Gold is irresistible.

—Goethe¹

Men agreed to employ in their dealings with each other something intrinsically useful and easily applicable to the purposes of life, for example, iron, silver and the like.

—Aristotle²

The possession of a gold coin is incontestably more agreeable than the possession of goods.

—Silvio Gesell³

When I was a kid, someone on the playground told me that if I dug far enough, eventually I would reach China. That’s a myth, but here’s something that isn’t: If you dig deeply enough in New York City, the town in which I live, you may just strike gold.

Eighty-six feet below ground level, resting on the bedrock of Manhattan, behind a ninety-ton door, is the gold vault of the Federal Reserve Bank of New York, which is home to more gold than anywhere else in the world: 530,000 bars, weighing an aggregate of 6,700 tons.4 I learned about this vault years ago, but I still had my suspicions: Is there really a vault? Why store gold in a city subject to potential terrorist attacks? And a more sweeping question: Why stockpile so much of a primitive, antiquated metal in the first place? To answer these burning questions, I signed up for a public tour and jumped on the No. 4 train down to Wall Street.

The New York Federal Reserve building is so large you almost don’t see it. Inspired by the design of Renaissance palaces, the twenty-two-story building with its stonework and black iron gates conveys power and authority, yet it hides in the shadows of neighboring buildings. A guard brandishing an automatic weapon checks my name on a list. I pass through a metal detector and am greeted by a neatly groomed tour guide wearing a navy pinstripe suit and ocean-blue tie. He ushers me down via a crowded elevator to the vault. I walk by a dozen cubicles and an exhibit for tourists and there it is: yellow, bright, and heavy. Gold bars, plenty of them, tucked into several light blue holding cells that span the length of half a football field. The vault smells like stale, locked-up metal. Some bars are shaped like rectangular bricks, which can be seven inches long, more than three inches wide, and almost two inches thick. Bars made after 1986 are in the form of trapezoids. A bar can weigh about twenty-eight pounds, but because of its density it feels like twice that. Etched on every bar is its purity level and identification numbers. There is an old giant scale that can weigh amounts as little as one one-hundredth of an ounce up to 640 pounds. It’s a reminder of the mechanical process involved in storing, weighing, and moving the gold bars. While transporting bars, workers wear protective metal casings over their shoes. In the spirit of a Jules Verne novel, I journeyed to the interior of the vault, and verified that, yes, it exists.

As for my next question about storing the gold in New York: It’s here largely for historical reasons. Built in the 1920s, the vault became a popular and secure place to store the world’s gold, especially during and after World War II. At the time of my visit, the value of all the gold totaled more than $350 billion and represented 25 percent of the world’s whole supply. But the Federal Reserve doesn’t own any of it. It belongs to other entities, like governments, foreign central banks, and international organizations.5 And despite the prospect of calamities besetting New York City, the vault is impenetrable: There are no computers, in order to rule out cyberattacks, and the door is air- and watertight. There have been no successful robberies of the Fed except for the one staged in Die Hard III. Should anyone ever stage a burglary, one of the marksmen who practices on the second-floor shooting range will quickly put an end to it.

And as for my last question, about why to store gold in the first place, the easy answer is because it’s valuable and there isn’t a lot of it. If you put all the known gold in the world into the 555-foot Washington Monument, only one-third of the obelisk would be full.⁶ But it’s not just a question of scarcity; there’s something special about gold. Not every metal is safeguarded under an enormous custom-designed solid vault door. To understand why, I looked for answers in another New York City institution. I jumped on the train again and took it uptown to the public library.

Since the dawn of civilization, there has been a recurring question about money: Is it hard or soft? Expanding the question, is money an item with intrinsic worth? Or is it inherently worthless and merely represents something else of value? Put in material terms: Is money a gold coin or a dollar bill? It depends on the time and the place, and what the people, or the ruling authority, deem acceptable. Alas, money can clearly be both—as long as it remains a symbol of value. Lest we forget, the brain has neuroplasticity; it is capable of learning new ideas and updating old ones. Ultimately, the social brain, the “super-brain” of society, determines what will function as currency, from cacao, used by the Aztecs, to butter, which once circulated in Norway.

While there have been many forms of money, answering “hard” or “soft” to the aforementioned question has historically been a dividing line between two economic doctrines, metallism and chartalism. They’re worth exploring because they provide a straightforward framework for understanding monetary history. Early twentieth-century economist Georg Friedrich Knapp coined both terms. Though these terms aren’t used widely today, they’re easy to remember and accurately convey the underlying meanings. The main distinction between these two doctrines concerns the source of money’s value. Metallism posits that money’s value comes from its intrinsic worth, the market price of commodities, usually but not necessarily metal. Silver, gold, and other commodities like barley and grain have served as currency because they have inherent worth as determined by the market. Paper notes can also serve as money in the metallist worldview as long as they are backed by metal or some other item with intrinsic worth. For example, in an economy using a gold standard, the currency may be convertible into a fixed amount of gold. The fixed supply of hard money supposedly makes it difficult for anyone, especially the government, to create more and adjust the overall supply.

Chartalism, derived from the Latin word charta, or ticket, contends that money itself doesn’t have intrinsic value.7 In this doctrine, money is “soft,” a noncommodity, or a token—like a dollar bill, which is merely a piece of paper with no intrinsic value. It’s the state that creates money and its use value. The dollar is created by an authority, the Federal Reserve System of the United States. The state also creates a large demand for its currency by administering taxes, fines, and fees in dollars. Since payment of these items is mandatory, one must procure and deal in dollars. The state may also institute legal tender laws. For example, in the United States, the Coinage Act of 1965 states, “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.”⁸ In addition, because of its minimal cost of production, soft money can easily have its supply adjusted by its issuer and, to a lesser extent, counterfeiters.

