The Phoenician civilization came to existence in early 4,500 BC. Trade during the earlier years of that era was based purely on barter. People used to simply exchange goods they do not need with goods they value more at the trade date. The most significant bartered resource was the Cedar Tree. The Cedar Tree or Cedrus Libani was a unique giant tree that only grew on the Mountains of Lebanon hence the name cedars of Lebanon. These trees were characterized by their solid wood structure, fine grain and its attractive yellowish colour. It had massive durability therefore it could be used for construction and handicrafts. For the Phoenicians, cedar trees were a vital resource, they used those trees to build houses, temples and most importantly to build their famous Phoenician boats. To really understand the importance of cedars to the Phoenicians one must go back to Byblos 4,500 BC, the oldest still inhabited city in the world. Byblos was the first Phoenician city to ever exist, it is where the Phoenician empire/culture/traditions started and spread throughout the entire Mediterranean. The Phoenicians discovered the cedar tree and based almost their entire economy around the unique wood that it provided.
The Cedar Tree first gained its popularity with the Hebrews. The Temple of Jerusalem south of Byblos was built using the wood of the cedars, cut down and processed by the Phoenicians under the King Hiram. This trade echoed to a bigger potential client more south in Egypt. The Phoenicians built trade relations with the Egyptians. Archaeologists believe that the Pyramids were built using the cedars of Lebanon. The Phoenicians used to sail with their cedar boats to the coast of the Egyptian Delta to transfer the majestic Cedar wood which the Egyptians used for construction. The Phoenicians traded the wood for some rare metals and jewellery which were used for trading in their own land. This was by far the biggest and most significant barter relationship for the Phoenicians, having a huge client like the Egyptians meant economic prosperity for the people of Byblos.
The Cedar Tree was a great mean of bartering on the regional level, however trading in cedar wood was not practical for the Phoenicians on the local level. Internal trade between Phoenician towns happened by exchanging one good which they had a surplus of to another good which the other town had a surplus of. A good example of this was the trade between olive oil and wine. Mainly the towns down south of Byblos had a surplus of wine while the towns north had a surplus of olive oil. With the progression of time and after the Phoenicians built trade relations on the international level and basically owned the Mediterranean Sea, they started bringing in more valuable and scarce metals and jewellery. Like coal, silver etc. These rare metals were used as a form of money, the more these traveller traders brought of them the more the town’s economy flourished.
The early days of bartering during the Phoenician era teaches us the following: you can only barter for a good that the other party needs. The Egyptians needed the solid wood of the cedars of Lebanon, so this demand for them created a value for cedars in the Phoenician perspective which is beyond simply a construction resource. The cedar tree became a good which can be traded for another good which increased the wealth of the Phoenicians. The people of Byblos knew this, they knew that the uniqueness of their trees and its non-availability at the Egyptian end is what made them a proper bartering good. In order to retain this value, they had to do something about it. After all, the Egyptians only needed a certain amount of cedar wood. Being extensive sea travellers, the Phoenicians developed a unique boat building skill, of course using the Cedrus Libani wood, they decided to bring this skill to the Egyptian trade, the Egyptians needed small trade boats to carry goods on the Nile river which basically connects all the Egyptian towns together. Who else other than the Phoenicians who easily travel not the Nile but the massive Mediterranean can come in handy to build for them those specific boats. The Phoenicians jumped on the opportunity and after the exportation of the cedar wood they would build those boats on the delta coast and therefore kept the trade relations alive. With their unique skills, the Phoenicians built another unique bartering good.
This lasted for some millennia and it was about to erupt when the Egyptian king Sahure took the throne in 2847 BC. Sahure had eyes on taking a more dominant role in ruling, so he decided to proceed in learning how to build sea going boats. One problem however, the Egyptians did not have cedar wood, they were only able to build them using the Acasia wood, which was of course much more inferior than its Levantine competitor. Add to that, the Egyptians building skills did not allow them to build boats that can take on the Mediterranean like the Phoenician comfortably did for thousands of years before them. King Sahure concluded that building these boats on the local level was going to be very costly and less efficient. Fortunately for the Phoenicians, this bartering resource and trade relationship would still be alive for many years to come.
Cedar Trees were very scarce, they only existed at this one inhabited location in Byblos and to be able to cut them and transport them from the extremely high in altitude mountains to the coast was another skill that the Phoenicians mastered. They would cut trees from the Jaj mountain peak transport them in the river all the way down to the coast. However, the people of Byblos did not only rely on the scarcity of the wood as they also developed building and architectural skills to add value to their bartering resources.
Now imagine a scenario in which the Egyptians, using their relatively strong military, invaded Byblos and went up to the mountains and confiscated as much cedar wood as they would like. For the Phoenicians, this would have been an end to their cedar business, the bartering value of the cedar wood would drop to zero and it will go back to being used as its original purpose. Bartering was the only way to do international trade, however international trade was more or less only a Phoenician characteristic back then. During that time most of the trade happened at the local level. So, in this section we will discuss what was the goods that were used as a form of money locally in the Phoenician towns.
