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From the Israel Museum in Jerusalem’s 2013 exhibition White Gold
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[Originally published at Bullionstar.]
For several years Brits have been hearing rumours that their 1p and 2p
coins were on the cusp of being discontinued. Not so. Last month the UK
Treasury announced its commitment to both coins. The 1 and 2p coins will continue to be produced for ‘years to come.’
Few bits of monetary technology have enjoyed as long an existence as
the coin. The earliest coins were produced around 640 BC, some 2600
years ago, by the Lydians, who had built an empire in the western half
of what is now Turkey.
To most of us, the usefulness of coins is self-evident. Sure, small
coins like the 1p are a bit of a nuisance. They tend to accumulate in
our pockets or piggy banks, never used. But compared to barter, or
exchanging bits of unrefined metal, coins are a much better alternative.
One would assume that’s why the Lydians created coins in the first
place: convenience. But the true story is much more puzzling than that.
To this day we don’t entirely know why the Lydians began to turn
precious metals into circular discs.
The traditional origin story for coins
The classic story for the adoption of coinage involves the efficiency gains that society enjoys when trade can be conducted by tale
rather than by weight. Tale is a sum or a tally. All modern payments
are done by tale. A payor counts up the right amount of coins (or
notes), then passes the stack to the payee who – if they wish – can
glance at the inscription on each coin’s face to ensure that it is
legitimate. Circulation by tale is a convenient way of doing business.
But we take it for granted. Before coins appeared on the scene 2000
years ago, numismatists believe that people typically transacted with
silver ingots and bars, otherwise known as hacksilber. These pieces could be cut up into smaller amounts in order to cover a range of different transaction sizes.
Because the bits of hacksilber were irregularly shaped, or
non-fungible, they couldn’t by counted. Rather, they had to be weighed
first, and only then could the transaction proceed. Weighing different
bits of silver is a laborious process. A scale must be produced along
with a set of weights that both the buyer and seller can trust.
Counting is much easier than weighing. If the stamp on the coin is
reliable, buyers and sellers can trust to issuer to have already
pre-weighed and standardized the metal for them. And so coinage would
have dramatically reduced lineups and waiting time in busy markets all
across the ancient world. What a fantastic invention.
Perfectly standardized
At first glance, Lydian coins have all the hallmarks of this classical origin story.
To begin with, they are quite beautiful. Each coin was typically stamped on the obverse side with a design in the form of an animal, human, or myth. On the reverse,
or back-side of the coin, a square or rectangular design appears (see image at top). Did
these designs constitute some sort of official guarantee of the coin’s
weight and fineness? Or did they symbolize something else?
The coins generally lacked any sort of writing on them. Numismatists
are thus unsure who actually issued the coins. Was it the city, the
king, a merchant or some other rich individual?
One fact that all numismatists agree on is that the Lydians were
assiduous to a fault about ensuring standardized weights for their
coins. The biggest denomination, the stater, weighed 14.1 – 14.3 grams.
Half staters contained half as much metal, followed by third staters (or
trites), 1/6, 1/12, 1/24, 1/48, and 1/96th staters, the last of which
contain just 0.15 grams of metal.
Francois Velde, an economist at the Federal Reserve who dabbles in
numismatics, has catalogued thousands of Lydian coins owned by private
collectors and museums around the world. Using this data, one can see
the remarkable precision of Lydian coinage (see chart above). The weight
of the largest coins – staters and trites – tend to be tightly clumped
near the standard weight.
Interestingly, the smallest denominations – the 1/96th staters – are
much more loosely distributed around the standard weight (see the dark
blue line). Velde (2012) attributes some of the lower accuracy of
smaller denominations to the fact that they would have circulated more,
and thus deteriorated faster.
The inconvenience of electrum
By carefully calibrating the weights of each denomination and
stamping them with a seal, surely Lydia qualifies as the first society
to make the technological leap to circulation by tale. But it’s here
that the story begins to fall apart.
One of the curious facts of early Lydian coins is that they were made
from a material called electrum. Electrum is a naturally occurring
alloy of silver and gold, often found in streams and rivers. The problem
with natural electrum is that the mix between gold and silver is
variable. The silver content can be anywhere from 10% to 30%, according
to numismatist Robert Wallace (1987).
Given this variability, Lydians must have had difficulties valuing
electrum. A given electrum coin wasn’t fungible, or interchangeable,
with its cousins. A coin with more gold in it would have a slightly
different colour than one with less gold, as the chart below implies.