Metallists and chartalists hold different ideas regarding how money originated, evoking the divide between Adam Smith and Alfred Mitchell-Innes. Metallists contend that money replaced barter. Money, then, is a creation of the private market, and the state merely blesses what the market settles upon. Chartalists believe debt or credit systems preceded money: Evidence of interest-bearing loans appears in ancient Mesopotamia, thousands of years before coins surface in the Kingdom of Lydia around 630 BC. We become aware of the fault lines between these two doctrines: metallism versus chartalism, metal versus credit, marketplace versus state, hard versus soft. It seems as if chartalism has won the day since the current global monetary system relies on non-metal-backed soft currency. Yet the link between money and metal is a dominant one in economic theory. Many influential economic thinkers are considered to hold metallist views, including John Locke, Adam Smith, John Stuart Mill, and Karl Marx.9

I focus on hard money in this chapter and soft money in the next. I define “hard money” as coins made from precious metals or paper backed by it.

Indeed, there were commodities that functioned as currency before the invention of coinage, or the M in Karl Marx’s formula of monetary exchange, C M C. Economic historians refer to the commodities in the C C exchange as “proto-money.” Proto-money, like barley or gems, can normally be used for another purpose—like nourishment or jewelry. But that’s not always the case. During the nineteenth century, Western explorers found an unusual currency on the island of Yap in the Pacific Ocean. Fei, a bulky limestone rock found in round shapes up to four meters in diameter, functioned as money. These rocks were transported from limestone quarries more than four hundred miles away via boats made from bamboo. There’s a local legend from Yap that once a very large fei sank to the bottom of the ocean while in transit, but it was agreed that it would continue to represent wealth for its owner and could be used for purchases despite being at the bottom of the sea.¹⁰ Fei was cumbersome and rare but served as a store of value and was an instrument that facilitated exchange—even though it didn’t physically change hands.

Some of the monetary words we use today originate from proto-money. Capital and cattle come from the Latin word caput, which means “head.” The number of cattle heads that one owned was once a measure of affluence. During the Roman Republic, soldiers were paid a salarium, a salt ration from which the word salary originates.¹¹ Buckskins were used as currency in the American frontier during the eighteenth century, which led to the word buck being used as a synonym for the dollar. But proto-money is typically not issued by a state or authority, and not formally denominated with a stated value. It’s a less formal instrument of exchange than coins as we know them today.

The development of coins made money easier to use. Coins were small and their value was eventually standardized by authorities. Coins helped facilitate human cooperation, or as Ofek might say, they were an output of the evolutionary force of exchange. Like Paleolithic hand axes refined over thousands of years, coins have been continually improved to make trade more convenient and efficient. Minting technologies have evolved from hammer-striking to automated presses. Starting in the seventh century BC, the coin maker would make planchets that were cast from molten metal in a relatively standard size, which were then hand-struck. In late antiquity and early medieval times, coin makers would take a sheet of metal, cut a blank piece, shape it into a round form, and then place it on a set die.12 The blank would then be struck with a hammer. In sixteenth-century France, the screw press was adopted. A rolling mill that was powered by horses or water was used to flatten metal, which was then cut. The blank was struck with a die using a big screw. In the nineteenth century, steam-powered machines were used to make coins.¹³

As coinage technology improved, the symbols on coins became more intricate. As civilization and art developed outside the cave, we adorned coins with assorted symbols of various meaning. Authorities employed skilled artisans to design complex symbols to help create a state identity.¹⁴ The coins also helped to spread the culture of the issuers. Invading armies couldn’t carry with them buildings or temples, but they brought coins with depictions of these structures. The art on the coins told a story. In time, these symbols would represent kings and queens—and define countries and cultures.

But the progression from proto to hard money didn’t happen overnight. It took thousands of years, and began in the cradle of civilization.

Silver Civilization

In Mesopotamia around 2500 BC, several commodities, like vegetables, cattle, and sheep, functioned as proto-money.¹⁵ These valuable commodities were ultimately sources of energy that helped to increase the chances of survival for humans, and had also become instruments of exchange. Over time, more durable, nonperishable items served as proto-money. As in the Paleolithic era, hand axes functioned as currency in northern Mesopotamia, and later axes became a symbol of money itself. The shekel was originally a unit of weight in this civilization, and the concept was depicted with the sign for an axe in the Sumerian language.16 Clay objects known as bullae may also have functioned as proto-money. These clay spheres were like an archaic piggy bank: Inside were clay tokens, etched with numerals, which could have been used in transactions.¹⁷

Silver and barley were the two most widely used proto-monies.¹⁸ Both of these commodities, but especially silver, seemed to fit the traditional definition of money: a medium of exchange, unit of account, and store of value.

As a medium of exchange, payments to laborers were made in silver and barley. Documents that have survived since the second and first millennia BC indicate that one-quarter of a bushel of barley was the payment to a worker for a day’s labor.¹⁹ Loan and sale documents indicate prices in silver.²⁰ Merchants would have weighed and exchanged silver bullion.

To facilitate smaller transactions, some silver bars were made into ingots, spiral coils, or rings of similar weight. Each ring ranged in value from one shekel to ten shekels, which could be easily broken off from the larger coil.²¹ One shekel of silver would have weighed about the same as a US quarter—about three-tenths of an ounce.²²

As a unit of account, balance sheets show silver as an accounting measure: Incoming and outgoing goods were weighed and assigned a value in silver. The remaining balance was also expressed in silver. Because silver was rare, it wasn’t used in many transactions for slaves, real estate, or other goods. But prices were still quoted in silver, exhibiting the existence of a silver standard.

As a store of value, silver maintained its worth. Silver was not abundantly available in Mesopotamia. It was mostly imported from neighboring areas, like the Taurus Mountains, that had more known ore deposits. Because of its scarcity, silver was seen as a prestigious item, and many squirreled it away for use at a later time.23 In contrast, the value of barley, which grew locally, fluctuated with the harvest.

