Financial history: from barter to coins, what did the Lydian coin change?

Bahrom the potter makes jugs, and he needs boots. Sobir the bootmaker does not need a jug; he needs meat. The butcher needs neither jugs nor boots. How many people does Bahrom have to go round to get boots? This simple story shows well how hard exchange without money is.

Why was barter inconvenient?

Exchanging goods directly for goods (barter) creates three difficulties:

Difficulty	Essence	In Bahrom's case
Matching needs	both sides must need exactly each other's goods	Sobir does not need a jug
Indivisibility	a large item cannot be split for small purchases	it is hard to exchange one sheep for half a pair of boots
Measuring value	a separate "price" is needed for every pair of goods	how many boots is a jug? how many kilos of meat is a pair of boots?

If there is one medium that everyone accepts, all three problems disappear: Bahrom sells his jug for this medium and then buys boots with it. This medium is money. For a long time precious metals played this role, but they had to be weighed and their quality checked every time.

What was new about the Lydian coin?

In the kingdom of Lydia in Asia Minor (the west of present-day Turkey), according to researchers, the world's first coins were struck in the 7th century BC. They were made of electrum, that is, an alloy consisting mainly of gold and silver. The report that the Lydians invented coinage is found in ancient Greek authors, including Herodotus. There is archaeological evidence too: electrum coins found in the foundation layer of the Temple of Artemis at Ephesus date from before the Lydian king Croesus (6th century BC).

The innovation was not in the metal but in the stamp. A coin bearing the mark of authority signified that its weight and quality were guaranteed. Now it was no longer necessary to weigh the metal in every deal: coins were counted.

Example (prepared by the author, hypothetical). At the market a merchant wants to pay with a piece of silver. The seller brings scales, weighs the piece, doubts that it is pure inside, and an argument begins. With a stamped coin, however, the deal ends with the words "three coins". Time is saved, trust grows, trade speeds up.

Then and now

Feature	The Lydian coin	Today's money
Material	electrum (an alloy of gold and silver)	paper, polymer, metal and often just an electronic entry
Guarantor	the king's stamp	the state and the central bank
Basis of value	the metal itself	the law and trust in money
Protection against counterfeiting	the stamp	security features, electronic systems

The three main functions of money can also be seen in this history: medium of exchange (Bahrom sells his jug for coins), measure of value (all prices are stated in coins) and store of value (a coin can be put aside for later).