As mentioned above, at the early stages of the Phoenician days bartering was also used as a mean of trading. Small towns acted as one enterprise trading with other enterprises, exchanging goods that were available in surplus and needed by the other party. But as these towns grew bigger, and people became more specialized in their professions, and new more developed and diverse industries came to existence, bartering was no longer effective. This is where the need for a unit of account became so apparent. Some of the goods used by the Phoenicians as money were silver, coal, copper and foreign jewellery. However, many archaeologists suggest that silver was the most commonly used commodity as a medium of exchange. Many treasuries were found in Phoenician temples consisting mainly of bulk of silver. In the early days of using these goods as a form of money, its value was normally used by weighing the quantity and paying accordingly. There were not any specific coins that gave details about the value and weight of the possessed silver or other commodity used as a form of money. The problem with such system for the Phoenicians was the non-availability of such rare metals on their home soil. This was one of the reasons which made the Phoenicians traveller traders. They would trade the not very scarce resources (like cedar wood) for rare metals like silver. Therefore, the more their international trading was successful the more their local purchasing power became stronger. What’s interesting about the adoption of silver is the existence of other rare metals like Copper on the Phoenician soil. The first discovered Phoenician coin dates back to 450 BC in Tyre, AR stater which is a silver coin, there is no specific data on how much this coin weighed. The heaviest discovered Phoenician coin was the AR Didrachem, which weighed 8.9g in silver and dates back to 338 BC also in Tyre.
The Phoenicians gave up bartering and adopted a single medium of exchange which was mostly silver. The inefficacy of the bartering system can be understood as follows; barter is only practical on small scales, back when the Phoenician economy was small, and trade only happened in small villages between common goods for survival purposes in example food. However as the Phoenicians grew into a larger civilization with many big cities spread on the Mediterranean with each city providing a specialized good and within the city the people becoming more individually independent and the need for the Phoenicians to trade with other civilizations who had so much more to offer and who were complete strangers to them rose the problem of coincidence of wants. What they wanted to buy was most of the time produced by someone who did not want what they wanted to sell. The Phoenician olive oil producer could only sell to those who needed olive oil and those who needed olive oil did not produce every other good that the olive oil producer needed. The problem of the coincidence of wants can be divided into three sub-coincidences; first, the coincidence of scale, What the villagers wanted to buy did not always equate to what they wanted to sell. Imagine wanting to buy olive oil in exchange for a Phoenician boat. The boat owner would have to take all the unneeded olive oil to equate them to the value of a cedar wood boat. Second, there is the lack in coincidence in time frames; what you wanted you to sell may have had a short-term expiry date, while the good you wanted to buy may have been durable on the long run. A Phoenician villager would have to accumulate a big quantity of fish to exchange them for a house, the fish would rot before the deal could be completed. Third, there is the problem of location, It could not be impossible to trade a good that cannot be moved to the location of the buyer (for instance a house or a land).
These problems created the need for the Phoenicians to have a medium of exchange. It is important to note that the Phoenicians just like many other ancient historical civilizations performed indirect exchange; however, as the economy grew this system failed to stay efficient as well as it became impractical to constantly search for a good that the other party wanted and at the same time search for a party that needed the good you are offering. After bartering and indirect exchange, a medium of exchange had to be born, and the Phoenicians knew exactly what made, a medium of exchange, a perfect form of money. Money needed not to be a consumption good, nor an investment good, but solely had the purpose of exchanging it with other goods. Carl Menger, the founder of the Austrian school and marginal analysis, explains that salability is the number one characteristic that makes a good, money. Salability is the ease with which a good can be sold on the market, with the least loss in its price. However, throughout human history, and more precisely throughout the Phoenician history many goods were used as a form of money. As mentioned in the beginning of the subject the Phoenicians used silver, copper, coal etc. as money. Making these decisions and using these goods as money was based on pure subjective choices. At a certain point in time and during a specific trade, silver for example, was the most sensible form of money. Silver is a reasonable form of money of course, but most of us would agree that apples are not. Simply because apples do not have the salability characteristic mentioned above. Apples are not salable across scales, they cannot be divided into small quantities or even accumulated in big quantities. They are not salable across space, they cannot not be carried around between towns, and more importantly for the Phoenicians, between Mediterranean cities. The third element, which is salability across time, is the biggest issue for Apples and for any other similar goods that could subjectively be used as a form of money. Apples if were to be used as a medium exchange would have to be exchanged quickly or else they would rot. Therefore, apples cannot hold value into to the future and no one would give up a valuable resource for a good that will be finite on the short term.
The adoption of a certain good as money was and still is a subjective matter, there is no right money or wrong money, but indeed there are consequences. Storing wealth in silver is possible but storing wealth in apples is not.