The Third Dynasty of Ur certainly had the ingredients necessary for a nascent market economy: silver and barley proto-money, a functional credit system, and merchants like Turam-ili. But instead of a highly decentralized market, kings and religious authorities played a redistributive role in the economy. They gathered food items and other goods and reallocated them to people according to status and occupation, like an archaic potlatch.²⁴

They also monitored monetary affairs. Not only did the temples, palaces, and other public institutions act like ancient central banks that adjusted interest rates; they also established weights for silver. They safeguarded standard weights in the shape of ducks and lions used to determine the silver standard. And they stored large amounts of silver bullion. “Silver was a highly valued substance with strong symbolic associations with royalty, wealth and power, and the substantial surplus that was not immobilised in treasuries was potentially available for monetary use,” write the curators at the British Museum.²⁵

The authorities increased the demand for silver by issuing law codes. For example, from the city of Eshnunna, an ancient law code contains a price list of nine common goods by weight and volume that were equivalent to one shekel of silver, essentially outlining the exchange rates against silver.²⁶ A liter and a half of pig’s fat was priced at one shekel of silver.²⁷ Fines were also assessed in silver: ten shekels for slapping someone’s face, and sixty shekels, or one mina, for biting a man’s nose.²⁸

Metallists and chartalists both find supporting evidence for their philosophies in this ancient civilization. Metallists contend that the authorities merely blessed what the informal market had already determined would be used as money. Silver was valuable regardless of whether the government authorized it.²⁹ Chartalists assert that the state created the demand for silver by administering fines in this metal, for example. Moreover, loans were issued in the form of silver and barley, which increased the demand for these items. In other words, proto-money was an instrument to enact and repay debts.

While the debate over the origin of money continues, most agree on what circulated as currency. Precious, durable metals increasingly replaced edible commodities as the dominant proto-money. This was the case not just in the city-states of Mesopotamia but also among the villages of the Nile River.

Weigh Like an Egyptian

Around 3100 BC, civilization arose like an oasis between a desert and a mountainous area along the winding Nile. The yearly flood of the river, known as the inundation, left behind minerals, organic matter, and fertile land.30 Crops like wheat and barley flourished and were used as proto-money to pay common laborers. These staples formed the basis of the Egyptian diet in the form of bread and beer. Beer, it should be noted, wasn’t a lager-colored, smooth liquid but resembled a wholesome soup, sometimes infused with local plants. Many tomb drawings show the elaborate preparation process of making both beer and bread, suggesting they were ubiquitous items.

The Egyptians even created tokens in the shape of loaves to symbolize allotments of bread rations, which tokens could have functioned as proto-money. Tokens found in Egyptian fortresses in Nubia were about twenty centimeters in diameter, made of wood, painted, and shaped like various types of bread loaves.³¹ The symbols bear hieroglyphic inscriptions that indicate the number of loaves and the amount of wheat for which they could be redeemed. Though historians don’t know whether they were traded in great numbers, the carvings may be a personal tally of a ration’s value, which could have served as a claim if there were a disagreement about the value of grain in the ration received. The standard ration for workers was ten loaves and a beer that measured up to two jugs. Higher-ranking officials who staffed temples and palaces were provided larger rations. Calculating rations, like dividing one hundred loaves among ten men, required the use of fractions, which Egyptians are said to have invented.³²

Bread and beer served as payment for work completed, but as Egyptologist Rosalie David points out in her Handbook to Life in Ancient Egypt, wheat not only served as a medium of exchange but increasingly became a unit of account in the sixteenth century BC,³³ as did other commodities. Egyptians traded with neighboring civilizations for silver, spices, and copper, for instance. Because of the influx of new goods, there was a need to establish a standard, first expressed in terms of wheat, against which other goods could be measured and appraised. Say there was a discrepancy between the value of two goods that were being traded. Some amount of wheat would be allocated to resolve the difference.34

By 1580 BC, silver, gold, and copper were also used as a standard. Egyptians made special units to measure these metals: a deben, which weighed ninety-one grams; and a kite, which was one-tenth of a deben.³⁵ These metals were used to value other goods and facilitate transactions, as the metals themselves rarely changed hands. Tomb drawings show officials using fixed weights in the form of a seated lion to measure a deben of metal, yet the system may not have become widespread, since Egypt’s economy was still mostly informal and pastoral. Nevertheless, merchants traveled with weights so they could conduct transactions more conveniently. As was done in Mesopotamia to make dealing with gold and silver more convenient, these metals were smelted into smaller ingots or rings.³⁶

The evidence that precious metal was precisely measured conveys that Egyptians believed it to have intrinsic worth. The Egyptian word for silver was hedj, which may have also meant “money.”³⁷ Silver was imported from other countries, and for a time was considered more valuable than gold. The Egyptians searched their lands for more precious materials: copper, tin, and alabaster. Many pharaohs dispatched military expeditions to manage the sometimes tens of thousands of workers needed to mine in surrounding lands.³⁸ In approximately 2500 BC, King Sahure dispatched men to Punt, which was known as “God’s Land,” and they returned with vast amounts of ntyw, or myrrh, and various metals. During the twelfth century BC, according to surviving documents, Ramses III “constructed great transport vessels… loaded with limitless goods from Egypt… They reached the land of Punt, unaffected by (any) misfortune, safe and respected.”³⁹ But Punt has long been a mystery to archaeologists, who have been unable to determine its location.

One region they have examined is Nubia, south of Egypt in the alluvial lands near the Nile. It’s an area where Egyptians mined gold.⁴⁰ The Egyptian word for gold was nbw and may explain the origin of the place-name Nubia.41 Taxes were sometimes collected in gold and then stored in the treasury, which was part of the most important temples.⁴² The pharaoh’s administration carefully tracked, measured, and weighed the incoming gold before some was provided to artisans to shape into jewelry, masks, and other ornaments. Jewelry pieces made from precious metals weren’t just symbols of status and wealth, but were thought to have magical qualities, protecting against evil. Pharaohs wanted to be entombed with their jewels so they could take them along and be protected in the afterlife.

The pharaohs were certainly accustomed to being surrounded by immense wealth during their earthly lives as well. Technically, Egyptian pharaohs owned everything, including all the bread, beer, and gold. The pharaoh presided over the centralized economy and granted lands to friends and relatives, who became powerful landlords. As in Mesopotamia, temples were centers of enormous wealth, like one that managed almost 100,000 commoners, 500,000 cattle, and hundreds of orchards.⁴³

The middle class was composed of traders, soldiers, artisans, and, most important to the purposes of understanding the role of money, scribes. Up to 5 percent of Egyptians were literate, and many of them were scribes who created papyrus records of taxes, granary inspections, and commercial transactions in which precious metals were weighed.⁴⁴ However, Graeber says there is scant record of interest-bearing loans, perhaps because papyrus isn’t as durable as coins in the archaeological register.

