The Roots of Modern Currency
Tuesday 2 November 2010
Forget the idea that currency is a piece of colored paper with a picture of someone famous on it. Paper money as it now exists is a relatively new concept, and it probably won’t survive our lifetimes. In cultural and historical terms, currency is something that any group mutually recognizes as valuable.
For example, the Aztecs prized cacao beans, which were used to make a delicious chocolate drink. Part of the beans value derived from the fact that they were also practical. They could be transported relatively easily, were uniform, and made bartering simpler. If a trade was uneven, a merchant could throw in a scoop or two of beans.
The ancient Romans valued salt, an essential spice to liven up dishes and replenish the body during hot Mediterranean summers. Like the Aztec cacao beans, salt was also practical. It could be cut into small, uniform units and was accepted everywhere.
Roman soldiers, who sweated during maneuvers under their leather and armor, were paid in salt. The Latin word for salt, sal, is the root of salary.
In North America, we still refer to one dollar as a buck—few understanding that buck once referred to deerskin, which was commonly used as an item of exchange in colonial times.
Everywhere, currency was determined by local conditions. East Asians often used rice, Mongolians used bricks of tea, and Native Americans in the Northeast used colored shells.
The introduction of currency marked an important advance in a society’s economic life. Instead of simply trading items, people could determine value through something universal. Currency allowed exchanges to be more circular, rather than a chain of one-on-one transactions. The shoemaker could now sell his wares to the butcher for currency and then use that currency to buy the grain he needed.
Value, of course, is a relative term, and cultures often found that what they treasured did not inspire the same reverence in their neighbors. One tribe in Alaska used dog teeth as currency, something other tribes regarded as disgusting. The aristocrats of Yap, an island in the South Pacific, used giant sandstone slabs so large that they needed dozens of laborers to move them. For obvious reasons, this currency never gained wide use.
As ancient cultures grew more sophisticated and trade grew to unprecedented levels, they found themselves back in the same barter system as before, with all its faults. The problem was to find something that was recognized as valuable, even among different cultures with different languages and beliefs.
The solution to this problem appeared in 640 BC in a civilization on the coast of what is today Turkey. This invention would establish the first international currency and lay the groundwork for our modern economic system—the metal coin.
The small kingdom of Lydia had grown rich through its production of high-quality cosmetics and perfumes, which it sold to other lands throughout the eastern Mediterranean. The Lydians were the first, it appears, to mint coins.
Metal, of course, had long been recognized as a valuable substance by many cultures. Gold, with its alluring luster, its malleable quality, and the fact that it never rotted or rusted, was held in high esteem. As early as 2500 BC, Mesopotamian clay tablets carried inscriptions that recorded the use of silver and gold as payments. But these payments were usually in large quantities. Gold was too scarce and valuable to be used in small exchanges.
This changed when the Lydians began stamping the first coins, which were about the same size as a modern quarter but much thicker. Several could be easily carried around in a bag. These first coins were made from a naturally occurring mixture of gold and silver called electrum. To make sure everyone, including illiterate
farmers, could determine the value of the coins, the Lydians stamped them with a lion’s head.
It is difficult to overestimate the impact these coins made as they began to circulate among the empires that ringed the Mediterranean Sea. Uniform coins meant merchants did not have to use scales to measure metal, a time-consuming process. A glance could determine literally how much money was on the table. Even in 600 BC, traders knew the importance of time and convenience. Lydia produced more coins, with newer versions fashioned of solid gold. Money begot money. Attracted by the standard coins, merchants began setting up their goods in a central spot where people could browse among different stalls for goods—dishes, beer, olive oil, cloth. The market, not unlike the modern shopping mall, was born.
Although the Lydian empire soon crumbled, its innovation in using coins spread through the Mediterranean world. This was the first international economic system as we would understand it.
It is here that we can first see the revolutionary impact that money has had on society. Most ancient groups were small and organized around the principle of kinship. Going outside that society, because of fears, xenophobia, and misunderstandings, was rare. Most transactions involved one person speaking to another. The value of money in the form of coins, however, was recognized between cultures. You did not need to speak the same language or have the same cultural background. Thus, societies could easily join and create an economy far more complex, diverse, and large than anything seen before.
In the late fourth century BC, Alexander the Great led his armies to victory through central Asia and into India. Alexander’s empire was, for the first time in history, a commercial empire. Alexander did not just demand tribute from the conquered peoples. He yoked them into a new economic order by building cities with open markets in their center. Merchants quickly moved in, using the trusted Greek coins as a medium of exchange. The Greek language, in a heavily accented, simplified form, was used by merchants of different cultures to haggle and exchange goods.
