to what followed it in Greece and Rome, this chapter is devoted.

What a seal adds

To measure the Lydian innovation one must ask precisely what coinage added to the weighed metal that had long served as a measure of value. The answer lies in two words: standardisation and guarantee, and the second follows from the first. A bar of raw silver, to serve in a transaction, must be weighed — and the scales can be rigged, the weights altered, as the Mesopotamian lawgivers who punished fraud on weights knew well — and it must be assayed for purity, a difficult operation requiring skill and instruments, and opening endless occasions for deceit. Whoever received raw metal had to trust, at every passage, his own ability to verify it. Coined money transferred this verification upstream, once and for all, at the moment of striking: the authority that struck the coin declared, by its mark, that the piece had a fixed weight and fineness, and made itself the guarantor of that declaration. Whoever accepted the coin no longer trusted the piece of metal as such, but the authority that had issued it.

An episode from the early days of Lydian money illustrates this point well, and deserves to be told because it closes a circle. The very first coins were, as has been said, of electrum, the natural alloy of gold and silver from the Pactolus. But electrum carried with it a subtle and insidious defect: the proportion of gold to silver, in the natural alloy, varies from sample to sample, and since gold is worth far more than silver, two electrum coins of the same weight might contain appreciably different quantities of value, depending on how much gold was in them. Whoever accepted an electrum coin could not tell, by eye, what its real composition was, and this reopened the very uncertainty that coinage was meant to close. The solution, attributed by tradition to Croesus, was radical: to abandon electrum and strike separately coins of pure gold and coins of pure silver, of known and constant composition. Only then did the value of a coin become fully predictable from its weight and its metal, and the authority’s guarantee could truly mean something precise. It is an instructive passage, because it shows that money “works” only when whoever receives it can trust not the metal in general, but a determined and declared quality of it: and that the progress of coinage was, in the end, a progress in the reduction of uncertainty, in making value legible and reliable for those who had no means of verifying it themselves.

This shift is deeper than it appears, and it illuminates once again the nature of money we have begun to explore. Even the gold coin, which seems to embody the metallist theory to perfection — money as a commodity endowed with its own value — in reality carries inscribed upon itself the opposite theory, the credit one: because its value lies not only in the metal, but also and above all in the guarantee of the authority that struck it, in a promise of reliability that is a different thing from physical weight. The proof is that, from antiquity, coins often circulated at a value higher than that of the metal they contained: the difference was the value added by coinage, by the convenience and the trust it conferred. And when that trust was betrayed — when the authority cheated on the content, as we shall see happen in Rome — the coin lost value even though the metal remained the same weight. Already in the gold coin, then, the thing and the promise, the metal and the guarantee, coexist inseparably: and the whole history we shall tell can be read as the slow, centuries-long prevailing of the second over the first, down to the money of today that has nothing of metal left in it.

It is worth, so as not to leave ancient money in abstraction, saying a word on how a coin was physically struck, because the material gesture explains many things. The metal was melted and reduced into small blanks of the desired weight — and already the weighing of the blank was a delicate operation, on which the quality of the issue depended. The blank, sometimes heated to make it more malleable, was then placed over a lower die, fixed, set in an anvil and engraved in negative with the image of the obverse; over it was laid a second die, upper and movable, engraved with the reverse; and a hammer blow, struck by the moneyer, pressed the two faces simultaneously into the metal. It was manual work, blow by blow, coin by coin, and this explains the irregularity of ancient coins, never perfectly round nor perfectly centred, each slightly different from the others. It also explains why coining was an activity jealously controlled by the authority: the dies, the engraved stamps, were precious and dangerous objects, because whoever possessed them could manufacture money, and the forger who managed to procure one, or to engrave his own, struck at the very heart of sovereign power. The counterfeiting of money was for this reason punished everywhere, and in every age, with some of the most atrocious penalties, on a par with treason: because to strike money was a prerogative of power, and to counterfeit it was to usurp power.

Here a question arises that historical prudence forbids us to dismiss. To say that the first coined money appeared in Lydia in the seventh century is correct as far as our knowledge goes, but it must be said with caution: the very notion of “money” is elusive, and depending on how one defines it one may point to different antecedents. If by money we mean a standardised means of payment, there were in other civilisations — in China, for instance — instruments that performed similar functions, sometimes with disputed chronologies; if we mean strictly the disc of metal with an authority-guaranteed stamp, Lydia retains the primacy as far as we know today. Historiography, in short, attributes to Lydia the birth of coined money in the full sense of the term, but with the awareness that origins, here as elsewhere, fade into a territory of precursors and contested definitions. It is a caveat that holds for almost every “first time” in the history of money, and one the reader will do well to keep in mind whenever he meets a claim of primacy.

