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F - 96 : Coins - A Financial Revolution from Ancient Lydia

Updated: Jun 7, 2022

Sardis, the Capital of Ancient Lydia, where Coins were invented - Here the Temple of Artemis

During our first two weeks of sailing this summer, we will follow the coast line of ancient Lydia, the kingdom where coins were invented. Lydia rose from the ashes of the old Hittite Empire. It lasted from around 1’200 – 547 BC before it was conquered by Persia. Lydia comprised most of Western Anatolia and bordered at the Aegean Sea. It prevented the expansion of towns such as Miletus into Anatolia and indirectly triggered the establishment of Greek colonies on the Black Sea’s northern shores. These colonies would later form the Bosporan Kingdom.

The Kingdom of Lydia in Western Anatolia - It had an Army of reputedly 400'000 soldiers

Lydia is famous for having invented coins. Today, when coins are increasingly replaced by electronic payments, it is difficult to imagine how revolutionary their invention was in the 7th century BC. But coins arrived relatively late in human history. Long-distance trade existed long before coins. So did debt. We know that the Sumer in southern Mesopotamia actively traded with the Indus Valley region by 3’000 BC. The blue Lapis Lazuli stones from Afghanistan can still be found in the mud remains of ancient Sumer towns. Prior to a standardized way of making payments, merchants had to keep extended ledgers of debt. These “I owe You” (IOY) ledgers were written down on clay tables. It is assumed that the cuneiform writing system had its origin in keeping track of commercial transactions.

5'000 year old Cuneiform rercording a commercial transaction

Precious metals had been used equally long. We find the first decorative objects in silver and gold around 4’600 BC. Gold, silver or precious stones though were used to decorate palaces and temples. They were a divine privilege, not something ordinary mortals could get their hands on. Gold, the symbol for sun light, was used for death masks of pharaohs, their luxurious furniture or elaborate royal jewelry. A visit to the Louvre or the British Museum with their impressive collections of decorative items from those early days give you a good idea how precious metal was used before the time of coins.

The oldest Gold Jewellery found is from Varna, Bulgarian Black Sea town, dates to 4'600 BC

There is no such thing as the official history of coins. But many historians believe that coins were invented to facilitate trade. But I am not so sure. Trading was already established and it worked well – even without coins. Managing IOYs was a bit time consuming but it worked. The clay ledgers perfectly kept track of who owed what to whom. If it was not trade, what else could have triggered the innovation of coins? What else was new? In my view, the arrival of empires – the combination of several kingdoms. The King of Kings – the first title of emperors – needed very large armies to conquer and then rule their empires. These armies had 100’000 to 400’000 soldiers. Persia was the first.

The first Lydian Coins were made from a gold-silver alloy

called Electrum and date from 650 - 610 BC

Manning and feeding an army of several hundred thousand men was a logistical challenge. In the early days, these armies were rewarded with plunder and loot from conquered cities and lands. But looting and destruction spoils the purpose of building an empire. Empires worked by expanding the resources of an emperor, not by destroying them. Not surprisingly, some rulers had the idea that paying soldiers was a better way of rewarding them.

Gold is extremely rare with 0.004 parts per million - silver is

19x less rare. These numbers measure rarity in the Earth's

Crust. Platinum was not known in Antiquity.

But how could soldiers be paid? IOYs for soldiers were too cumbersome. Soldiers moved and could not carry clay ledgers. A better storage unit for value was needed. One that was small, easily portable and with a standardized value.

The Lydian King Croesus issues Gold and Silver Coins.

He was defeated by the Persian Emperor in 547 BC. Lydia

became a Province of Persia

Lydia was an empire with ample gold reserves. Its rulers had large amounts of gold in their treasury. People already recognized the value of gold and silver as extra special. They were extremely rare and did not corrode.

First Lydian Pure Gold Coins issued by Croesus

The Issuance of Silver Coins followed shortly thereafter

What easier than then taking the next step and paying soldiers with standardized little lumps of gold? The weight of these lumps was 4.7 grams and guaranteed by the royal seal stamped onto them. This made them flatter – of course. The coin we recognize was born. This standardized means of payment was too valuable for commerce first. But when the Lydia King Croesus started to issue silver coins which were 10 times less valuable, they took the commercial world by storm. Money was invented. The value of goods could now be expressed in reference to a coin. Doing business became much simpler. Clay ledgers remained in use, but the complex task of valuing goods could be done away with. The market with the invisible hand balancing supply and demand would do this going forward.

Athens' Tetradrachm (16.82 gram Silver, 462 BC) was

the Coin with the widest Circulation in Antiquity

For thousands of years, coins remained THE method of payment and were in use everywhere until the First World War when they were finally replaced by Fiat money (bank bills and coins not backed by precious metal any longer). Switzerland was a good example in this respect. Our coins were made from fine silver up to the heavy 5.- piece (Fünflieber) , then from gold in SFR units of 10.-, 20.- and 100.- Vrenelis. My grandparents still had such coins and on very special occasions we kids got one. I still have my three golden Vrenelis!

The Swiss Vreneli is still minted today

With the arrival of electronic payment systems (cash or credit cards), coins and bank bills could be phased out. Crypto currencies could accelerate the development. Electronic payments however have one downside. They can be tracked by central banks and tax authorities. In countries with up to 30% of their GDP in the shadow economy (read EU’s southern belt) or even more (read emerging markets), citizens will resist their adoption and stick to the old “anonymous” form of payment. I guess coins will stay with us for a while.

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