However, economic historians can still study later Egyptian coins to understand more about the society in which they were issued. One such gold coin exhibits a fusion of cultures: on one side, hieroglyphics, and on the other side, a horse of Greek design. It’s probably from the reign of Nectanebo II, one of the last pharaohs, who came to power in 359 BC.⁴⁵ The coin shows that Egypt was influenced by Greece. But coins weren’t invented in Egypt.

Coined in Lydia

Located on the Ionian coast of Asia Minor, in what used to be Anatolia and is today Turkey, the Kingdom of Lydia emerged around 700 BC under the Mermnad Dynasty. Not having left behind a copious archaeological record, it would have been a historical footnote if not for the discovery of a few hoards of coins and the writings of the Greek historian Herodotus, who wrote, “Lydia, unlike most other countries, scarcely offers any wonders for the historian to describe, except the gold-dust which is washed down from the range.”46 He is alluding to the wealth of this kingdom, the first to invent coinage in the Western world.

Lydia derived its wealth from three sources: tributes, natural resources, and eventually, coins. Lydian kings conquered several Ionian and Greek cities and received tribute, which helped them to amass substantial fortunes. Lydia was blessed with abundant amounts of natural resources. Legend has it that Phrygian king Midas bathed in the Pactolus River to rid himself of his golden touch and left the golden gift in the waters. But the mines at Tmolus, near the Pactolus and Hermus Rivers, yielded another metal, what Herodotus called “white gold.”⁴⁷ It was actually an alloy of gold and silver known as electrum, which comes from the Greek word electron, which means “amber.”⁴⁸

Just like gold and silver, electrum was first traded as bullion. But because the amounts of gold and silver varied in electrum, its value could not be easily determined. Over time, electrum bullion was turned into smaller chunks that were easier to handle—and eventually into coins. Archaeologists discovered more than ninety electrum coins at the ruins of the temple for Artemis, a Greek goddess, at Ephesus; they are estimated to be from 630 BC.⁴⁹ The hoard includes coins of varying degrees of sophistication, from unstamped metal lumps to flatter ones bearing images of lions.⁵⁰ Just as Paleolithic hand axes were refined, humans gave coins characteristics that increased their convenience. It wasn’t long until no weighing scale was needed. Electrum coins were standardized, weighing 14.15 grams and given the denomination of the stater. Coins became over time the new criterion against which to measure all other commodities.

Coins are usually assessed by collectors according to their metal composition and the symbols they bear. Many staters have a face value that is up to 20 percent more than the intrinsic value of their metal content. Electrum from western Anatolia has a gold content of 70 to 90 percent, yet Lydian coins had less gold, around 50 percent. Lydians became skilled metalworkers and diluted the amount of gold in coins as an act of seigniorage: a way to profit from the issuance of currency. The difference between the face value of issued coins and the actual market value of the precious metal leads to a profit for the issuer.51 One justification for seigniorage is that the labor that goes into creating a coin may constitute a value-add, resulting in a higher face value.⁵² Seigniorage also lays bare the historical propensity for the issuer to control the value of money through its manufacture. Minting money is a profitable business, and many governments engage in seigniorage even today.

The symbols on coins offer insight as to who issued them: merchants, bankers, aristocrats, or kings. One coin from this era has a Greek inscription, “I am the sign of Phanes.” Coins that bear the words KALIL and VALVEL have also been discovered.⁵³ These inscriptions may reflect the name of the person or mint that issued them. During the early sixth century BC, the mint in Sardis, the capital of Lydia, probably produced the most coins.

Coins thought to be from ancient Lydia came in several hundred types, with depictions of boars, horses, dolphins, and monsters, among others. The images were a distinguishing mark of the issuer. Coins issued by the Lydian kings bore a lion’s head or paw. The image was etched on a die and then placed on a chunk of electrum, on which it was hammered, leaving an impression.

The last king of Lydia was Croesus, who reigned from 560 BC to 547 BC. He introduced coins made from pure silver or gold and bearing the mark of a lion and a bull. Croesus’s coins marked the inception of bimetallism, a monetary system in which two metals are accepted as money, with a fixed ratio of value between them. According to The Oxford Handbook of Greek and Roman Coinage, during Croesus’s rule the exchange rate between gold and silver was 1 gram of gold to 13.3 grams of silver, and 1 gram of gold to 10 grams of electrum. Issued gold staters weighed 8.1 grams, less than their electrum predecessors.⁵⁴

The spread of coinage made Lydia an even wealthier kingdom, and Croesus’s wealth became legendary. We still occasionally hear the English phrase “rich as Croesus.” He lavished gifts of electrum bullion and gold on oracles. He eagerly asked an oracle what would happen if he fought the Persians, which precipitated a cryptic reply that a notable empire would perish. Croesus interpreted the remark as a good omen, so he attacked the Persians, but lost badly.55

The Kingdom of Lydia came to an end, but coinage flourished elsewhere in the Mediterranean world and even India and China. Classics professor David Schaps says that the coins made in Lydia, India, and China look different and were made using different technologies. Indian coins were lopsided, their sides cut off to ensure they were the right weight. They also had several punch marks that indicate they were made in a mint. Chinese coins were composed of bronze and shaped like spades, disks, and knives. Some had holes in them so they could be strung together.⁵⁶

It’s difficult to know whether these civilizations conceived of coins on their own or were influenced by others through trade. Even Schaps vacillates:

Lydia, India, and China probably invented coinage independently of each other; and even if that was not the case, they surely developed the use of coins independently of each other. It is possible that these three independent events had independent causes, and that none of them has any light to shed on the others; but it is surely worthwhile to consider the possibility that there were similar conditions in these particular places that made coinage a plausible and a useful innovation.⁵⁷

Some scholars make the case that India, for example, developed coinage on its own. They point to silver tokens marked with cuneiform found at Mohenjo-daro, an Indus Valley civilization from 2500 BC, which suggests trade with Mesopotamia. The Rigveda, an ancient Hindu text that dates to 1500 BC, mentions a gold currency, which some have interpreted as coins unique to what’s now India. Yet others contend that coinage was brought to India by the Achaemenian invasion or the eastern expansion of Alexander the Great and his Greek Empire.⁵⁸

A Democracy of Owls

The people of Lydia and Greece had strong cultural ties. Croesus formed an alliance with Sparta and peacefully incorporated many Greek cities into his kingdom. The Lydian alphabet was derived from Greek. Several artifacts recovered from Lydia, like vases and bowls, were made in a Greek design, and Greek engravers also likely designed Croesus’s coins.