The money of the city

If Lydia invented money, it was Greece that discovered all its possibilities, and made of it something Lydia had not imagined: a civic fact, an attribute of the political community. The novelty spread rapidly from the coasts of Asia Minor to the Greek cities, and within a few generations hundreds of poleis — the city-states into which the Greek world was fragmented — each struck their own coin. On those silver discs, for in Greece it was above all silver that served as the monetary metal, appeared the symbols of the cities: the owl of Athens, sacred to Athena, become a synonym for Athenian money to the point that “to carry owls to Athens” was the Greek way of saying what we say with “to carry coals to Newcastle”; the turtle of Aegina; the winged horse of Corinth. The coin was no longer merely an economic instrument: it was an emblem of sovereignty and identity, a little manifesto that each city sent out across the known world.

To strike money thus became one of the marks of self-government, and its spread accompanied the flowering of Greek civic life. But the consequences went well beyond the symbol, and touched the very way society was organised. Coined money, divisible and manageable, made it possible to pay small sums to a multitude of people, and this transformed ancient institutions. The citizen army, for example: with money one could pay a regular wage to soldiers, and the figure of the mercenary was born, the man who fights not from feudal duty or tie of blood, but for a wage in coined metal. Armies of mercenaries paid in coin traversed the ancient world, and with them money itself spread, because the discharged soldier carried it home and spent it. In the same way money penetrated public life: at Athens a small payment came to be given to citizens who took part in the courts and the assembly, so that even the poor could afford to exercise political rights without ruining themselves. Democracy, in a very concrete sense, was also a matter of small change.

There was, in this spread of money, also a minute and silent revolution, which the grand narratives tend to neglect but which changed the daily life of millions: the birth of small money, of petty cash. To strike pieces of silver of modest value, and then pieces of bronze of value smaller still, meant to bring monetary exchange into the retail market, into the shop, into the everyday buying and selling. A peasant selling a few eggs, an artisan buying a meal, a labourer receiving his daily wage: all of these entered, thanks to divisible money, an economy from which precious metal in large denominations would have excluded them. Before small money, those who did not deal in great sums lived at the margins of the monetary economy, settling their exchanges with the neighbourly credit and payment in kind we described in the previous chapter. Small money monetised the daily life of ordinary people, and in this way penetrated far deeper into the social fabric than gold money alone, the money of the rich and of states, ever could. It is a phenomenon we shall meet again, centuries later, in different forms: every time money has become more capillary and accessible — with small coin, with the banknote of lesser denomination, with electronic payment — it has changed not only the economy, but the very weave of relations between people.

Behind this pervasiveness of money in Greek life some historians and philosophers have seen a deeper transformation of mentality itself. The habit of reducing everything to a price, of measuring heterogeneous goods along the single scale of monetary value, would have accustomed the Greek mind to abstraction, to the search for a single principle beneath the variety of phenomena — the same intellectual move that lies at the origin of Greek philosophy and science. It is a fascinating thesis and by its nature unprovable, of which one should be wary in its too clear-cut versions: money did not “create” philosophy. But that the generalisation of money accompanied and perhaps favoured a certain abstract way of thinking the world, reducing multiplicity to a common measure, is an observation worth recording, if only because it reminds us that money is never merely an economic instrument: it is also a form of mind, a way of looking at things [Goetzmann 2016].

The silver of Athens and the sinews of war

The history of Greek money offers also the first great example of how the control of a source of precious metal could decide the fortunes of a power, and of how money was, in the ancient expression, the “sinews of war”. Athens possessed, in its territory, the silver mines of Laurion, and from those mines it drew much of its power in the fifth century. When, according to tradition, a particularly rich vein was discovered, the Athenians found themselves debating what to do with it: distribute the gain among the citizens, as many wished, or invest it. The counsel of Themistocles prevailed, who persuaded the city to build with that silver a fleet of war; and it was that fleet which, shortly after, defeated the Persians at Salamis and saved Greece. It is an episode to be taken, here too, with the caution due to ancient sources, but one that perfectly illustrates a connection destined to recur throughout the history we tell: whoever controls the metal controls the money, and whoever controls the money can arm armies, build fleets, buy allies. Monetary wealth and military power are, from antiquity, two faces of a single coin — and the image, here, is almost literal.

