We use money every day without really thinking about where it came from. Buying anything could entail a few touches on a phone, but for hundreds of years, it meant giving over gold or silver. So how did these metals become something people would accept in return for goods?
The answer has a lot to do with practicality. Gold and silver were attractive, but they also had qualities that made them useful for saving, spending, and trading.
Why Gold and Silver Were Used as Money
For money to work, people need to be able to keep it and use it later. Food could spoil, and livestock needed care. Gold and silver were easier to store. Gold resists corrosion, and although silver can tarnish, the metal remains usable.
They could also be melted down and divided into smaller amounts. This made it possible to use the same material for purchases of different sizes. Carrying a small piece of valuable metal was more convenient than transporting bulky goods.
Naturally, people already sought gold and silver for jewelry and adornment. Their beauty made them charming beyond their trade. They were also relatively rare, and it took effort to mine and refine. These characteristics made them attractive enough that people would accept them as payment.
Before Coins, People Weighed Metal
Gold and silver were used in trade before they became coins. Pieces of metal could be weighed to work out how much someone was paying.
That sounds straightforward, but there was a problem: two pieces of the same weight might contain different amounts of precious metal. A buyer or seller needed to consider purity as well as weight. Without reliable standards, agreeing on a payment could take extra effort.
Coins helped simplify that process.
The First Precious Metal Coins
Some of the earliest known coins appeared in Lydia, in what is now Turkey, during the seventh century BCE. They were made from electrum, a mixture of gold and silver. During the sixth century BCE, Lydia began producing separate gold and silver coins, commonly associated with King Croesus.
An official stamp helped people recognize a coin and its expected metal content. Instead of assessing an unfamiliar piece of metal each time, they had a recognizable standard to work with. Confidence in the issuer became part of what made the coin useful.
From Coins to Paper Payments
Precious metals also played a role in the development of English banknotes. Written receipts allowed people to hold a claim to deposited money without carrying the coins themselves.
The Bank of England was created in 1694, and it produced notes as receipts for the deposit of clients. These eventually evolved into contemporary banknotes.
Gold and silver became money because people found them useful and they decided to accept them. They had the tangible stuff, but trust was big. A coin could only function as payment if the next person was willing to accept it. That mutual faith was what made precious metals a universal medium of commerce.