Most Greek coins were made from silver. Greece received silver tribute from its allies, and another rich source of silver was just twenty-five miles away in the mines of Laurion. Roughly 30,000 slaves staffed 2,000 shafts at the mine during its peak of operation.

The Greeks began producing coins in Athens around 546 BC, during the reign of Peisistratus, who needed to compensate mercenaries and finance his ambitious building plans. The unit of account for coins was the drachm, which comes from the Greek word meaning “to grasp” and was first used when measuring proto-money like grain or bullion. One drachm was made of six obols, which is derived from the Greek word that means “spit,” as in iron spits that were used to cook meat. There is evidence from the seventh and sixth centuries BC that spits were used as items in dedication or sacrificial ceremonies. Iron spits were a valuable item that may have functioned as proto-money. The trading of iron spits harkens back to Neolithic man, who relied on food preparation and sharing for survival.59 The drachm was standardized to 4.32 grams of silver, and an obol weighed 0.72 gram.⁶⁰ Coins of greater value were issued, too. For example, the frequently used tetradrachm was equivalent to four drachmas and weighed 17.28 grams. The decadrachm, equivalent to ten drachmas, was the largest denomination, yet issuance of this coin was limited.

Fourteen types of coins have been discovered from the reign of Peisistratus. The variety of symbols found on the coins, from horses to wheels, suggests they were made by different issuers. But the coin depicting an owl is most famous because of its staying power. It was issued almost continuously for several hundred years, until the silver mines were tapped out. In 525 BC, the image of a gorgon like Medusa, an emblem associated with Athena, was added to the front of the tetradrachm. After a few years, the gorgon was replaced with an image of Athena, and her bird, the owl, on the other side. Most of these owl coins were made at the Athenian mint, which was a large building adjacent to the agora, an open area used as a marketplace.

During the Peloponnesian War, Sparta blocked passage to the silver mine at Laurion, so Athens almost drained its entire silver supply. It minted coins made from the gold of the Nike statue at the Acropolis. The shortage worsened, and Athens issued owls made from bronze and coated in silver. Smaller denominations of owls were issued because there was less metal to use.

In addition to state-led debasement of its coins, there was the problem of counterfeit owls. Athens prohibited cities not fully under its control from issuing owls. The decree wasn’t fully obeyed, so Athens dispatched commissioners to its distant provinces like Egypt to enforce the law and administer a penalty of ten thousand drachmas for violations.

With the kingdom of Alexander the Great the owl coins were supplanted with coins bearing images of Hercules and Zeus. Alexander’s coins also replaced the gold Daric, which had been introduced by Darius the Great around 520 BC and circulated throughout the Persian Empire. The successors of Alexander the Great set up more than twenty mints from Macedonia to Egypt. His coins achieved international circulation and helped to expand his influence throughout the region. As evidence of his reach, his golden staters are among the oldest coins found in Britain.61

However, owl coinage was revived in Athens in the third century BC. Inscribed on them were the initials of Athenian officials administering the issue, and the month of issue. Economic historian Peter van Alfen notes that in 42 BC, after the Battle of Philippi, waged to avenge the death of Julius Caesar, the production of owl coins was halted, since Rome had become the dominant power. Rome’s hard money had become the coin of the realm.⁶²

In parallel with the monetary doctrines, metallists contend that owl coins were intrinsically valuable, made from precious metal. The state merely legitimized what already functioned as currency. Chartalists acknowledge the owls’ intrinsic value: These coins would have little worth without their base metals. However, seigniorage shows that the coin’s value derived from something more than metal. The additional value stemmed from the state, which issued owl coins and enforced their use as acceptable means of payment. Athens issued guidelines for which coins were acceptable in the agora. That it banned counterfeit owls demonstrates that the government recognized that a principal source of value was people’s faith in the currency. People had to believe that the coins were authentic legal tender. Widespread questions regarding the legitimacy of coins could lead to concerns in the agora, a currency crisis, or even the destabilization of power.

Moreover, state expenditure introduced an abundance of coins into circulation. It’s estimated that millions of coins were issued during the fifth through third centuries BC, making coins one of the first mass-produced items in history. The mass issuance of coins coincides with Athens building its fleet to combat the Persians around 480 BC. Coins were needed to pay soldiers for several conflicts, such as the Peloponnesian War. The state also paid more than sixteen thousand drachmas for building the Parthenon temple. It paid jurors and citizens to attend the Assembly, where matters were debated. Even a couple of obols were paid to citizens for going to the theater for religious activities. State spending put more money in people’s hands, including those of foreigners, which created the demand for more goods and services.

Over time, soldiers, workers, and citizens took these smaller coins, their movable fortunes, to the agora, which became a center of life in Athens.63 Coins were an invitation to buy and sell at the agora. They were symbols of civic pride and represented the values of a land ruled by laws. After all, the Greek word for coin, nomisma, is similar to the word for law, nomos, which eventually led to the modern English word for coin collecting, numismatics. Coinage stimulated the marketplace: more money, more people, and more goods. Merchants actively monitored the supply and demand of their goods and adjusted prices accordingly. Nonmerchants and illiterate people who previously relied on brokers and other representatives were now empowered to trade for themselves. No longer was there a need for scales and weights to assess the intrinsic value of basic goods (though the agora still had scales for larger goods). Coins became the standard of value against which almost everything was measured, including other commodities like wheat and barley. But now soft, intangible items like time and labor could also be valued with the same monetary standard.