The Athenian silver coin, the famous owl tetradrachm, became for this reason something resembling the first “international” money in Mediterranean history: accepted and desired well beyond the borders of Athens, because it was known to be of good silver and constant weight. Its reputation was such that Athens, even when it might have gained by debasing it, took good care not to: it maintained for generations the quality of its silver, and was repaid by the universal trust its money enjoyed. It is a lesson that many authorities, in the centuries to follow, would forget to their cost: the reputation of a currency is a capital that accumulates slowly and is squandered fast, and it behoves whoever strikes money to resist the temptation to abuse it. To that temptation, and to those who yielded to it, we must now turn, for it was in Rome that it first showed its consequences on a vast scale.

The face of the emperor

Rome came late to money, compared with the Greeks. For a long time, in the centuries of the early republic, the Romans used bronze by weight as a measure of value, rough loaves of metal weighed on the scales — an archaic system closely recalling the weighed silver of Mesopotamia, and one that left a deep mark on the Roman vocabulary and institutions. Only later, under the influence of the Greek cities of southern Italy and under the spur of its own wars, did Rome adopt coined money proper; and the silver denarius, destined for such fortune, was born in an age of great military tension, when the republic needed to pay armies and finance its conquests. There is here a connection worth making explicit: Roman money and the military expansion of Rome grew together, feeding each other. Conquests brought booty — precious metal wrested from the vanquished, annexed mines, war indemnities imposed on the defeated — and that metal was struck into coin; the coin in turn paid the legions that made new conquests, which brought new booty. Money was truly, in the ancient expression, the sinews of war, and the Roman empire was also a colossal machine that turned conquest into money and money into new conquest. So long as the machine turned, the monetary system prospered; when, in the third century, the conquests ceased and the empire indeed passed onto the defensive, while military expenditure went on growing, the inflow of fresh metal failed, and the temptation to debase the existing money became irresistible. But of that we shall speak shortly.

Rome thus inherited from the Greek and Hellenistic world the use of coined money, and made of it an instrument of government and propaganda of unprecedented power. The Roman silver coin par excellence was the denarius, flanked in gold by the aureus and in bronze by smaller denominations, in a system that for the first time in history gave an empire spread over three continents a substantially single coin, recognised from Britain to Syria. On those coins Rome did something the Greeks had only touched on: it put the face of its rulers. At first divinities and symbols of the republic, then, with the coming of the principate, the effigy of the living emperor, accompanied by inscriptions celebrating his titles, his victories, his virtues, his works. Each coin thus became a little political message that travelled into every corner of the empire and passed through every hand: the most capillary and effective means of propaganda the ancient world knew, in an age without printing and without other mass media. When a new emperor came to power, one of the first things he did was strike money with his own face; when he wished to announce a victory or a programme, he engraved it on a coin. Through money, the authority made itself present and visible to millions of subjects who would never otherwise have seen it.

But the Roman empire itself, which made of money so powerful an instrument, offers also the first great case study of its abuse, and of the ruin that can follow. To understand how this happened we must introduce a concept that from here on will accompany us continually, and that is the secret key to the power of whoever strikes money: seigniorage.

The gain of the sovereign

Whoever strikes money enjoys a singular privilege. If the value at which the money circulates is higher than the cost of producing it — the cost of the metal plus that of coining — the difference is a net gain for whoever issues it. This gain takes the name of seigniorage, a word that evokes the lord, the feudal or sovereign authority that reserved to itself the right to strike money and to profit by it. In its most innocent form, seigniorage is simply the recompense for the service of coining: the state provides the community with a useful instrument — guaranteed and standardised money — and retains a small part of the metal as payment for that service. But seigniorage hides a temptation, and the temptation is the stronger the more the authority is short of money, as states chronically are, and above all in time of war.

Historically, the ways of extracting from money a hidden gain were essentially three, and it is worth distinguishing them because they will recur throughout the book. The first, the crudest, did not even depend on the authority but on private persons: to file or clip the edges of gold and silver coins, gathering the filings and returning the lightened piece to circulation. It was a most widespread fraud, fought against for centuries, and defeated only much later, in the age of mechanical coining, with the invention of that milled or inscribed edge our coins still bear, a relic of an ancient war against the clippers. The second way was reserved to the authority: to reduce the weight of the coin, striking lighter pieces at the same declared nominal value. The third, the most insidious because the least visible, was to debase the fineness, that is to lower the percentage of precious metal by mixing in base metal, and it was this, as we shall see, that Rome took ruinously. The three ways have their effect in common: less precious metal for each unit of nominal value, and therefore a gain for whoever operates the reduction, at the expense of whoever holds and accepts the money.

