Precious metal coin money
A significant step in the history of money was payments of debts by count giving way to the use of precious metal money by weight. Examples of paying by count in times of barter are two hens for a goose, two geese for a pig, three lambs for a sheep, and so on. An example in the non-coin commodity money phase is the payment of one-thousand cowries for a woman in Ghana in 1860. Over time this custom reversed, as we shall see, which is another critical event (that occurred slowly) in the history of money and money creation.
The use of precious metals as non-coin money seems to have a relatively short history - judging by the lack of information in the works of the authorities on the history of money. It is evident that precious metals were wrought into diverse shapes initially, such as "unmarked lumps of various shapes and sizes", and "blobs or 'dumps' ", and later into bars of various sizes. They were accepted as a means of payment according to weight. Over time these bars were developed into smaller and standardized sizes.
Initially these bars carried no name; they just had a standard weight. Their fineness was also an issue, which was later solved by a public authority placing its stamp on each bar as a guarantee of fineness. Davies postulates that this was a practice in Cappadocia as early as between 2250 and 2150 BC: ".. .where the state guarantee, probably both of the weight and purity of her silver ingots, helped their acceptance as money." Generally these bars were used for large payments. Smaller retail payments were generally made by other non-metallic commodities.
An obvious and logical step following bars of precious metals was coins of precious metals, and the history of precious metal coinage is a rich one. According to Morgan, the "...earliest coins were probably made by merchants, but the function of coinage was soon taken over by governments." The coinage being taken over by government is significant indeed and it more or less coincided with another momentous step in the history of money: the naming of coins.
The naming of coins is a momentous event because it paved the way for the payment of debts by count (that is payment by counting a certain number of coins) as opposed to weight and, flowing from this, the debasement of coins by kings and princes (and others), which at times was not infrequent. The debasement of precious metal coins is equivalent to money creation. As we shall see, the enthusiastic activities of kings (etc) in this regard were accompanied by the inevitable - periods of inflation.
The first precious metal coins arose in Lydia in the seventh century BC. Lydia (home of the mythical Midas) was much later to become part of the southern coast of Turkey. The precious metal, electrum, a natural amalgam of gold and silver, was panned from the rivers flowing from the mountains in the region. Initially the metal was made into "blobs or dumps" (as seen earlier). Over time the Lydian metallurgical skill improved and gold and silver were separated from electrum. Also, new separate sources of gold and silver were discovered. Thus separate gold and silver coins appeared. Even when separated into gold and silver "coins", they were initially ".heavy, cumbersome, irregular in size and unstamped." Later they ".were then punch-marked on one side and rather lightly inscribed on the other. Such inscriptions were at first hardly more than scratches, and probably meant more as a guarantee of purity rather than of weight." This made the coins more acceptable but not entirely so in terms of the significant features of coin money: the guarantee of coins in terms of purity and weight, as well their naming - all the features that make them acceptable by count.
This came a short while later: ".. .as they became more regular in form and weight the official authentication was taken to guarantee both purity and weight..." The final step came sometime in the second half of the seventh century BC when ".they had undoubtedly become coins, rounded, stamped with fairly deep indentations on both sides, one of which would portray the lion's head, symbol of the ruling Mermnad dynasty of Lydia." The reigning king at the time was Croesus.
All the features that made precious metal coins acceptable in payments by count were in place: the coins were of a standard round size (meaning the weight of each coin was the same) and they were named. The naming and the fact that they were minted by the king meant that the purity was guaranteed. This practice soon spread to neighbor Greece and beyond, spurred on by trade.
It was the stamps / emblems on the coins that imparted names to them40: the lion's head of Lydia, the winged horse of Corinth, the owl of Athens, and so on. Later on city emblems or representations of the gods were stamped on coins. Even later the images of rulers (departed and later alive) were placed on coins: for example, Alexander the Great and Julius Caesar.
The availability of standardized precious metal coin money, as it spread further, soon drove out the other types of money because it was superior to any previous money types. Davies, referring to Jevons, states: "Once it had become available, the increased preference for metallic money is easily appreciated, for. it possessed to a higher degree that any other material, the essential qualities of good money, namely, cognoscibility, utility, portability, divisibility, indestructibility, stability of value, and homogeneity."
Of these features of coins, cognoscibility is correctly placed first. Because coins could be easily recognized (which imparted some of the other qualities of coins - mainly weight and purity of the metal), they could simply be counted in the settlement of debts. Because of this feature, and since they were portable (etc), trade was enormously facilitated. It is quite evident that even though different countries had different coinage, exchange rates between them must have been negotiated.