Credit abetted the adoption of coins. Scholars have debated whether banks, or trapezai, in Athens were more than just moneychangers and pawnbrokers. Yet banks, shops, and temples all issued loans. Classicist Edward Cohen notes that banks were given a prominent position in the agora, recognition of the vital role they played in the economy. Loans were often received in the form of coins, creating more demand for hard money. There is evidence that trapezai extended large amounts of credit to facilitate trade, which introduced more goods and dynamism into the marketplace. For instance, perfume vendors held large inventories and relied on bank credit to stay solvent. Banks also issued loans to help prospectors acquire mining rights and to abet military campaigns. Cohen says that the largest loans were made to finance ships, and were secured against their cargo. Despite credit flowing through Athens, it had become a coin-based economy.64 There wasn’t an easy way to transfer wealth without handling coins, and payments for tolls, custom duties, and rents were mostly made in coins.⁶⁵

Coins were shaping not just the agora but also the larger Athenian society. Instead of a top-down redistributive system, in which people relied on the central power, aristocracy, or even onerous family relationships, coins had a democratizing effect. Money helped form a web of interdependent relationships without the lingering gratitude-induced obligations of the gift economy.⁶⁶ Anthropologist Jack Weatherford writes in The History of Money that coins may have even augmented democracy.⁶⁷ In addition to Solon’s reforms to cancel debts, the leader broadened the criteria of those who were eligible to serve in public office. Wealth became a determining factor, not just whether someone was from a noble family.⁶⁸

Athenians exhibited entrepreneurial qualities, but to consider Athens a bursting market economy would be to distort the past through a modern economic prism. Moreover, to consider coinage as the only catalyst for liberal reforms is too narrow. In The Economy of the Greek Cities, Léopold Migeotte writes that changing demographics, increasing urbanization, and better transportation routes also played roles in economic growth.⁶⁹ Nevertheless, money was a democratizing force.

Some notable Greek philosophers didn’t see it that way. Plato and Aristotle were suspicious of money and the marketplace. They discussed the differing forms of money, which convinced some scholars that chartalism and metallism originated from their philosophies. Plato thought money stoked greed and corruption and wanted to ban gold and silver.⁷⁰ He thought that trade and a retail economy would lead to “deceitful habits in a man’s soul that would sow seeds of distrust among the citizenry.”71 He advocated for strict market regulations. No, he doesn’t appear to be a metallist.

But was he a chartalist? Economist Joseph Schumpeter seems to think so, referring to Plato as the “first known sponsor” of what was later considered chartalism.⁷² But again, that might be imprudently viewing the past through a more contemporary economic prism. Yet Plato does make a distinction between token money and what he calls real money, or between what one would call soft money and hard money. He says the state issues token money and decides its form and initial value. Therefore, token money will be accepted only within the jurisdiction of the state and not the realm of other states. Real money, hard money, is the currency of the marketplace and can be exported and used in transactions with foreigners.⁷³ No doubt he would be surprised with the role of the US dollar, which is token money but hoarded the world over in the form of the hundred-dollar note and acceptable as official payment in other sovereign nations, such as Panama.

Plato’s pupil Aristotle noted that at least historically, money was “valuable in itself, might easily be passed from hand to hand for the purposes of daily life, as iron and silver, or any thing else of the same nature.”⁷⁴ Schumpeter credits Aristotle as an originator of metallism and for influencing generations of economists.⁷⁵ However, it’s not clear Aristotle was a metallist.⁷⁶ He writes that money is man-made, has a use value, and “owes its existence, not to nature, but to law… and it is in our power to change it and make it void.”⁷⁷ He acknowledges the role of the state, the law, as key in determining the form of money. If the law changes, so might the form of money. By that logic, money could be soft or hard.

Aristotle was more moderate and matter-of-fact in his analysis of the market than his teacher Plato. But they sound similar when considering the ethical implications of money. Aristotle acknowledges that money facilitates different types of exchange. He describes how eventually man entered the market only with money, looking to buy goods and sell them at higher prices, like a shrewd speculator. Aristotle discredits this type of exchange as unnatural because it was “people taking things from one another.”⁷⁸ He also condemns usury, the lending of money at high rates, as “reasonably detested… the most contrary to nature.”79 Using money to make money only encourages man’s insatiable desire to acquire more. They both believed greed wasn’t good.

When in Rome

While coinage had a democratizing effect in Greece, it could also be used by authorities as a political tool. During the Roman Empire, to keep up the pace of exorbitant spending, rulers minted more coins and increased the supply of money. At the same time, they reduced the amount of metal within coins, which made the currency less valuable and contributed to depreciation. Roman history highlights a lesson about hard money: Issuers can manipulate the value of money to serve political ends. It’s a lesson that plays out even today.

Roman coinage began around 300 BC. Early coins were inspired by the design of Greek coins, and some were even made in nearby Greek towns to facilitate trade.⁸⁰ The coins in circulation were the bronze as, the standard monetary unit, and the silver didrachm. Though the standard conversion rate was one didrachm for ten asses, the values of the component metals fluctuated in the market. Say silver appreciated considerably above the official face value stated on a coin. People would hoard it, removing it from circulation. And bronze coins, which were undervalued compared to their official face value, would be left as the circulating coins of the realm. This phenomenon is known as Gresham’s law: Bad money drives out good money.⁸¹ And it was a recurring phenomenon throughout the Roman Republic and Roman Empire.

After vanquishing Pyrrhus and the Greeks, Rome started to solidify itself as the paramount power of the region. It began to mint its own coins in mass quantities around 269 BC. The mint that produced most Roman coins was atop Capitoline Hill, a secure location to protect against enemies. The mint was adjacent to a temple for the goddess Juno Moneta, whence the words money and mint likely originated.⁸² There are several myths regarding how Juno earned the name Moneta. One legend has it that a voice from the temple warned about an earthquake, and the only way to stop it was to sacrifice a pig. Another is that invaders from Gaul alarmed the geese inside the temple, alerting the Romans, who stopped the invaders. The common thread in both stories is that the goddess was a voice of warning; the Latin verb moneo means “to warn.” In addition, it makes sense that the monetary units would be closely associated with this temple, since it’s where other official weights and measurements were kept, such as the pes monetalis, the “monetal,” or Roman foot.83

During the Second Punic War, fought against Carthage from 218 to 201 BC, Rome faced financial difficulties since sustaining the military required vast resources. The regime therefore minted debased silver coins, reducing the metal content from 98 percent pure silver to 36 percent. The end result: more coins to pay soldiers even though each coin was worth less. Despite winning the war and becoming the predominant regional power, much of the value of Rome’s hard money had been lost, and coins of more value were hoarded.⁸⁴

So Rome started over. Around 211 BC, Roman authorities introduced the denarial system of coinage, which included the silver denarius and the bronze as. Denarius comes from a Latin word that means “containing ten”; one denarius was equivalent to ten asses. The conversion rate eventually changed to one denarius for sixteen asses. The system was composed of four coins made almost completely from pure silver: (1) the denarius, which was the biggest in size, weighed 4.5 grams and had the largest value; (2) victoriatus (three-quarters denarius); (3) quinarius (half denarius); and (4) sestertius (quarter denarius). Many early denarial coins bore an image of the goddess Roma in a winged helmet and the inscription ROMA. Eventually, coins incorporated various other inscriptions and deities.