The form that most concerns us, because it is the prerogative of power and its structural temptation, is therefore this: to reduce the content of precious metal in the coin, while leaving its nominal value unchanged. If a coin that should contain a certain weight of silver contains a little less — because copper has been mixed in, or because it has been struck lighter — the difference stays in the coffers of whoever issued it, who with the same quantity of metal can strike more coins. It is a way of extracting from money a hidden gain, a concealed tax that subjects pay without noticing at once. In the immediate term it works: the authority procures means it would not have. But it is a slow-acting poison, because the reduction of the metal content, if repeated, ends by being discovered. People begin to distinguish the old coins, of good metal, from the new, debased ones; they hoard the first and seek to rid themselves of the second, by a mechanism that centuries later would be formulated as “Gresham’s law”, whereby bad money drives good money out of circulation. And above all, if the dilution continues, prices rise: more debased money is needed to buy the same things, because what counts, in the end, is not the number of coins but the quantity of value they represent. This is inflation, and antiquity knew it well, even if it had no theory to explain it.

The slow agony of the denarius

The Roman case is exemplary because it is documented and because it is dramatic in its proportions. In the first two centuries of the empire the silver denarius maintained a good quality, and with it the Roman monetary system enjoyed a stability that was no minor factor in the prosperity of the empire. But beginning in the second century, and then ever more rapidly in the third, the emperors, pressed by growing military expenses, by civil wars, by the cost of an army that had continually to be paid and conciliated, began to reduce the silver content of the denarius. At first the reduction was slight and gradual; then, in the course of the third century — the century of the great crisis of the empire, marked by military anarchy, emperors succeeding one another within months, invasions and plagues — it became headlong. The denarius, which had been a coin of good silver, was reduced to a disc of copper barely silvered on the surface, with a patina that wore off quickly, letting the base metal show through. Its silver content, which at the beginning of the empire was very high, collapsed within a few generations to a minimal fraction [Davies 2002].

It is important, here, to avoid a misleading image. The debasement of the denarius was not a sudden collapse, a single catastrophic event, but a long process, made of successive decisions taken by different emperors over more than a century, each for contingent reasons, each adding a degree of dilution to that of his predecessors. It was, if you will, a slow-motion avalanche, in which no single step seemed decisive but whose sum was devastating. And the consequences unfolded apace: prices, which for two centuries had remained substantially stable, began to rise, at first slowly and then vertiginously in the second half of the third century, when the empire knew an inflation that by ancient standards was dreadful. Trust in the money cracked; in some regions and for some transactions there was in effect a return to barter and payment in kind; the state itself, realising that its own money was worth less and less, began to demand some taxes in kind rather than in money, in an implicit acknowledgement of the failure of its own monetary instrument [Homer & Sylla 2005].

At this point came the most famous and most instructive attempt to remedy it. The emperor Diocletian, who at the end of the third century reorganised the empire with a firm hand, also confronted the problem of prices, and did so in the way power is always tempted to adopt: by decree. With his edict on maximum prices, promulgated at the beginning of the fourth century, Diocletian established by law the maximum prices of an enormous quantity of goods and services, from meat to grain to wages, imposing severe penalties, up to death, on those who exceeded them. The intent was noble and the execution imposing — the edict is for us a most precious source on the late Roman economy, a kind of price list of antiquity — but the measure failed, and failed for a reason that history would replay countless times: one cannot fight inflation by fixing prices by law without removing its cause. So long as the money continued to be debased and the “real” prices to rise, to impose maximum prices below those of the market meant only to make goods vanish from the official stalls, push them into the black market, and punish those who sold honestly. The edict, the sources tell us, produced more scarcity than restraint, and was largely disregarded and finally abandoned. The lesson — that fixing prices does not cure inflation, but hides its symptoms while worsening the disease — is one of the most enduring in economic history, and we shall meet it again, almost identical, seventeen centuries later.

