🎓 Currency, Coins, & Curmudgeonly Choices

On the potential problems of companies refusing to accept coins as payment.

Awhile back, a Colorado judge ordered a welding company to use a check or other conventional method to pay a settlement after it tried to deliver 6,500 pounds of coins. This struck me as a perfect example of the old adage “hard cases make bad law” and reinforced the idea that there are subtleties in the terms like “coins,” “money,” “currency,” “fiat,” and “legal tender” that I still sort of struggle with. So bear with me here while I lay out my understanding of this particular economic terrain.

On the necessity of surplus

First thing’s first: lots of human societies functioned perfectly well without money or currency. For example, giving-away cultures like the Salish tribes still exist to screw up game theorist' claims about human nature. Gift economies exist!

That said, surplus often leads to hierarchical social systems. Before I understood this, the practice of ritually burning meat as a sacrifice to the gods seemed to me, on the surface, to be a bit silly. Why destroy something as a way to express gratitude for its existence? Yes, there’s a certain logic to treating one’s god as a present being of senior rank, and offering food to them first in the same way that some families feed working men and senior leaders first, but it never quite sat right with me. Traditions this common, across this many cultures, must surely have a practical reason for them to stay alive, right?

As I came across more and more examples of this kind of practice being practical and useful for the relevant societies, ritual sacrifices started to make more sense.

Leaving surplus food around to rot is a great way to attract dangerous scavengers to your home if you don’t have the food preservation capacity for it. Inspecting the liver of a ritually slaughtered cow as part of a divination ritual feels less silly when a foul or diseased liver could result in the assembled, celebratory crowd not eating the rest of the meat… and thus not getting sick. Getting together for a big religious festival and only slaughtering fancy animals when you have enough people around to eat them makes sense.

On the development of coinage

That estabslihed, there is some overlap between the way coins work and way commodity money works, and likely coins originated in places already familiar with commodity money. For example, when exactly does a piece of metal of standard weight and purity stop being an ingot and become a coin? When does a coin become money?

There’s a lot of debate about what early economies look like. Humans have lived, laughed, and loved for millions of years, but money is a relatively new concept. The distinction is almost never  important, but money is inherently intangible; it’s the number part of keeping track of your economic power. Currency, by contrast, can be touched — it's the physical item, like a coin, bill, or cowrie shell. Metal currency is thought to have originated in the Middle East and China around 7,000 BCE, although this is a hotly debated topic. As civilizations grew in sophistication, metal coins were used more and more often to facilitate trade and commerce.

Historically speaking, in Lydia in the 7th century BC, the first coins were made from electrum and were die struck, meaning a lump of metal was hammered into a negative die (sort of like a mold) to create the impression of a picture. Over time, this method transitioned from using a bundle of rods to employing two dies, with the coin placed in between and struck from above. In Pakistan and Afghanistan around the 5th or 6th century BC, punch-marked coins started being created by cutting blanks from a thin metal sheet and then applying a series of small symbols and marks on one side. The Lydian coin-making tradition was embraced by the Persian and Greek regions, later spreading to Rome and India, which led to the displacement of the punch-mark technique. By the 5th Century BCE, metal coins were the primary means of exchange in many — but not all — cultures.

This tradition would go on to establish the European standard for the appearance of coins and, with the rise of mechanization, the universal appearance of coins.

But there were plenty of other kinds of currencies!

Alternatives to coinage

The most commonly cited alternative to metal coins I’m familiar with is African cowrie shells, since they come up in the standard American curriculum during the Triangular trade unit of middle school. Cowrie shells are one of the oldest, most widespread, and persistent forms of currency, still in use as recently as the ‘60s. It’s worth noting that for the most part individual shells weren't used as money, the strings of them were — and one of the interesting mechanisms for managing inflation (before contact with colonial-era Europeans) was that people conducting expeditions to collect the shell had alternate economic uses for their time. So for example, anyone could head out and collect shells to increase their wealth, but it took a lot of work and a modest investment of goods, and once harvested they would still need to be transformed into money.

For one of the few games that does a good job of getting away from metal currencies and into something a bit closer to commodity currency without being a literal barter system, check out Path of Exile and how complex its trading system and economy can be.

Food as Currency

Here is a claim about the rise of agriculture:

The earliest humans were hunter-gatherers who relied on hunting animals and gathering plants for their daily sustenance. As these early societies grew, so too did the need for a reliable source of food. This gave rise to the concept of feast culture—the idea that large feasts could be held periodically to provide enough food for everyone in the community. These feasts are believed to have been responsible for some of the earliest forms of agriculture—the planting and harvesting of crops—which allowed communities to become more self-sufficient with their food supply.

It sounds very practical, and plausible. But despite what high school textbooks would have us believe about the straightforward nature of cultural evolution, the origin of agriculture is a mystery that has puzzled scientists for centuries. That said, some researchers (like Klaus Schmidt) hypothesize that the advent of feast culture — moreso than environmental pressures or spontaneous technological improvements — may have played a role in driving early human innovation and laying the foundation for modern-day agriculture.

