Saturday, August 26, 2017

Larry White on the Origins of Coined Money: A Critique

The free banker Larry White has a recent post here on the origins of coined money:
Larry White, “Why the ‘State Theory of Money’ doesn’t explain the Coinage of Precious Metals,” Alt-M Ideas for an Alternative Monetary Future, August 24, 2017.
White is essentially talking about the origins of coined money in ancient Lydia and Greece.

First of all, there are some points in White’s article that may be freely acknowledged as correct, as follows:
(1) Chartalism does not have a universal theory of the origins of money (as defined as a general medium of exchange, unit of account and store of purchasing power) anymore than Neoclassical economics does. But it does have part of the story.

(2) it is true that the theories of certain MMT economists who wish to argue that ancient states chose silver and gold coins only as state-issued tax-anticipation tokens ignores the subjective value that gold and silver did have for human beings. Precious metals were high prestige goods and did obtain value in the market, to some extent, by the subjective value people had for them. So, in this sense, precious metal gold and silver coins were not simply “mere tokens” for the ancients, although some important qualifications can be said about electrum coins, as we will see below.
But now we turn to the flaws in White’s theory.

To begin with, it is empirically wrong to assert that opposition to the Neoclassical/Austrian barter theory of the origins of money is in resurgence just because of Chartalism. In reality, anthropology had already – by the mid-20th century – presented strong evidence against the Austrian/Neoclassical theory, and modern opponents of it are not all necessarily Chartalists.

Secondly, the really serious and empirically dubious claim in White’s argument is his contention that coined money was invented by the private sector in ancient Lydia and Greece:
“An important technical advance came with the introduction and spread of coinage in Turkey and Greece during the 7th to 5th centuries BCE. Unlike raw nuggets straight from the mine or variously refined precious-metal bars, coined pieces of silver and gold gained a major additional advantage: they became (5) uniform in size and quality, so that traders need not incur the cost of testing (or the risk of not testing) each piece for its weight and its fineness (percentage of pure silver or gold content). Early coining entrepreneurs could have profited, as later mint masters in California did, by charging for the service of converting raw silver or gold into easier-to-spend uniform coins. With the spread of coinage to India, the Middle East, and Europe, merchants found silver and gold payments easier to make and to accept. ….

Once sovereigns monopolized the mints they took advantage of the propaganda value of stamping their own faces on the coins, of course. But as far as we know coins were already in use among merchants before that happened. Very early coins from ancient Lydia, in what is now Turkey, were not inscribed with human faces but rather animal figures. The Ancient History Encyclopedia states: ‘It appears that many early Lydian coins were minted by merchants as tokens to be used in trade transactions. The Lydian state also minted coins.’ Regarding Lydian coins inscribed with the names Walwel and Kalil, the British Museum comments: ‘It is unclear whether these are names of kings or just rich men who produced the earliest coins.’ Regarding a nearly contemporary ancient Greek coin bearing the legend ‘I am the badge of Phanes,’ the Museum comments: ‘We cannot be certain who this Phanes was, but it seems that he was placing his badge on coins as a guarantee of their quality.’”
Larry White, “Why the ‘State Theory of Money’ doesn’t explain the Coinage of Precious Metals,” Alt-M Ideas for an Alternative Monetary Future, August 24, 2017.
White is clearly asserting that coined money was invented by the private sector in ancient Lydia and Greece.

But is this true? The evidence for it is feeble at best, and there is much evidence against it.

The first coins were minted in the second half of the 7th century BC (650–600) in what is now western Turkey (what was called “Asia Minor” by the Classical Greeks) in ancient Ionia and within the ancient kingdom of Lydia. Both the ancient writers Xenophanes (as cited in Pollux, Onom. 9.83) and Herodotus (Histories 1.94) report this.

Let us run through the counterarguments to White as follows:
(1) the earliest coins were made of electrum, which was a naturally occurring alloy in ancient Lydia (Kroll 2008: 17–18). The evidence shows that the Lydian kings either controlled the mines in their kingdom directly (Briant 2002: 400), and/or levied taxes on mining or extraction of metals, and indeed a certain Lydian called Pythius under the later Persian empire, who owned a number of mines in Lydia, may have been a descendant of the Lydian royal family who had inherited these mines as private family property (Briant 2002: 401). It follows that, if the Lydian kings extracted and owned much of the silver, gold and electrum (panned from the rivers), it is most probable that the kings also minted the first electrum coinage too, since a large quantity of this metal was needed.

(2) that the “early coins from ancient Lydia, in what is now Turkey, were not inscribed with human faces but rather animal figures” does not provide good evidence against them having been minted by, or for, the Lydian kings: for a long time in the ancient world, coins did not carry any images of living human beings nor writing, and there is no reason why the kings would have bothered to put their images or names on the coins when people at the time knew perfectly well that they had been minted by the state. Early coins of the state mostly depicted gods, seals or other symbols. In Western civilization, one of the first kings to be depicted on coins in his own lifetime was Alexander the Great in the 4th century BC, but centuries after coins had been invented.

