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Understanding Money

Who Invented Money?

The history of money is the story of an evolution from barter to coins, bills, and, finally, completely intangible units of exchange. The driving force behind these changes was the need for enough money to support increased production and prosperity. If the economy of a particular region were to grow consistently, it would require increasingly more money as time goes by. Moreover, the more intangible the form of money, the more the money supply could be controlled. In a few moments, I'll show you why this is so important. First, though, let's consider how money evolved from pieces of gold and silver into our modern currency.

The first coins were minted between 640 BC and 630 BC in the Kingdom of Lydia, a region in west-central Asia Minor on the Aegean Sea, lying within modern-day Turkey. The Lydian kings created small pieces of metal with a standardized size and weight. These pieces of metal were then stamped with an emblem that verified their worth.

At first, the Lydians made their coins from a substance called electrum, a natural mixture of silver and gold. Later, during the reign of Croesus (560-546 BC), the Lydians began to mint coins out of pure gold and silver, a tradition that was followed for centuries.

The invention of coins greatly expanded the potential for buying and selling within Lydia. For the first time, even an illiterate person could buy and sell with confidence. Instead of having to weigh pieces of gold or silver and evaluate their purity, all a person had to be able to do was count coins. In this way, the Lydian coins sparked a commercial revolution. Lydian merchants started to trade a large variety of products, and the Lydian ruling class became very rich.

As a result, the Lydians were responsible for some of the most important social innovations in history. For example, in the late 7th century BC, the Lydians created the first retail market, in which merchants, often from remote areas, would gather in a central location to sell their goods to the general population.

Another social innovation had to do with dowries. In Lydian society, a woman could not marry until someone paid a dowry (something of value) to the prospective groom. Normally, the dowry was paid by the woman's father or male relatives, which gave them the power to choose the husband. Once coins were introduced, some Lydian women were able to save enough money to pay their own dowries, which gave them more freedom in choosing a husband.

Another important innovation was the first brothel, in which sexual services were offered to the many merchants who were attending the market, buying and selling. Before long, Lydia boasted a number of brothels, and it is said that many unmarried Lydian women would choose to work in a brothel in order to accumulate enough money to secure the type of marriage they desired.

Along with increased commerce and the development of brothels, the Lydian monetary system also encouraged a great deal of gambling. As a result, Lydia is also credited with the invention of dice.

In 547-546 BC, Lydia engaged in a bloody war against Persia. Although the Lydians lost, their mercantile system began to be adopted by more and more towns. Eventually, as the benefits of a stable form of money came to be appreciated, the Lydian system spread to the cities of Greece.

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