Why Gold and Silver Became Money

Will it last until she needs it?

The trader puts a piece of gold away for next year. Air and moisture damage many metals, but gold resists that damage. Unlike grain, her gold will not spoil. This ability to last is called durability.

Now suppose she wants to spend only part of her savings. Gold can be melted and made into smaller pieces, coins, or bars. The pieces are still gold, though some metal may be lost during the work. The ability to split money into useful amounts is called divisibility.

Lasting a long time and dividing into pieces make gold useful to her. Neither feature makes someone else accept it. A seller in her town, or another town, still has to agree to take the gold in payment.

The seller also needs to know what is inside the piece. A yellow surface does not prove that the whole piece is gold. That brings us to the trader’s next problem: checking what she is being offered.

Two coins, two amounts of gold

Our trader is offered two coins. Each coin weighs ten grams. Coin A is 90% gold, which means nine of its ten grams are gold. Coin B is 50% gold, so only five of its ten grams are gold.

Both coins have the same total weight. Coin A holds more gold because a larger share of it is gold. That share is called purity. To work out the gold in a coin, multiply its total weight by the share that is gold: 10 × 0.90 = 9 grams.

The same check works for silver. You need both the weight of the whole piece and the share made of silver. Weight alone does not tell you how much silver is inside.

This check tells the trader how much metal a coin holds. It does not tell her what a collector will pay for it. A collector might pay extra for the coin’s history or condition.

People have long needed ways to make those checks easier. In Lydia, in what is now Turkey, people made early gold and silver coins in set weights. A person could recognize those amounts and combine coins to make a payment. The different coin amounts are called denominations.

A stamp on a coin could be the maker’s promise about its weight and purity. But a promise still has to be kept. People needed to trust the maker and check that the coin was real.

Does this add more gold, or change its shape?

Imagine gathering all the gold people have already mined. Some is in necklaces. Some is in coins, bars, or other forms. This total is called the stock of gold.

Gold lasts, so gold mined long ago can still be part of that stock. Each year, miners bring more gold out of the ground. That new gold adds to the stock.

The amount added each year is called the flow, a term from Lesson 2. Compare one year’s new gold with all the gold already mined. If the existing stock is large, that year’s new gold may add only a small share.

Mining more gold takes work. A new mine takes time and resources to build. Better tools may help people mine more. Costs and the chance to earn more can also change how much gold gets mined.

Now return to our trader. She melts an old necklace into a bar and offers the bar for sale. A buyer now has another piece of gold to buy. But the world does not have more mined gold: the necklace’s gold was already part of the stock.

How can she make a small payment?

The trader wants a small bag of flour. Her gold coin is worth much more than the bag. In this fictional town, the seller also accepts smaller silver coins at an agreed value. Those coins let her pay the smaller amount.

Silver was also a major form of money in real history. Greek cities such as Aegina, Corinth, and Athens used silver coins. Their use spread around the Mediterranean, and different cities put their own designs on the coins.

A person could weigh a silver coin and check its purity, just as with gold. Coins in useful sizes could be combined to make a payment. People still had to agree on what the coins were worth and whether to accept them.

Gold and silver both have long histories as money. Their uses changed from place to place and over time. The size and form of a coin mattered, along with who used it and the rules set by those in charge.

Smaller silver coins solve our trader’s problem in this example. That does not mean silver was always used for small payments or that gold was always better. The right coin depended on the payment and the people making it.

Around 1200–1150 BC: less silver inside

Our trader is fictional. Now consider real pieces of silver from the past. Long before coins, people could pay with silver pieces weighed on scales. Some buried pieces found in the southern Levant date to around 1200–1150 BC.

The southern Levant is along the eastern Mediterranean. The letters BC mark years before our calendar’s year 1. For these dates, a bigger number means an earlier year: 1200 BC came before 1150 BC.

Researchers tested pieces from two places there, Beth Shean and Megiddo. They found silver mixed with cheaper copper. Some pieces had much more silver near the surface than inside. A buyer looking only at the outside could think a piece held more silver than it did.

The amount of precious metal in the money had been reduced. This is called debasement. The pieces are early physical evidence of it. They do not tell us who first tried it anywhere in the world.

The researchers link the change to broken trade routes and a shortage of silver. In that explanation, trouble bringing in silver helped lead to money with less silver inside. The objects do not prove the reverse claim: that money with less silver caused a country to fall.

406–405 BC: Athens turns to cheaper coins

Now move forward several centuries to Athens, a Greek city. A war began in 431 BC. During that long war, Athens faced a shortage of money.

In 406–405 BC, Athens issued emergency coins made with copper inside and silver on the outside. These coins used less silver than solid silver pieces. Their silver surface did not show what the whole coin contained.

A play from that time helps us understand how people reacted. Aristophanes wrote The Frogs, which was performed in 405 BC. In it, he praised the older good coins and criticized the newer poor ones. The complaint shows that the change in the coins was noticed.

In 404 BC, Athens lost the war to Sparta and lost its empire. The city itself continued. The war had started many years before the emergency coins appeared. Knowing that the coin change came before the defeat does not prove that the change caused the defeat.

Both histories help explain why checking money matters. Gold and silver can last for centuries. But a coin’s color or stamp cannot guarantee how much gold or silver it holds. People need a rule for weight and purity that they can check, and a reason to trust it.

The trouble with carrying metal

Return to our trader. She can check her metal, but she still needs to keep it safe. A large payment may mean carrying heavy coins or bars, guarding them, and checking their weight and purity.

A very small payment brings another problem. She may have plenty of metal but no coin small enough to pay the right amount. Metal can be useful money and still be awkward to store or spend.