Julius Caesar left his stamp on Roman monetary history by using the gold treasure he pillaged from Gaul to increase the quantity of the aureus in circulation; they had previously not been issued extensively. These new coins helped Rome cope with a financial crisis in 49 BC during Caesar’s ascension to power, since coins were needed to pay the military. By expanding the supply of money and preventing people from hoarding mass amounts of coins, Caesar’s reforms helped the economy recover.

Caesar’s eventual successor, Augustus, who came to power in 27 BC, faced a similar problem of an economy in need of more money, suffering from deflation, and enduring a depression. Augustus used loot captured from Egypt to spend lavishly on civil projects and enhanced welfare programs. The precious metals from distant lands were melted and paid to soldiers. He followed Caesar’s monetary policy, minting more coins at a furious pace until 10 BC. In time, interest rates dropped from 12 to 4 percent, and the economy recovered. Caesar’s and Augustus’s economic policies were successful and instructive to future Roman leaders.85

One of Augustus’s successors, Emperor Nero, reigned during a prolonged depression in AD 62, and a fire blazed through Rome in AD 64, causing even more damage. Classics scholar Mary Thornton sees similarities between Nero’s initiatives and those of President Franklin D. Roosevelt—she suggests Nero created a “New Deal for Romans.”⁸⁶ Nero increased food subsidies for the public and spending on civil projects like canals.

President Franklin Roosevelt expanded government spending during the Great Depression, but he also changed the implementation of monetary policy through his gold policies and the gold purchase plan, which was purposefully directed at devaluing the dollar.⁸⁷ Nero also took an activist approach to monetary policy and worked to expand the money supply. Nero followed the economic playbook of Caesar and Augustus; he enlarged the supply of coins and tampered with their value. He reduced the worth of the denarius by 15 percent, diminished its silver content from 97.5 percent to 93.5 percent, and lowered its weight from 3.9 grams to 3.4 grams. He reduced the aureus by 10 percent and lowered its weight from 8 grams to 7.2 grams.⁸⁸ His actions expanded the money supply by an estimated 7 percent. In the end, debasing hard money was a monetary policy that helped put the economy on a path to recovery.

The reign of Nero was a turning point in Roman monetary history. Money was losing its intrinsic worth, yet Romans increasingly transacted in these debased coins. However, foreign territories like India refused debased coins, so Rome exported silver, gold, or nondebased coins to facilitate trade.⁸⁹ The city of Rome didn’t produce many goods. They had to import items, which created a trade deficit that had to be financed, a further drain on the state’s coffers. Furthermore, Nero recognized that his coins were more than just minted metal. They were a symbol of value and an instrument of propaganda. Early Nero coins bore an image of the emperor at age sixteen, the year his reign began, alongside his mother, Agrippina, the power behind the throne. Later coins show him with a beard and crown, as he became his own man.90

The Roman Empire grew in influence and expanded its borders to the Middle East and North Africa, covering more than four million square miles. Its many captured treasures enhanced not only Rome’s income but also its spending. Seized metals were melted and minted into coins to pay the burgeoning military. The surge in state spending also financed the hefty bureaucracy and subsidies for the poor.⁹¹ In the second century AD, the Roman budget swelled to more than 200 million denarii per year.

However, profligate spending eventually put downward pressure on the economy. The monetary policies imposed in response to the financial crisis of AD 238 effectively made the denarius disappear, especially as the supply of silver was greatly diminished. The state needed more money, so in AD 214 it created another coin altogether, the antoninianus, which was named after its originator, whose name was Antoninus. Bad money forced out good money. People hoarded the denarius for its higher intrinsic value, and it was effectively removed from circulation. Hoarding contracted the supply of money, which forced Roman authorities to issue even more debased antoniniani. By AD 270, the antoninianus was minted with only 2.5 percent silver. With less “good” money in the system, there was an increase in barter and social debt transactions. To compensate for the diminished value of coins, merchants marked up the prices of goods, eventually sparking aggressive inflation. The economic malaise led to public outcries, including a strike by mint workers in AD 271.

Rome suffered from years of economic misfortune. Prices rose nearly 23 percent per year from AD 293 to 301. Emperor Diocletian followed the economic playbook of Nero in the late third century AD. He enlarged the military and built more roads. He instituted monetary reform, returning to a bimetallic system of silver and gold, with new denominations marked by their fractional weight in bullion.⁹² Money was yoked back to metal with intrinsic worth. But metal prices moved north, too. Inflation remained, and bad money chased out good money. In AD 301, Diocletian issued an Edict on Maximum Prices, which capped the prices of more than one thousand goods, including wine, grain, and clothes. But it was largely ignored, and inflation became even more rampant.

Scholars have long deliberated the causes of inflation in Rome. Meddling with the supply and value of hard money certainly played a pivotal role. Rome’s experience with debased money should give pause to anyone who thinks hard money is a panacea for economic problems. Yet the debasement of hard money pales in comparison to the devaluation of soft money that goes on today. The dollar isn’t backed by metal, and some have called for a return to the one metal that’s remained a fascination over the ages.