Silver coins were the best form of money for the Phoenicians, silver as a commodity was the most scarce one on the land, it was fairly easy to move around internally and on their boats, and it was widely accepted by their neighbours for their external trading and it was what their clients usually paid with, for instance the Egyptians. Silver was salable across scales, the value of payment in silver was decided by weighing the silver, but that was before the creation of coins. Coins made it much more practical for the Phoenician to scale their wealth and put numbers on their payments without going through the weighing process. Silver was salable across space, moving silver coins from one location to another was fairly easy, its small, yet valuable quantity made its salibility across locations not a problem at all. Finally, silver was salable across time, the risk of silver eroding or rotting was almost null, this made it possible for silver to be held as a store of value, which is the second function of money, which we will discuss in this upcoming part of the subject.
Store of Value
Even though the physical integrity (salability) of a good is vital for its value, it is not the only condition to keep in mind. It was possible for a good to lose value if its supply increased drastically in an unprecedented manner. As mentioned above, although many goods were used as a form of money during the Phoenician era, silver survived the most and even became the only form of money used by the Phoenicians. Simply because silver’s supply could not be manipulated. Silver was not even mined on the Phoenician land; it was mostly imported from the countries the Phoenicians built trade relationships with. Bringing in this precious metal to the Phoenician land killed the value of all other precious metals whose supply could easily be increased in comparison to the supply of silver which solely relied on international trade. The Phoenicians understood that one only needed a certain quantity of a specific good that fits the criteria of money to build an economy and a trading system. Although copper was much more easily accessible on Phoenician land, with the arrival of silver, a scarcer precious metal, no one wanted to use copper as much anymore. Mining more copper did not increase the purchasing power of the Phoenicians, in contrary the traders would value copper less and therefore increase the prices of the goods they are selling in copper. However, with silver, traders would lower their prices to acquire this rare good and effectively store value by holding it.
This is how the harder money won against the softer money. The ability of the form of money in subject to hold value more effectively than its other competitor made it by default harder money and therefore it was more demanded by the Phoenicians and every other ancient or modern civilization.
Understanding the hardness of money can be accomplished through comprehending the two quantities related to the supply of a good; first, the available stock, which is everything that has been produced in the past minus everything that has been consumed or destroyed. Silver for the Phoenicians had a low stock value compared to other rare metals and goods. It existed in much lower quantity than any other rare metal on the Phoenician land. Second, the flow; which is the extra production that will be made in the next period. Silver was mainly imported from foreign countries and most significantly from Egypt. In contrary, copper, the main competitor of silver, was not only imported but also archaeologists suggest that it was even mined in the island of Cyprus which was a Phoenician colony at the time. In order to tell which money is harder than the other, one should look at the stock-to-flow ratio. Having a low stock-to-flow ratio means that this good’s present supply can be increased drastically if the population started using it as a store of value. Therefore, a good with a low stock-to-flow ratio is not a proper store of value if chosen for this specific function. Goods with high stock-to-flow ratio are more ideal to be considered for storing value.
Naturally, when people choose a good with a high stock-to-flow ratio to store value the demand for this good will increase and in turn the value of that good will rise and this will give incentives for the producers of that good to produce more of it. However, because the flow of this good is small compared to its existing quantity hence it being a high stock-to-flow ratio good, even if produced in big quantities it will not disrupt the value to go downwards. When people choose a good with a low stock-to-flow ratio to store value, the producers of this good can easily flood the market with it which results in a drop in the value of this specific good. For the Phoenicians, why was silver a better store of value than fish? (considering fish has the physical attributes ‘‘Salability’’ mentioned above to be used as money in the first place) because of the stock-to-flow ratio concept. Catching fish for the Phoenicians was a pretty simple task, fishermen would simply go to the Mediterranean and catch as much fish as they want and even beyond the consumption purposes and flood the market if it were to be used as a store of value. The same cannot be said about silver simply because silver was imported by trading with the Egyptians and trading with the Egyptians meant cutting down cedar tree, building boats and temples. The processes of importing silver (the flow) was not easy at all, which was what made silver hard money from the Phoenician perspective. Furthermore, the stock-to-flow ratio can help us understand how silver beat copper as the hardest and the most used money during the Phoenician era. The flow of sliver was based purely on the successfulness of trading internationally and more precisely with the Egyptians, same could be said about copper at the early stages of the Phoenician empire. It was when copper mining on Phoenician land started that lowered the stock-to-flow ratio of copper and resulted in the diminishing of the value of copper in comparison to silver.
The Phoenicians understood hard money and thrived during their entire existence to put their hands on the hardest money possible. Around 8,000 years later we still study about the Phoenicians and we are in a constant positive learning curve about this rich civilization that started with Byblos and colonized the Mediterranean coast all the way to western north Africa where the Phoenicians built the grand city of Carthage. This early civilization knew exactly how to retain value for their hard work and having this understanding of what makes the best money possible is what made them capable of doing so. The Phoenicians (excluding Carthage) never participated in any wars, they did not even own an army, most of the wars historically, were funded using a less sound money which the Phoenicians never wasted time holding or storing value with.
Going back so far in ancient history makes one question the current fiat monetary system and the reason behind its creation in the first place. Who does it benefit? I can tell you for sure who it does not benefit, and that is the holder of the fiat money.