These characteristics are not too dissimilar from the world today, where international business is largely based on the dollar and deals made after a discussion in pigeon English. Alexander’s period could be called the first era of globalization. Our modern era, with its markets and means of exchange, is not fundamentally different.
For example, the Aztecs prized cacao beans, which were used to make a delicious chocolate drink. Part of the beans value derived from the fact that they were also practical. They could be transported relatively easily, were uniform, and made bartering simpler. If a trade was uneven, a merchant could throw in a scoop or two of beans.
The ancient Romans valued salt, an essential spice to liven up dishes and replenish the body during hot Mediterranean summers. Like the Aztec cacao beans, salt was also practical. It could be cut into small, uniform units and was accepted everywhere.
Roman soldiers, who sweated during maneuvers under their leather and armor, were paid in salt. The Latin word for salt, sal, is the root of salary.
In North America, we still refer to one dollar as a buck—few understanding that buck once referred to deerskin, which was commonly used as an item of exchange in colonial times.
Everywhere, currency was determined by local conditions. East Asians often used rice, Mongolians used bricks of tea, and Native Americans in the Northeast used colored shells.
The introduction of currency marked an important advance in a society’s economic life. Instead of simply trading items, people could determine value through something universal. Currency allowed exchanges to be more circular, rather than a chain of one-on-one transactions. The shoemaker could now sell his wares to the butcher for currency and then use that currency to buy the grain he needed.
Value, of course, is a relative term, and cultures often found that what they treasured did not inspire the same reverence in their neighbors. One tribe in Alaska used dog teeth as currency, something other tribes regarded as disgusting. The aristocrats of Yap, an island in the South Pacific, used giant sandstone slabs so large that they needed dozens of laborers to move them. For obvious reasons, this currency never gained wide use.
As ancient cultures grew more sophisticated and trade grew to unprecedented levels, they found themselves back in the same barter system as before, with all its faults. The problem was to find something that was recognized as valuable, even among different cultures with different languages and beliefs.
The solution to this problem appeared in 640 BC in a civilization on the coast of what is today Turkey. This invention would establish the first international currency and lay the groundwork for our modern economic system—the metal coin.
The small kingdom of Lydia had grown rich through its production of high-quality cosmetics and perfumes, which it sold to other lands throughout the eastern Mediterranean. The Lydians were the first, it appears, to mint coins.
Metal, of course, had long been recognized as a valuable substance by many cultures. Gold, with its alluring luster, its malleable quality, and the fact that it never rotted or rusted, was held in high esteem. As early as 2500 BC, Mesopotamian clay tablets carried inscriptions that recorded the use of silver and gold as payments. But these payments were usually in large quantities. Gold was too scarce and valuable to be used in small exchanges.
This changed when the Lydians began stamping the first coins, which were about the same size as a modern quarter but much thicker. Several could be easily carried around in a bag. These first coins were made from a naturally occurring mixture of gold and silver called electrum. To make sure everyone, including illiterate
farmers, could determine the value of the coins, the Lydians stamped them with a lion’s head.
It is difficult to overestimate the impact these coins made as they began to circulate among the empires that ringed the Mediterranean Sea. Uniform coins meant merchants did not have to use scales to measure metal, a time-consuming process. A glance could determine literally how much money was on the table. Even in 600 BC, traders knew the importance of time and convenience. Lydia produced more coins, with newer versions fashioned of solid gold. Money begot money. Attracted by the standard coins, merchants began setting up their goods in a central spot where people could browse among different stalls for goods—dishes, beer, olive oil, cloth. The market, not unlike the modern shopping mall, was born.
Although the Lydian empire soon crumbled, its innovation in using coins spread through the Mediterranean world. This was the first international economic system as we would understand it.
It is here that we can first see the revolutionary impact that money has had on society. Most ancient groups were small and organized around the principle of kinship. Going outside that society, because of fears, xenophobia, and misunderstandings, was rare. Most transactions involved one person speaking to another. The value of money in the form of coins, however, was recognized between cultures. You did not need to speak the same language or have the same cultural background. Thus, societies could easily join and create an economy far more complex, diverse, and large than anything seen before.
In the late fourth century BC, Alexander the Great led his armies to victory through central Asia and into India. Alexander’s empire was, for the first time in history, a commercial empire. Alexander did not just demand tribute from the conquered peoples. He yoked them into a new economic order by building cities with open markets in their center. Merchants quickly moved in, using the trusted Greek coins as a medium of exchange. The Greek language, in a heavily accented, simplified form, was used by merchants of different cultures to haggle and exchange goods.
These characteristics are not too dissimilar from the world today, where international business is largely based on the dollar and deals made after a discussion in pigeon English. Alexander’s period could be called the first era of globalization. Our modern era, with its markets and means of exchange, is not fundamentally different.
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History of Forex