The world’s first coins were made around 600 BC in the kingdom of Lydia from an alloy of silver and gold

Dr Richard Willis, historian based at Sussex University, and Felicity Hawksley, journalist

A cashless society doesn’t come without threat. While convenient for many, for the unbanked it’s a nightmare. And there are concerns about the clash between purely electronic money and the preservation of privacy.

But it is worth remembering that money – as properly defined – has always shifted shape, and that dwindling coinage is hardly its most menacing feature.

A typical history of money might go like this: first we had barter, but this was inefficient, so we invented coins, then notes, and then credit. This chronology is widely taught, widely understood and has the undeniable ring of historical logic. But it is also completely wrong.

Armies needed paying, and in a manner both portable and interchangeable – since soldiers were neither trustworthy, nor local, which made them poor candidates for credit

Anthropologist Caroline Humphrey at Cambridge University says: ‘No example of a barter economy, pure and simple, has ever been described, let alone an emergence from it of money. All available ethnography suggests there has never been such a thing.’

Barter tends to emerge forcefully, however, in economies that have previously used cash.

Debt came first

In fact, credit systems existed long before barter. Barter was more likely between strangers, where it frequently functioned within ceremony, primarily as a means of preventing conflict. Social laws of obligation – of owing your neighbour, a primitive form of credit – governed local transactions.

Credit systems more closely resembling our own emerge as early as 3500 BC. In the Ancient Sumerian temple economy, silver underpinned what the late economist David Graeber described as ‘a uniform system of accountancy’ in which silver had a denominated equivalent in barley. Debts – including rents – were calculated in silver but were payable in barley and sometimes other commodities. But silver did not circulate widely, and it was not stamped with any official mark. It wasn’t cash.

Bullion emerges

Coins as we know them now – stamped, roughly standardised and from authenticated metal – emerge in India, Lydia (modern-day Turkey) and China almost simultaneously. In Lydia, for example, electrum – a gold-silver alloy found in the nearby Pactolus river – was heated, hammered and stamped with insignia – usually those of local jewellers.

Within a generation, these private coins had disappeared to be replaced by ones from the royal mint. The classicist David Schaps suggests that this ‘dethesaurisation’ of precious metals – their movement out of private houses and temples and into circulation – was driven by war.

For those concerned about a cashless future, remember that most of the past was cashless too

Schaps writes that coins emerged primarily in regions characterised by small, competing states with armies of trained professionals, rather than aristocrats and their retinues. These armies needed paying, and in a manner both portable and interchangeable – since soldiers were neither trustworthy, nor local, which made them poor candidates for credit. Coins were the answer.

But generally speaking, coins remained individually very valuable – and were largely used for paying strangers or trading in significant quantity. Most everyday transactions continued to take place using credit.

In England, notches were made on hazel sticks called ‘stocks’, broken in two, to record transactions – the origin of our modern-day use of the term. Similarly, in China, paper money emerged as early as 806 AD, starting with contracts that could be split in two, with the creditor retaining one of the halves, which could then be circulated as an IOU, or transferable instrument.

From China to Europe

In fact, it was the abandonment of paper money in China that indirectly led to increased use of coins in Europe, and the development of what later became the modern financial system.

China’s reversal of policy in its attempt to control informal local economies led to an enormous internal demand for silver bullion – one that was met by the conquests in the New World, led by European explorers. The resulting trade saw those involved, such as merchant bankers, become incredibly wealthy.

Graeber argues that the bankers’ wealth and power, and the fact that taxes had to be paid in metal, meant they were then able both to insist that ‘gold and silver were money’ and to destroy ‘the local systems of trust that had allowed small-scale communities across Europe to operate largely without the use of metal currency’. Cash entered its prime, a move that was eventually cemented with the gold standard.

Exit gold

The gold standard was used by the world’s largest economy, the US, until the 1970s when President Richard Nixon – in a departure from the war-coin/peace-credit theory described earlier – floated the US dollar to prevent the Vietnam War from bankrupting the Federal Reserve. Money became a state-backed notion once more.

Now we live in a world where, as Graeber points out, the role of central bank policy is to control the supply of money as if it were a scarce commodity, while at the same time states allow and encourage the financialisation of almost everything – to the point that capital in the system no longer corresponds with national productivity.

So, for those concerned about a cashless future, it’s worth remembering that most of the past was cashless too, and that human history demonstrates nothing if not a flexible attitude to the notion of money.