Feast culture is when groups of people come together to celebrate special occasions with large meals and feasts, typically involving large amounts of food from hunted animals or gathered plants. The beginnings of feasting as a social activity, used to demonstrate and enhance high status, is often thought to have originated in the Neolithic period. Its emergence can be attributed to the climatic conditions which allowed for individuals to accumulate wealth in the form of surplus food, and influence by hosting lavish feasts, many of which featured beer. This type of communal gathering likely had an important impact on early humans’ understanding and use of their environment, which could have ultimately led to the development of agricultural practices. But in my head I imagine it had a lot more to do with showing off than charity in the face of adversity, which probably says more about my cynicism than the ancients’ actual lifestyles.

That said, the ability to host feasts using surplus food being used as an early marker of sociopolitical power is far from the only example of food being critical for the emergence of new socioeconomic classes.

The Inca people of South America preserved potatoes for long-term storage by creating chuño, a type of freeze-dried potato. By placing the potatoes in cold water, then exposing them to freezing temperatures overnight and pounding them with stones the next day to remove moisture and excess bitterness, the Incas transformed their spuds into a form that could be stored for extended periods. This enabled them not only to preserve excess crop yields but also use food as currency — peasants paid taxes with it and laborers and mercenaries were paid in it. In fact, chuño became so valuable that elites grew wealthy amassing stores of it instead of wheat or cattle like the elite amongst agricultural societies in the Fertile Crescent.

The rise of a merchant class of ‘rice brokers’ in Edo and Osaka by the turn of the 18th century was incredibly influential in the development of a nascent banking system. They were responsible for buying daimyo’s and samurai's rice, exchanging it for paper bills that become a precursor to modern currency. In some cases, these merchants or lenders were actually wealthier than the daimyo's they serviced, creating an interesting dynamic between social classes and economic power. This blend of food-based currency also gave rise to derivative trading like futures markets, allowing people to speculate on prices and make money from different commodities.

In Ancient Rome, flour and salt were used as currency to purchase and trade goods in both military and civilian settings. Flour rations were often paid out to soldiers as wages; in point of fact, one of the unique aspects of Roman military life was how good Roman soldiers were at handling all aspects of bread creation, from threshing to grinding to baking. Salt was so valuable that it was referred to as 'white gold', giving it a higher exchange value than most other commodities at the time. As a result of this dual system of food-based currency, derivative trading like futures markets began to emerge. This allowed people to speculate on prices and profit from different commodities or ingredients like flour and salt. Furthermore, chestnuts became an important part of this economy as well; they were traded currency by the Romans during the winter months when other resources were scarce.

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Chocolate, or more specifically cacao, has a long and unique history as currency in Mayan culture. The Maya kings collected cacao beans and woven cloth as tax payments, evidence of the fact that these items had become a form of currency. The surplus cacao collected was used to pay palace workers or buy goods at the marketplace. The importance of cacao to the Maya was far greater than any other crop as it was highly susceptible to crop failure and didn't grow well near their cities. Goods like tobacco and maize grain were sometimes given as tribute as well, but in addition to being a form of currency, chocolate also held great spiritual significance for the Maya. This reverence for chocolate meant that it was very highly sought after and its use in trade gave it an added air of prestige that still remains today.

Prestige & Fiat as Legal Tender

Given that the world economy is still pegged to the American economy, I do not think that we are in particular danger of the US dollar losing its prestige, much less social acceptance. But it occcurs to me that the Colordo judge mentioned at the beginning is making a choice I find surprising for a government, because making a legal declaration that coins denominated in USD cannot be used to pay debts created by US courts is inherently indicating that American coinage is no longer sought after and usable in all trades.

But of course crypto people will happily tell you that fiat currency is the biggest Ponzi scheme of all, and they are not really wrong are they? Erdogan’s pitch is the same as Olympus’s: If we all stake our lira, we will all do well; if enough of us “defect,” we will all be in trouble. But of course that’s true of every fiat currency; it is particularly saliently true of the lira right now, but if everyone sold their dollars to buy euros (or Bitcoins, or OHM), that would be bad for the dollar too. “The value of a currency depends on its widespread social acceptance, though it can be influenced in the short term by the interest rate that you can get in that currency” is such normal everyday stuff that you don’t think about it much. But if you’re reinventing currency from scratch, you do. — Matt Levine, Wall Street Is No Fun Anyway.

Not all legal tender is fiat currency. Historically, legal tender could be backed by precious metals like gold or silver, but fiat currency — which is to say money that the government declares count as money because the government issued it — is supposed to be by definition a form of legal tender. Except, apparently, when it isn’t.

I understand why advances in technology made Africa move away from using cowrie shells as currency (although they were still used less than 50 years ago), but I’m starting to think that advances in inflation and banking technology are going to lead to America moving away from coinage.

Economics isn’t my area of expertise, though — does anyone have any insight on why my instincts here might be wrong? Or know of any other interesting forms of historical currency?