And since gold was probably worth around 10 times more than silver in
ancient times, electrum coins with more gold in them would have had a
much higher intrinsic value than those with less. But how much more?
According to Wallace, this lack of certainty would have caused “endless
doubts and disputes over particular coins."
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Approximate colours of Ag–Au–Cu alloys [Wikipidia]
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What a contradiction Lydian coins are! The Lydians had evidently gone to
extreme lengths to perfectly calibrate coin weights, and thus
potentially exchange coins by tale, only to undo all the benefits of
standardization by making coins with an arbitrary gold-silver mixture.
Now buyers and sellers would have to settle on some laborious means of
determining a given coin’s mixture, say like using a touchstone, before they could consummate a trade.
The Lydians could have avoided this problem at the outset by issuing
coins using silver rather than electrum. Silver, after all, was already
traded in ingot form. With silver coins, at least there would be no
confusion about intrinsic value. But the Lydians chose not to go this
route.
Which leads us to what may be the most popular theory for electrum coins, what I will call the “token" theory.
Electrum coins as tokens
It is Robert Wallace who can be credited with creating what is
probably the most widely-accepted theory for electrum coins. Wallace
(1987) began by imagining himself in the shoes of an owner of an
electrum hoard around 640 BC. This individual had the following problem.
His stash of metal was not uniform, and so fellow Lydians didn’t really
trust its quality. How could our electrum owner get his suspicious
counterparts to accept his metal for its full value?
The easiest solution available to our Lydian would be to refine his
electrum into its silver and gold constituents, then sell each
separately. But Wallace tells us that the technology for “parting" gold
and silver – cementation – would not be available for almost a hundred
years, circa 550 BC. So our electrum owner was stuck with his mongrel
metal.
According to Wallace, our Lydian stumbled on the solution: turn his
raw electrum into stamped coins. Why would a potential buyer trust
electrum in coin form but not bar form? The answer is that the owner of
electrum didn’t create just any regular coin. Rather than issuing discs
that were valued for their (uncertain) metal content, our Lydian
electrum owner designed them as tokens.
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| Electrum coin from Ephesus, 625-600 BC with a stag grazing [source] |
A stamped piece of metal can be valuable either because of the material
of which it is made or the symbol that is stamped on its face. A token
is of the latter sort. By contrast, a piece of hacksilber is the former.
It gets its value from the silver itself.
How did a mere stamp create value? Wallace hypothesizes that the
issuer’s stamp indicated a promise to “accept back or redeem his coins"
at a fixed rate. A skeptical buyer would therefore have no problem
receiving an electrum token in trade. After all, the stamp guaranteed
that the issuer would buy it back at that very same rate.
Fungibility regained
By setting his redemption price for tokens high enough, the issuer
ensured that the market value of his coins would always exceed their
intrinsic electrum value. This would have had the beneficial effect of
making all his electrum coins fungible. After all, since both a
silver-rich electrum token and a gold-rich one could both be redeemed at
the issuer for the same fixed price, neither coin was any better than
the other.
Electrum could now circulate freely rather than being handicapped by
non-uniformity. The decision to turn electrum into coinage had converted
“stocks of what was otherwise a doubtful and uncertain substance into negotiable currency large and fixed value," says Wallace. In the process, our electrum owner had become a much wealthier man than might otherwise have been the case.
So what about circulation by tale?
Despite the fact that the weight of electrum coins was so precisely
calibrated, numismatists believe that Lydians exchanged the coins by
weight rather than by tale, much as they had with hacksilber. The main
bit of evidence for this is that electrum coins were never clipped.
Clipping is when someone scrapes or snips a bit of metal off of a
coin before passing it on. The clipper keeps the shavings for
themselves. Coins that circulate by tale are easily attacked by
clippers. Since sellers will accept coins with little more than a glance
to the stamp on the coin’s face, a buyer who scrapes off a bit of metal
before handing the coin can easily get away with it.
A lack of clipping is consistent with the practice of weighing coins
and only accepting those that are up to snuff. If a coin was even a bit
too light, then the seller would not take it. And so no one would bother
clipping them in the first place.
But if electrum coins circulated by weight and not tale, this hardly
seem like a technological improvement over hacksilber. Lydian trade was
still as slow and awkward as before.
However, the necessity of weighing electrum coins may have served a
purpose. It may have been a security feature designed to protect the
issuer’s wealth. Imagine that our issuer of electrum tokens has spent
some staters into circulation. Prior to being returned to him for
redemption, these staters had all been clipped. Since he has less
electrum than what he started out with, our issuer’s wealth has
deteriorated.
