The Invention of Coinage — Lydia and Ancient China

Primitive currencies such as shells, livestock, and cloth eased the inconvenience of barter. Yet they still bore weaknesses. The value of shells wavered from region to region, livestock could not be carried, and cloth and grain varied in quality. A small lump that anyone could see was of the same weight and the same value — such an ideal means of payment, humankind grasped in separate lands at almost the same time. That was the metal coin. In the west, in Asia Minor, the king’s seal was stamped onto small grains of gold-silver alloy; in the east, in China, bronze shaped like knives and farm tools carried trade. This Episode 2 traces that decisive step, when value changed its form from ‘goods’ to ‘inscribed credit.‘

The Gold of Lydia — The World’s First Coin

In Asia Minor before the Common Era, in what is now western Turkey, there was a wealthy kingdom called Lydia. This land produced an alloy in which gold and silver were naturally mixed, and it was called ‘electrum’ — meaning amber in Greek — that is, amber-gold. This pale golden metal would greatly change the history of money.

The invention the people of Lydia achieved is not as simple as it appears. They took electrum, which in its natural state varied in both weight and purity, cut it to a fixed weight, and stamped the king’s mark upon it. This is said to have been in the 7th century BC. If the weight was uniform, there was no need to weigh it again on a balance each time. If the king’s seal was stamped on it, everyone could believe that the small lump held a certain value. To the value of the metal itself was added a new value — the guarantee of the state. In that moment, the grain of metal became not a mere good but a ‘coin’ inscribed with credit.

Still, early electrum coins had a vexing problem. Natural alloy did not keep a fixed ratio of gold to silver, so its true worth was hard to tell from appearance alone. More gold meant higher value, more silver lower. But gazing at a pale golden grain, one could not discern the difference. The receiver had no choice but to trust the king’s seal. And so in Lydia, a system of minting gold and silver coins separately is said to have gradually been established. By making coins of separated purity rather than mixed alloy, they sought to reduce the uncertainty of value. With this, people could accept coins with greater peace of mind. The history of money is also a history of devising, again and again, ‘how to be believed.’

The birth of the coin also changed the lives of merchants and travelers. If a transaction could be settled merely by counting metal of fixed weight, trade with unknown partners in distant lands became easier. Lydia lay at a crossroads of traffic and is said to have been a wealthy land where goods of east and west passed through. Where invention and the advantage of place overlapped, some of the earliest coins sprouted. As for which was the world’s ‘first’ coin, there are differing views, and it is said that similar attempts were made at almost the same time in neighboring regions. Even so, it is certain that the idea of stamping an authoritative seal onto metal of uniform weight reached one completion here.

Coins of the East — The Idea of Knife Money and Spade Money

Around the same time, far to the east in ancient China, the tale of coinage was advancing on its own. Yet its form was utterly different from Lydia’s round grains. China’s early bronze currencies were modeled after the tools of daily life.

In the Spring and Autumn and Warring States periods, the states of each region minted their own bronze currencies. In Qi and Yan, ‘knife money’ shaped like blades was used. These were long, slender bronze coins copying the form of a small knife, with a hole pierced at the tip of the handle so that a cord could be threaded through to carry them in bundles. Meanwhile, in states such as Han, Wei, and Zhao, ‘spade money’ modeled after the shape of a farming hoe circulated. Furthermore, in Chu small ‘ant-nose money’ shaped after shells, and in Qin and elsewhere round ‘circular coins’ with a hole in the center, are said to have been used.

Why the shape of tools? One view holds that it is a trace of how knives and farm tools themselves were once used in exchange as things of value. A well-cutting knife, a reliable hoe — these were themselves wealth that supported daily life. Those practical tools were eventually simplified, made smaller, thinned until the blade could no longer be used, and transformed into goods dedicated to payment — that money was born from the tools of daily life is what these coins quietly tell. Perhaps the memory embedded in the shape made people believe in their value. Whereas Lydia sought to guarantee credit through the purity and stamp of metal, in China the very shape of the bronze minted by each state supported its currency. The same effort to ‘make credit visible’ gave rise to different answers in east and west.

Toward Unification — Coins Transform Trade

Coins of differing form from state to state were also inconvenient for trade. Cross into the neighboring state, and unfamiliar shapes of currency were in use, bringing the trouble of exchange and appraisal. In China, when the age of the Warring States was unified by Qin, the currency too was brought into one. In 221 BC, Qin Shi Huang, who unified China, is said to have unified the currency into the round ‘banliang’ coin with a square hole in the center. This form, called ‘round with a square hole,’ became the basis of Chinese copper coins thereafter and was passed down for a long time.

The arrival of the coin greatly changed how people traded. If payment was complete merely by counting small metal of uniform weight, transactions became much faster and reached far further. People gathered at market could deal through common coins, rather than appraising each other’s goods one by one and bartering. As money became the yardstick and the lubricant of exchange, the circle of commerce spread from town to town, from state to state.

In this way, value shifted its footing from ‘the goods themselves’ to ‘inscribed credit.’ Into a small lump of metal dwelt the authority of the state and the trust of the people — this was a great turning point that shaped the nature of currency thereafter. Before long, a state that circulated coins widely would, in exchange for that convenience, face a certain temptation. To reduce, little by little, the precious metal contained in the coin, and while keeping the appearance of value, to produce more currency. The next stage is the vast empire that ruled the Mediterranean — Rome. There, humankind would come to know both the power of currency and its peril at once.