(3) it is true that some early Lydian coins carry an inscription, apparently in the Lydian language, and refer to .WALWE. and .KALI. (Schaps 2004: 96). However, the question of who or what these names refers to is not settled at all in modern scholarship. Howgego (1995: 3) suggests that the names may be those of mints, not of individuals. And, even if they do refer to human beings, they could be individuals who minted the coins for the Lydian kings as mint masters (Wallace 1987: 393, n. 51), and this is strongly suggested by the lion symbol which appears on many such early coins, the symbol of the Lydian royal house (Schaps 2004: 96).

(4) it is true we have about four coins with the Greek inscription Φάνεως ειμί σήμα, which can be translated as “I am the badge of Phanes” or “I am the sign of light.” However, as in the case of (3) above, if “I am the badge of Phanes” is the correct translation, it is unclear who this Phanes was. There is a reasonable discussion of the complexities of the issue here.

Kastner (1986) points out that the name may well be that of a god, not a human being (Howgego 1995: 4). Howgego (1995: 4) speculates that even if Phanes was the name of a human being, he might have been an unknown local tyrant or ruler.
So, at best, the evidence for private individuals or merchants being the driving force behind the first minting of coins is feeble.

What is the case for the Lydian kings having minted the earliest electrum coins?

Although it is true that some early 20th-century scholars supported the view that electrum coins were invented by the private merchants, this was strongly criticised by Cook (1958) and Kraay (1964), both of whom made the case that early coins were minted by the Lydian kings or states to pay state expenses, particularly mercenaries.

Early electrum coins did not circulate much beyond the areas where they were minted, and the most common ones were of very high denomination: perhaps worth more than 10 sheep and not useful for small transactions (Cook 1958: 260). If merchants invented early electrum coins, why were they mostly useless for small ordinary commercial transactions in the market? (Schaps 2004: 97; for recent evidence on later smaller denomination coins, see Kim 2002 and Kagan 2006).

R. M. Cook concluded that early electrum coins were minted by the Lydian kings in order to make large payments in a portable and durable form to people owed a large debt by the king, most probably soldiers or mercenaries (Cook 1958: 261).

This view has won large-scale acceptance in modern scholarship. We can take a standard work for reference here: The Oxford Handbook of Greek and Roman Coinage (Oxford and New York, 2012). In this work, Kroll (2012: 44) concludes electrum coins were created by the kings of Lydia. The view is held by Wallace (1987: 386), Osborne (1996: 256), Kim (2001: 10), Whitley (2001: 193), Hornblower et al. (2014: 182), Freeman (2004: 185), and Howgego (1995: 3, noting that no certain evidence in all of antiquity for coins being produced by private individuals).

There are a few dissenters like Holloway (1978), but their arguments, as can be seen from the scant evidence above, are weak. And, while both Schaps (2004: 100) and Seaford (2004: 133) allow some role for private individuals, both concede a large role for the Lydian state in driving the process and being the impetus for it.

Notably, while these early electrum coins had a surprisingly near uniform weight, they were actually variable in their metallic content, and the proportion of gold to silver varied in these coins: for example, one study has found that the silver content of the electrum coins could range from 20% to 75%, which reflected the natural variability of the electrum alloy itself, or even further dilution with extra silver (Wallace 1987: 386).

The near uniform weight but variable metal content of the electrum coins is an important datum. It would have been very difficult for the public to test the true metal content of early electrum coins (Wallace 1987: 392), or indeed small bits of electrum or electrum dust (Kroll 2008: 18). The great difficulty in ascertaining the gold to silver content and metallic value of electrum even before it was coined is actually good evidence against the Mengerian/Neoclassical explanation of its emergence as money.

Given the variable metal content of electrum and difficulties of assessing its value, one cannot easily argue that early merchants invented electrum coins as standardised money with consistent gold and silver value as the most saleable medium of exchange.

Rather, various scholars (see Wallace 1987: 393, Kroll 2012: 44) concluded that the Lydian kings invented electrum coins as a way of standardising the value of individual issues of electrum (despite the variability of the gold to silver content in the coins) by means of a royal seal on the coin, so that this would stabilise their value by accepting the coins back at the same value, presumably as taxes, fines or payments due to the government.

That is to say, the royal stamp was a sign of redeemability at a fixed value (Seaford 2004: 133; Osborne 1996: 256). In the sense that value was not always equal to the metallic content of the coins, electrum coins were fiduciary and state-guaranteed money (Wallace 1987: 393).

These points count against electrum coinage having been an invention of the private sector, because, as we have seen, the difficulty of ascertaining the gold or silver content of electrum coins, or earlier small electrum portions or electrum dust, does not suggest electrum was the most saleable commodity that emerged as money by the barter spot trade.

Instead, it was a royal government that selected electrum as a state-guaranteed money or form of payment, and that could overcome people’s concerns about the actual metal content of the coins by fixing value.

Further Reading
“The Origin of Money and Coinage in Western Civilisation: The Case of Ancient Greece,” April 5, 2013.