The gold that did not betray

The history of ancient money does not, however, close on the ruin of the denarius, and it would be unjust to leave the reader with the impression that debasement was an inescapable fate. Just as the silver money of the Roman West was dissolving, the same Roman world, in its eastern half, gave rise to the opposite and more luminous case: a money that kept its integrity for centuries, and that for this very reason became the most respected money in the known world. At the beginning of the fourth century the emperor Constantine introduced a new gold coin, the solidus, of carefully fixed weight and fineness; and the eastern empire, the one we call Byzantine, made of that coin a matter of state, preserving its purity with almost religious obstinacy for a period measured in centuries — a case of monetary stability that has almost no equal in history. The Byzantine solidus, which the Arabs would name and imitate, circulated and was accepted and desired from the Atlantic to central Asia, because everyone knew that a solidus was a solidus, yesterday as today and tomorrow as yesterday: good gold, constant weight, the unshakeable guarantee of an empire that made of its money an instrument of prestige and power no less than its arms [Davies 2002].

The contrast between the denarius agonising in the West and the solidus shining in the East is one of the most eloquent lessons of the whole monetary history, and it deserves to be pondered. It shows that debasement is not a technical fatality, but a political choice: the emperors of the West debased the money because pressed by expenses and bereft of alternatives, but to debase it was a decision, not a destiny, and elsewhere the opposite decision was taken and maintained successfully for centuries. It shows also what makes a money strong: not the quantity of metal one strikes, but the constancy and credibility of whoever guarantees it. The solidus was strong not because Byzantium had more gold — often it had less than it would have wished — but because it had made of the stability of its money an irrevocable commitment, a capital of reputation worth more than any short-term gain wrung by dilution. It is the same lesson as the Athenian silver, repeated on an imperial scale and for a still greater duration: trust in a money is a patrimony built by consistency and destroyed by abuse, and the states that have understood this have been repaid with a power that force alone would not have given them.

The legacy of coinage

What remains, of this long affair that runs from the river Pactolus to the edict of Diocletian? There remains, first of all, the invention of a support for money destined for a fortune of millennia: coined money, the object of metal with an authority-guaranteed stamp, which from Lydia spread to the whole ancient world and from there, through Byzantium and the Middle Ages, down to the threshold of our own time. For twenty-five centuries, when a man thought of money, he thought of this: a disc of metal held in the hand. Coined money was a technology of extraordinary success, and its capacity to make money pocketable, anonymous and transferable to anyone was one of the great forces that shaped the commerce, the armies and the states of antiquity and beyond.

When the empire of the West dissolved, in the fifth century, with it dissolved also the great monetary unity that Rome had imposed on half the world. The kingdoms that rose on its ruins went on striking money — often imitating, at least at first, the Roman and Byzantine coins, so strong was the prestige of those models — but circulation fragmented, the quantity of struck metal diminished in many regions, and over vast areas of early medieval Europe the economy returned largely to doing without money, falling back on payment in kind and local exchange. Gold, in particular, became rare in the West, and for centuries the current coin was above all silver, in denominations suited to a poorer and more closed economy. It would be a mistake to paint these centuries as an absolute darkness — money never wholly disappeared, and Byzantium and the Islamic world maintained lively and refined monetary economies — but in the West coined money knew a long phase of contraction and fragmentation, from which it would re-emerge only many centuries later, when the revival of trade and of cities would require new instruments. It is to that world — the medieval world of credit, of forbidden usury and of the first bankers — that the next chapter is devoted.

But there remains also, and for us it counts as much, the revelation of a truth that will run through the whole book. Coined money, which seems to embody money in its most solid and concrete form — value made metal, wealth one can touch — carries inscribed upon itself both souls of money, and carries them in perpetual tension. On one side the metal, the thing that is worth what it is; on the other the seal, the guarantee of the authority, the promise that makes the piece worth more than its metal would weigh. And the Roman history precisely shows that between the two souls the second is, in the long run, the more powerful and the more fragile: because it is enough for the authority to betray its own guarantee, secretly diluting the metal, for trust to crack and the money to lose value, dragging prices and the economic order down with it. Seigniorage, which is the luminous face of the power to strike money — the capacity to furnish society with a precious instrument and to draw legitimate profit from it — always carries with it its shadow: the temptation to abuse it, to turn the guarantee into deceit, the useful service into a hidden tax. This tension between the power to create money and the responsibility not to abuse it is the thread that binds the Roman emperor diluting the denarius to the Renaissance banker, to the state that prints paper, down to the central bank of our own day. The supports change — the metal, the paper, the code — but the stake remains always the same: trust, laborious to build and easy to lose, without which no money, of whatever matter, is worth anything.