MSTR Cat

Blockchain/Level I · Money/1.1 What money is/Lesson 4

Gold, silver and coinage

The stamp that spared everyone the scales, and the temptation it created

MaterialsA kitchen scale accurate to 0.1 gSeveral coins of one denomination from different yearsA notebook

Wonder

  1. What does a stamp on a lump of metal actually add?
  2. Why did one Byzantine coin keep its weight for seven centuries while Roman silver collapsed?
  3. When two metals circulate side by side at a fixed rate, which one disappears?

Explore

  1. Before coins, metal changed hands by weight. A buyer paid in cut silver and the seller weighed and tested it, which was slow and open to dispute. Around the late seventh century BCE the kingdom of Lydia, in western Anatolia, began striking lumps of electrum, a natural gold-silver alloy, with an official mark. Herodotus credits the Lydians as the first to use gold and silver coin; Croesus is traditionally credited with the first separate pure gold and silver issues.
  2. The stamp was delegated verification. An issuer vouched for weight and purity so that each user no longer had to check. That made trade faster, but it also moved trust from the metal to the issuer. A coin could now circulate on the strength of its mark even when its metal fell short, which opened the way to every later debasement.
  3. Coins that kept faith traveled. Athens struck silver tetradrachms, the “owls,” from the Laurion mines, accepted across the Mediterranean in the fifth century BCE. The Byzantine gold solidus, introduced by Constantine in the early fourth century CE at 72 to the Roman pound, kept essentially the same weight and fineness for about seven hundred years, until debasement in the eleventh century.
  4. Rome is the counterexample. The silver denarius was nearly pure under Augustus; Nero cut its weight and fineness in 64 CE, and later emperors kept cutting to pay armies. By the 260s the main silver coin contained only a few percent silver. Prices rose, and Diocletian’s Edict on Maximum Prices (301 CE) tried to cap them by law, on pain of death. It failed.
  5. Where gold and silver both circulated at a legally fixed ratio, the metal the law undervalued left circulation, being hoarded, melted or exported, while the overvalued one stayed. This is Gresham’s law: bad money drives out good when both must be accepted at the same rate. In 1717 Isaac Newton, as Master of the Mint, rated the guinea at 21 shillings, overvaluing gold; silver coin drained away and Britain drifted onto a de facto gold standard.
  6. China took a different path. Bronze spade- and knife-shaped money circulated under the Zhou, and after unification in 221 BCE the Qin standardized a round bronze coin with a square hole, a form that lasted two thousand years. Bronze was too low in value to carry in large sums, a pressure that pushed China to paper money centuries before Europe.

Key facts

  • Lydia struck the first known coins, of electrum, around the late 7th century BCE.
  • Coinage delegated verification of weight and purity to the issuer.
  • The Byzantine solidus (72 to the Roman pound) held its standard for about seven centuries.
  • Roman silver coinage fell from nearly pure under Augustus to a few percent silver by the 260s CE.
  • Gresham’s law: when two monies must be accepted at a fixed rate, the undervalued one leaves circulation.
  • Newton’s 1717 rating of the guinea at 21 shillings put Britain on a de facto gold standard.

Exercise nine, six, three, one

9CollectList 9 coins or currencies, ancient or modern. Note what each was made of and who stood behind its stamp.
6ClusterGroup the 9 into 6 by how their issuers treated them: held the standard, debased slowly, debased fast, replaced metal with token, abandoned, or other.
3DistillReduce the 6 to 3 reasons issuers debase.
1CrystallizeWrite 1 sentence on what a stamp promises and what keeps that promise honest.

Fact check

Dates, figures and claims checked against the published sources listed below.

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