“George Selgin versus David Graeber on the Origin of Money,” March 30, 2016.

Briant, Pierre. 2002. From Cyrus to Alexander: A History of the Persian Empire (trans. Peter T. Daniels). Eisenbraun, Winona Lake, In.

Cook, R. M. 1958. “Speculation on the Origins of Coinage,” Historia 7: 257–262.

Freeman, Charles. 2004. Egypt, Greece and Rome: Civilizations of the Ancient Mediterranean. Oxford University Press, Oxford.

Hall, Jonathan M. 2007. A History of the Archaic Greek World, ca. 1200–479 BCE. Blackwell Publishing, Malden, Mass.

Harris, W. V. (ed.). 2008. The Monetary Systems of the Greeks and Romans. Oxford University Press, Oxford and New York.

Holloway, R. Ross. 1978. “La ricerca attuale sull’origine della moneta,” Rivista italiana di numismatica e scienze affini 80: 7–14.

Hornblower, Simon, Spawforth, Antony and Esther Eidinow (eds.). 2014. Oxford Companion to Classical Civilization. Oxford University Press, New York.

Howgego, Christopher J. 1995. Ancient History from Coins. Routledge, London.

Kagan, J. H. 2006. “Small Change and the Beginning of Coinage at Abdera,” in Peter van Alfen (ed.), Agoranomia: Studies in Money and Exchange Presented to John H. Kroll. The American Numismatic Society. New York. 49–60.

Kastner, Wolfgang. 1986. “‘Phanes’ oder ‘Phano’,” Schiunzerische Numismatische Rundschau 65: 5–11.

Kim, H. S. 2001. “Archaic Coinage as Evidence for the Use of Money,” in Andrew Meadows and Kirsty Shipton (eds.). Money and its Uses in the Ancient Greek World. Oxford University Press, Oxford. 7–21.

Kim, H. S. 2002. “Small Change and the Moneyed Economy,” in P. Cartledge, E. E. Cohen and L. Foxhall (eds.), Money, Labour and Land. Approaches to the Economies of Ancient Greece. Routledge, London and New York. 52–66.

Kraay, C. M. 1964. “Hoards, Small Change and the Origin of Coinage,” Journal of Hellenic Studies 84: 76–91.

Kroll, J. H. 2008. “The Monetary Use of Weighted Bullion in Archaic Greece,” in W. V. Harris (ed.) The Monetary Systems of the Greeks and Romans. Oxford University Press, Oxford and New York. 12–37.

Kroll, John H. 2012. “The Monetary Background of Early Coinage,” in William E. Metcalf (ed.), The Oxford Handbook of Greek and Roman Coinage. Oxford University Press, Oxford and New York.

Osborne, Robin. 1996. Greece in the Making, 1200–479 BC. Routledge, Abindon.

Peacock, M. S. 2006. “The Origins of Money in Ancient Greece: The Political Economy of Coinage and Exchange,” Cambridge Journal of Economics 30: 637–650.

Peacock, Mark. 2013. Introducing Money. Routledge, London.

Price, Martin Jessop. 1983. “Thoughts on the Beginnings of Coinage,” in C. N. L. Brooke et al., Studies in Numismatic Method Presented to Philip Grierson. Cambridge University Press, Cambridge. 1–10.

Seaford, R. 2004. Money and the Early Greek Mind: Homer, Philosophy, Tragedy. Cambridge University Press, Cambridge.

Schaps, D. M. 2004. The Invention of Coinage and the Monetization of Ancient Greece. University of Michigan Press, Ann Arbor.

Wallace, Robert W. 1987. “The Origin of Electrum Coinage,” American Journal of Archaeology 91.3: 385–397.

Whitley, James. 2001. The Archaeology of Ancient Greece. Cambridge University Press, Cambridge.


  1. Sorry ... not seeing that anyone has reviewed Alla Semenova's dissertation at UMKC for insight into all this - "The Origins of Money: Evaluating Chartalist and Metallist Theories in the Context of Ancient Greece and Mesopotamia"

    Might be very informative here ...

    1. The autor of this blog has spoken a lot about that dissertation

  2. Hey. Selgin responded to you on Alt-M.

    "Lord Keynes" Contra White on the Beginnings of Coinage

  3. "it is true that the theories of certain MMT economists who wish to argue that ancient states chose silver and gold coins only as state-issued tax-anticipation tokens ... although some important qualifications can be said about electrum coins, as we will see below."

    To the best of my knowledge, that is not a precise representation of the MMT position. MMT states that taxes are sufficient to generate demand for the currency. It does not deny that there can be other factors as well.
    See for example Tcherneva, "The Nature, Origins, and Role of Money: Broad and Specific Propositions and Their Implications for Policy"

    She writes "...Chartalism is thus able to explain why seemingly
    worthless objects such as tally sticks, clay tablets or paper have been used to serve as
    money". This does not deny the value that people may have for precious metals etc. Rather, the position is that these metals could be still used as money even if they were not perceived as valuable.