The Golden One

Years ago I descended into a South African gold mine, hundreds of feet belowground. There was a sign near the elevator shaft that read “205 days without an injury.” Hundreds of helmet lights worn by the workers flashed across cavernous passageways. Dozens of trucks and hauling buggies motored past me. Such a laborious operation yields little precious metal. Every ton of crushed rock produces but a few grams of gold. Yet these grams are monitored closely by Wall Street research analysts who adjust their economic forecasting models based on mine production data. The amount of aboveground gold in the world was estimated at about 174,000 metric tons at the end of 2012.93 Meanwhile, global steel production in 2012 alone was 1.5 billion metric tons.⁹⁴

Gold isn’t the only rare metal. Yet there is an obsession for it. Warren Buffett thinks gold lust is bizarre. He juxtaposes my journeys to the African mine and the New York Fed’s vault when he says, “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”⁹⁵

Yet some market strategists say that “gold is money.”⁹⁶ How did this idea begin? The neurons that register “gold” and “value” wired long ago. Early humans were probably attracted to its shine and luster. Only a few naturally occurring materials, like gemstones, water, and ice, would have reflected light and displayed a natural shimmer.

Even some animals like bright, shiny objects. Monkeys are quick to snatch objects like bangles and camera lenses from unsuspecting tourists. Among bowerbirds, a bird species native to Australia and New Guinea, the males construct elaborate lairs festooned with shiny and colorful natural and found objects such as fruit, stones, glass shards, bottle caps, foil bags, and hair ties. The fancy lair attracts females for mating. Colors are nature’s way of advertising. The color of gold sells.97

Gold has long had a luring effect on humans. The Babylonians linked metals to objects in the solar system, with gold compared to the sun.⁹⁸ The link between gold and the sun appears elsewhere. The Latin word aurora means “dawn,” when the sun appears, and it is similar to aurum, which means “gold”—and is abbreviated as Au on the periodic table. But the English word for gold comes the Old High German word gelo and the Old English word geolu, which means “yellow.”

Some dig for gold. Others practice the abracadabra of alchemy. Early alchemists tried to transform base metals like copper, iron, and tin into “noble” metals like electrum, silver, and gold.⁹⁹ Because of its lofty ambitions, alchemy has been associated with the mystical and divine, referred to at times as “the knowledge” or “the art.” The word alchemy is itself a mixture: Al- is of Arabic origin; chemy stems from a Greek word that means “melt” or “mixture.”

Alchemy likely began in Egypt in the third century AD. Egyptians had already been experimenting with metalworking for thousands of years, and it was a natural home to alchemists. There are not many historical texts on alchemy from this period, because they were destroyed. Legend has it that the Roman emperor Diocletian banned alchemy because of the threat it posed to debased Roman money and his monetary reforms. Or he may have been fearful of someone financing an insurrection.¹⁰⁰ Nevertheless, some recipes have been discovered. One calls for adding sulfur to silver, causing a reaction that results in a golden hue.¹⁰¹

Alchemists gradually tried to make other metals take on more than a golden tinge. They wanted to transmute fully one metal into another. Chrysopoeia and argyropoeia were the names of the processes for turning materials into gold and silver, respectively.¹⁰² Alchemists also wrestled with the issue of what constitutes matter. Alchemy required a deep knowledge of chemical properties, yet alchemists still found that making hard money was difficult.

Alchemy was practiced in many different societies. In The Secrets of Alchemy, Lawrence Principe describes how Arabs became interested in alchemy. In the eighth century, a Byzantine emperor showed an Arab ambassador that copper could be melted and, with a dash of red powder, transmuted into gold. Undoubtedly impressed, the Arabs translated Greek alchemical texts.103 Another culture’s obsession for gold making continued in earnest. Just as in the Roman Empire, leaders in the Arab world criticized alchemy as unnatural and alchemists as frauds, and sought to ban the practice altogether.

During the Middle Ages in Europe, some alchemists saw themselves as practicing a divine art. Jesus Christ’s life was an allegory for alchemy, as he transformed from one state to another. To practice alchemy, then, was to improve oneself.¹⁰⁴ Martin Luther’s father was an alchemist who believed the practice was consistent with Christian teachings on self-improvement.

During the European Enlightenment, alchemy was studied as part of chemistry in educational institutions.¹⁰⁵ Surprisingly, a scion of scientific thought, Isaac Newton studied and practiced alchemy, proving that trying to create precious metals can attract the most “rational” of minds. Though scientists eventually dismissed alchemy, occult groups incorporated the practice and kept its lore alive.¹⁰⁶ Even today, the common use of the word alchemy and the reinterpretation of the practice in popular culture, from literature to movies, suggest that the fascination with gold making remains.

Quality to Quantity

It’s not just the emperors of Rome who have manipulated money for political ends. Today it’s still common practice for central banks to adjust the supply of money to abet political goals. There’s no need to mine metals, since the state can just create more soft money. For example, the central bank of Japan purchases massive amounts of securities to inject money into the banking system, which leads to depreciation of the yen and helps Toyota, Nissan, and other exporters sell their products at cheaper prices in the global marketplace. More sales can spell more jobs, an aim of the Japanese government.

Such monetary strategies and currency manipulations have long been a part of the global economic system. However, the global financial crisis of 2008 sparked an era of large-scale currency adjustments as central banks tried to stimulate their respective economies by creating vast amounts of new money. The story goes that with more money flowing through the economy, prices will rise to reflect the reduced value of the currency, which will spur individuals and businesses to spend now rather than later, leading to a bump in economic activity.

Many pundits and politicians have panned the state’s meddling with the supply and value of money. They reason that the historical debasement of hard money is nothing compared to the large-scale manipulation by the state of money that’s not backed by metal. To return to a gold standard would institute some check, the overall supply of gold, on monetary expansion.

Returning to a gold standard invokes the debate between metallists and chartalists. It’s also a debate between creditors and debtors. Creditors have historically tried to protect their investments, wanting to receive money owed to them that is of the same quality. Debtors, however, have historically looked to grow the money supply so they can make loan payments with money that is less valuable.107

But the nature of money is an ever-shifting issue. It depends not only on whom you ask, but on when you ask them. In the late nineteenth century, bankers resisted attempts to institute bimetallism that would expand the supply of money. They wanted to be paid in full with quality, valuable, hard money. Today few bankers advocate a return to hard money, because it could limit loan issuance and curb business.

The arc of monetary history bends toward soft money. Economist Glyn Davies mentions a “quality-to-quantity pendulum” in which the supply of money has increased dramatically over the centuries, at the expense of money’s value.

The sheer amount of soft money in circulation is enormous, partly because it’s so easy to make. Maybe the state has been practicing another type of alchemy all along.

CHAPTER FOUR

Hard and Heavy

A brief history of hard money