It is safe to say that shortly after the Lydians began making the world's first coins, that some enterprising fraudsters got into counterfeiting. These were very likely practicing criminals who were adept at fraud and innovative in discovering new ways to commit it, and once money in the form of coins began to circulate it undoubtedly had to occur to them that a means of fleecing the honest folks had appeared and they were determined to take advantage of it. For their product, they would have had to use some amounts of gold and silver, which were used to plate the base metals making up the bulk weight of the counterfeit coins.
To get the gold and silver that they needed, they would shave the edges of the real coins. This had two effects on their criminal enterprise. One, they were able to get the raw material that they needed, but two, if the person that they were passing off the shaved coin to was not aware that the coin was not a full coin, that coin became accepted as such and thus any merchant who accepted the coin at its stated face value was defrauded.
Coin clipping became prevalent in the early years of coinage and persisted for centuries. Not only was it practiced by criminals, but kings themselves practiced it in order to increase their own wealth. This would have course, introduced inflation, as that once the public became aware of this debasement then prices would rise. That one gold coin that might have purchased twelve sheep would then purchase eleven as that a clipped coin wasn't really worth what the king said it was worth. And even if the king wasn't debasing currency, counterfeiting would and could introduce inflation depending on its prevalence.
Coins of course, were not the only money that was counterfeited. Once paper money began to circulate, it also became a target of counterfeiting. Counterfeiting banknotes was an easier endeavor than striking a fake coin in the sense that the raw materials for this type of forgery were more readily available. I think that's one reason why counterfeiting for many centuries was an act punishable by death, and that death penalty was meted out when counterfeiters were caught. Banknotes printed by Founding Father Benjamin Franklin had the warning "To counterfeit is death". That kind of penalty for counterfeiting might seem harsh by today's standards, but let's look at it from the viewpoint of medieval authority for a moment.
Say that you're a king. Your government is issuing money to be used as a means of commerce. You want strict control over the treasury and you want your people to have confidence in the money that they're using as that confidence in your currency is a form of confidence in your rule. After all, your portrait is on that coin. That money that is issued by your state has your guarantee that it is going to be worth a set value, and not only do you want your money being used by your people, you also want that money to have the reputation such that it can be accepted by those foreign merchants you're dealing with. If your money is more widely accepted than that of your rival kingdom, then you have a wider influence. You wouldn't want anyone messing around with debasing your money (unless you're the one doing the debasing, which I will cover in a future posting). You want anyone who does it to be caught, and to be put to death.
Likewise if you're a king, you might want to employ counterfeiting your enemy's currency if you're at war with that enemy. During the Revolutionary War, Great Britain was counterfeiting colonial currency in an effort to destabilize the Continental Currency that was issued by the Continental Congress. The Union government counterfeited Confederate banknotes in order to destabilize the South. Adolf Hitler's regime was working on a plan to counterfeit the currency of the Allies in 1944. And in more modern times, North Korea is reported to be counterfeiting American hundred dollar bills ("superdollars") in large quantities. One pound coins issued by the United Kingdom are also being counterfeited, and from the images of those that I've seen they're really good fakes.
Counterfeiting is going to be with us as long as there's a human race. It's no longer confined to money, as that there are vast amounts of fake consumer goods being counterfeited. I can walk across the border into Nogales and locate fake Rolex watches rather easily. My employer has to worry about being stuck with counterfeit computer chips.
Counterfeiting is not the only means of debasing currency. I will discuss this more in a future posting, but I think I'm also going to post a story about a guy in New Jersey who counterfeited nickels. Stay tuned.
