The role of money was more constrained in Ancient Egypt than it was in the thriving and comparatively free commercial markets of the Babylonians. Money was by no means unknown to the Egyptians, however. Even from early times; gold, silver, and copper were used as units of account, copper rings were said to have been used as a medium of exchange in some cases, and eventually coinage of excellent quality spread from Greece to Egypt, among other places. The Egyptians had even cast gold bars at least as early as 4000 BC, with the name of the pharaoh stamped on the gold. However, Egypt's feudally structured society evidently imposed rigid stratification upon the majority of the population.
Credit: Creative Commons artwork from The Description of Egypt (1809-1823), in the public domain.Under the dominion of the pharaohs, most property was owned by the ruling classes and most economic activity was based on agriculture. In some periods, prized treasures such as gold even came to be reserved for the exclusive possession of sovereigns and priests. Overall, the Egyptian economy is believed to have been much less free than that of the Mesopotamians, and Egypt's more rigidly stratified society meant that there were fewer monetary exchanges between citizens.
Egyptian Money & Grain-Banking
Grain was evidently considered the most fundamental form of Egyptian money throughout society at large, and highly developed grain-banks formed a cornerstone of the Egyptian economy. Written orders for the withdrawal of lots of grain (which were deposited in state warehouses) came to be used as a form of paper money, and were used as a medium of exchange to pay merchants, traders, and tax authorities.
The centralized hoarding of grain in state warehouses was also practiced in Babylon, giving rise to granary banks, but grain as the foundation of the money supply apparently played a longer-lasting role in Egypt. Some scholars suggest that the Egyptian grain-banking system became so well-developed that it was comparable to major modern banks, both in terms of its number of branches and employees, and in terms of the total volume of transactions.
The Central Grain-Bank of Alexandria
Credit: Wolfgang Sauber, licensed under CC BY-SA 3.0During the rule of the Greek Ptolemies, the granaries were transformed into a network of banks centered in Alexandria, where the main accounts from all of the Egyptian regional grain-banks were recorded. This became the site of one of the earliest known government central banks, and may have reached its peak with the assistance of Greek bankers. A system of transfer payments developed, in which balances could be transferred between accounts without the need of physically moving the grain-money. (The same function was developed much later by Italian merchants and bankers in medieval Europe, where it was known as the "giro" system.)
The Egyptian population, even in these later periods, evidently had a relatively low supply of gold and silver. Much of the gold was requisitioned for large foreign purchases, including military expenditures, all of which caused a drain of gold from Egypt. Gold and silver were consequently more commonly used by wealthy merchants and traders than by ordinary individuals. However, the grain-banking system evidently remained in good standing. The use of the grain-banking system was also advantageous to citizens in some cases, since its use produced official records of financial transactions which could help solidify a legal case, if a financial dispute took place.
The Oeconomus: Central Grain-Banker of Ptolemaic Egypt
The supply of seed corn—which was the primary form of money and capital in the grain-banking system—was evidently controlled by a government official called the Oeconomus (a Greek term, meaning "manager, which was later used in various places to denote a treasurer or finance officer). The Oeconomus enforced laws to make sure the seed corn was used as state-sanctioned money, and not for any other purposes.
Even though the government could not arbitrarily expand the supply of money (as is commonly the case when governments and central banks issue fiat currencies), the state still had a measure of control over the money supply since surpluses in a given year could be applied to shortages in the next. Like the supply and demand for gold (or other forms of money), if the supply of seed corn (i.e., the money supply) shrank, the expected result was a deflationary contraction of the money supply, accompanied by falling prices. If the supply of seed corn expanded, the expected result would be an inflationary expansion of the money supply, accompanied by rising prices.