To protect himself from this sort of theft, Wallace (1989) suggests
that the issuer wouldn’t redeem just any of his tokens. As a security
measure, he would only take back those that were still of their original
weight. Since no merchant would want to be stuck holding a coin that
could not be redeemed, they would always weigh each coin that was
offered to them in order to avoid accepting light ones.
They only circulated domestically
Wallace’s theory explains another odd feature of electrum coins.
Given the distribution of electrum coin hoards, numismatists believe
that they didn’t circulate outside of their area of production. This is
unusual for ancient coinage. Roman coins have been found as far afield as Sumatra, while Sassanian coins (minted in modern day Iran) have been unearthed in England.
But if circulation of electrum coins was premised on the guarantee
that their issuer would redeem them, then that explains why they
wouldn’t have circulated very far. People in a distant city would not
recognize or trust the redemption promise of an unknown issuer, and so
they wouldn’t accept them in trade.
Electrum diluted with silver
Another oddity of electrum coins is that they often contain far more
silver than the natural electrum out of which they were manufactured.
Electrum found in naturally-occurring deposits usually contains no less
than 70% gold, but the coins themselves often contain just 45-55% gold.
For some reason, Lydians coin issuers chose to introduce a bit of pure
silver into the electrum mix before coining it.
In the chart below, for instance, the vertical column that represents
the 1/6 stater denomination contains around 14 different coins. The
majority of these coins contain less than 65% gold. Only two contain
more than 80% gold.
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| Most electrum coins contained less than 70% gold. Source: Velde |
Why would the Lydians have chosen to dilute electrum with silver? The
intrinsic value of natural electrum was quite high. Given that gold was
worth around ten times the value of silver, numismatists estimate that
the most commonly available coin, the trite, was worth several sheep, or
ten day’s wages (de Callatay, 2013). Converting into modern terms, the
trite would be worth the equivalent of a $500 bill. This hardly seems a
very convenient denomination. The smallest coin, the 1/96th stater, was
worth about a day’s wages, and thus not useful as small change (Velde,
2012).
Wallace (1987) suggest that by mixing some silver into the natural
electrum, the intrinsic value of the coin would have been reduced. The
price at which the issuer promised to redeem the coin could now be
lowered. This reduction would have permitted electrum coins to
participate in a wider range of transactions, thus increasing their
usefulness.
Still more questions
New data and theories about electrum coins have improved our
knowledge. Unfortunately, it seems that we remain “confused but on a
higher level!" remarks historian Francois de Callatay (2013). While
Wallace’s theory is elegant, it leads to only to more questions.
Velde asks some of the more glaring ones. If electrum coins were redeemable,
what did the issuer promise to redeem their coins with? Gold? Silver?
Perhaps they be used to discharge taxes? If gold and silver were to be
used to redeem electrum coins, why not use these materials as the basis
of coinage instead?
And what did the issuer keep in reserve to “back" his guarantee,
wonders Velde. If each coin had to be 100% backed by gold, then our
issuer would have had to incur the costs of storing and vaulting the
yellow metal. This would have meant that issuing coins wasn’t very
profitable. One wonders why our electrum owner would have bothered
producing them in the first place.
Electrum coins, what happened to them?
Whereas the Brits still seem to be quite fond of their 1p and 2p
coins, the Lydians quickly discontinued their electrum coinage. About a
hundred years after electrum coins were first issued, they disappear
from the numismatic record.
Around 550 BC, King Croesus decided to issue individual silver and
gold coins. This switch from electrum to pure gold and silver coincides
with the discovery of the process of cementation, the ability to
separate gold from silver. Presumably decomposing electrum into its
constituent parts in order to create a uniform currency was deemed
superior to issuing electrum discs.
Except for a few smaller city-states that continued to issue electrum
coins for another century or two, never again would a mixed silver-gold
coin be issued. All that remains is a mystery for modern numismatists
to puzzle over.
Sources:
de Callatay, Francois. White Gold: An Enigmatic Start to Greek Coinage. 2013. [link]
Velde, Francois. On the Origin of Specie. 2012. [link]
Velde, Francois. A Quantitative Approach to the Beginnings of Coinage. [link]
Wallace, Robert. The Origin of Electrum Coinage. 1987. [link]
Wallace, Robert. On the Production and Exchange of Early Anatolian Electrum Coinage. 1989. [link]
