How gold and silver got their first value

 

As the world experiences crisis after crisis every decade, there are predictions that the world will be changing drastically, especially in the monetary system. We are going to experience this huge deflationary crash around the world. And people will just lose confidence in currency.

What do they always go back throughout history time after time for the last 5000 years? They would always go back to gold and silver. This monetary system keeps on repeating and echoing all the way back to the beginnings of civilization.

Commodities do well in both deflation and inflation.

Gold and silver have been the predominant currencies for about five thousand years, but it wasn’t until somewhere between 680 B.C. and 630 B.C. that they became money. That is when they were melted in the coin of equal weights somewhere in Lydia where each coin was the same size and have the same weight.

This made them interchangeable. It’s called fungible. At that point, they became a useful tool as a unit of account and a measurement.

You could price a good or service in those gold or silver coins in a certain number of them. And it was always the same for anybody whenever they were buying that good or services.

Until they managed to achieve a status that enabled them to open the world’s first free-market society. The paradigm of the first democracy, the cradle of civilization in Athens where the usage of gold was used ubiquitously. Money had since found a place to prosper: the free market.

Athens war the pioneer of society that created the working tax system and free markets which allowed them to reach the peak of civilization. Their prosperity allows them to create a great work of art and achieve a level of architecture and engineering that the world had not yet seen.

Here we are thousand years later and people are still in awe of their achievements. History had created the first biggest achievement in human history and was recorded for many years until now.

This therefore, begs the question: What went wrong? What caused a powerful and advanced civilization fall? The answer is the same as the reality we now see in front of our eyes – too much greed and too much war.

The start of the downfall

It was when the Athenians got involved in the Peloponnese wars but war with Sparta that the monetary problems began.

First, they loss access to their gold and silver mines. They were also paying armies that were on foot and they were miles away from the Athens. So, as they paid their armies to buy goods and services from the local populations, a deflation occurred in Athens because they’re sending all of their coinage out of the city. There is no circulation of coinage in the country and the supply of gold was depleted.

Things gets worse as they started to debase their coinage in order to pay for the ongoing war. Debase means that they are devaluing their money by adding invaluable metal like copper to their gold coins.

If you take in a thousand coins in taxes and then you melted those gold coins and you mix 50% copper into your gold, now you can mint 2000 coins. The number of ‘money’ increases however, the value depleted. Therefore, if you take in a thousand coins but later on you spend two thousand coins, what is that called?

That is deficit spending. Deficit spending is when government creates new money in order to fill in the gap of government expenditure, where in this case, expenditure towards military.

According to Ancient Coins Education, an average Roman soldier salary were 1,800 Roman coinage or Denarii communes (d.c), while the total annual pay for an average soldier were 15,400 d.c. 

Athens started to practice this method during the war with Spartan. They also had this great public works which were very expensive. Even in the midst of low currency value, they did not stop their great public works or allow their market economy to heal from the expense of this war. Debasing the money had caused the invaluable money to oversupply the valuable money which caused gold and silver to become rare.

This is called the Gresham’s law, also known as the situation where bad money drives away good money. People tend to save the rare metal and only spend the ones which had an abundance amount in the market, the copper.  

Only a matter of time until golds and silver coins were scarcely found and will soon gone from the circulation of transfers. The only available money is copper and it took a huge amount of it to exchange their values with gold and silver coins.

The value of pure Gold and Silver

This is the first time that gold and silver ever had a price. Before that, everything was measured in a weight of gold and silver.

The most prominent reason on why Athens fall during the peak of their development was due to the damage caused by war, the growth of the Empire, devaluation of their currency and inflation.

Copper were continuously forged until they became worthless, like pebbles scattering on the ground. This was actually the world’s first hyper inflation and what it did was it financially weakened the Athens to the point where in 404 B.C. they surrendered to Sparta and eventually they became nothing but a satellite of Rome.

The thing that amazes me is how history just keeps on repeating and repeating and repeating and we never learn from all of our stupid mistakes. We just repeat the same stupid mistakes over and over again.

Today we are doing the same thing that the Athenians did that caused the loss of their great culture. We’re doing the same currency debasement, we’re doing the same deficit spending, and it’s for the same reasons – it’s for war and it’s for great public works.

References 

1) Adalberto Giovanini. (1975). Athenian Currency in the Late Fifth and Early Fourth Century B.C. https://grbs.library.duke.edu/article/viewFile/8591/4705

2) Arthur J. Rolnick, Warren E. Weber. (1985). Gresham's Law or Gresham's Fallacy? Federal Reserve Bank of Minneapolis; Quarterly Review, pp: 17-23.

3) Mike Dalka. (2002). What Things Costs in Ancient Rome. Distributed by Ancient Coins for Education, Inc. http://ancientcoinsforeducation.org/content/view/79/98/