Money in the Pre-Industrial World

Bullion, Debasements and Coin Substitutes

John H Munro, John H Munro

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317321903
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Finanzas

The papers in this edited volume discuss key elements of monetarism, including coin denominations, the role of bullion and case studies of substitute moneys.

1 The Technology and Economics of Coinage Debasements in Medieval and Early Modern Europe: With Special Reference to the Low Countries and England

John H. Munro

Coinage debasements in pre-industrial Europe, despite their frequency and especially their severity during the late medieval guerres monétaires, and despite their often important economic consequences, remain a subject that is often mentioned but remains ill understood in the economic history literature. Indeed, one oftencited article, aptly titled ‘The Debasement Puzzle’ (1996), by three highly respected economists, sought to demonstrate that coinage debasements were both impractical and economically futile.¹ Yet debasements continued to ‘plague’ Europe until the eighteenth century. The objective of this study is to demonstrate that they were both practical and often quite effective in their often very different goals, and were not always so deleterious in their effects as is traditionally portrayed.

Medieval Coinages and their Relation to Moneys of Account

The nature, techniques and economic consequences of European coinage debasements must be understood first in relation to the local money of account system for that coinage. In medieval and early-modern western Europe (except for the Iberian peninsula and parts of Germany), most local moneys of account were based upon the system that was established under Charlemagne, c.795. It was directly linked to the new Carolingian pound weight of fine silver (489.51 g) in that the pound money of account was given the precise value of this weight of fine silver.² Obviously no silver coins weighing a pound were struck; and for centuries, the only silver coins struck were the various regional pennies (and their subdivisions). Solely for accounting purposes, in reckoning prices, wages, values, etc., the pound money of account (libra, livre, lira) was subdivided into 20 shillings (based on the Roman gold solidus), which in turn were subdivided into 12 pence (based on the Roman silver denarius), so that this pound of account always consisted of 240 currently circulating silver pennies.³ Not until the thirteenth century did some Italian city-states and then France introduce heavier weight silver coins, known as grossi or gros.⁴ The primary reason for issuing such larger, ‘full-bodied’ coins was the deterioration in the silver contents of the original penny through the ensuing centuries of almost universal, if periodic coin debasements, and the consequent rise in prices in each region’s silver-based money of account. At the accession of King Philip II Augustus in 1179, the French silver denier parisis contained only 0.509 g of commercially fine silver (argent-le-roy): only about half as much as the 1.020 g of fine silver contained in the original Carolingian denier of c. 795.⁵

The Forms and Nature of Medieval Coinage Debasements

Medieval coinage debasements normally took two different forms. The first, and by far the most common, was a physical decrease in the quantity of silver or gold contained in current coins of the same face value; and that meant, therefore, a corresponding reduction in the quantity of such precious metals represented in the related money of account: the penny, the shilling and the pound. The mint undertook such physical debasements by two different means, but often in combination: by reducing the weight of the coin itself and/or by diminishing the coin’s precious-metal fineness. The latter method simply meant adding more and more base metal, copper, to the alloy. As a consequence of either or both physical methods a pound or marc weight of fine metal was struck into a greater number of coins, of each denomination, with a consequent increased money of account value of that pound or marc of fine metal so struck into the newly debased coins. At the same time, the face value of the currently circulating penny, whatever its fine silver content, always retained the value of 1d in the local money of account.

The alternative but mathematically related form of debasement was, paradoxically, the seeming opposite: an increase in the money of account value of the coin concerned, a method chiefly applied only to the gold coinages. Almost invariably, a physical debasement of the silver coinages necessarily required a compensatory debasement of the gold coinage, if only by raising that coin’s money of account value, in order to maintain an equilibrium or balance between the market values of the two precious metals and the corresponding mint ratio. In this era, the normal bimetallic ratio – the ratio of the market values of gold to silver – varied between 11:1 and 12:1. If, for example, the prince debased just the silver coinage, thereby raising the relative money of account value of a marc or pound of silver, he would automatically have altered the mint’s bimetallic ratio to ‘favour’ silver, and thus to ‘disfavour’ gold. He may have done so deliberately in order to attract an increased supply of silver into his mints. But the ‘opportunity cost’ of doing so was some corresponding loss of gold coins or bullion, which merchants would export to seek higher exchange values abroad, either on the market or at foreign mints. If the corresponding changes in these mint ratios exceeded the value of the mint charges (equivalent to the ‘gold shipping’ points under the modern gold standard), the prince would have suffered an unwanted loss of gold. Therefore, to protect his mints from such unwanted losses of gold, the prince would have debased his gold coinages as well, to some corresponding degree. While, as just indicated, many princes chose to do so simply by raising the money of account or exchange value for their gold coins, some did so either by physically debasing the existing gold coins, or by issuing entirely new coins with a lesser amount of gold, and with corresponding exchange rates calibrated to match the market ratios. Note that in most of medieval and early-modern Europe, the values of gold coins were always expressed in terms of the silver-based money of account.

When this technique was applied to silver coins, only the higher-denomination coins were subjected to such an increase in their money of account or exchange values, while the penny and other lower-denomination coins underwent physical debasements. The most famous example took place during the first debasements of France’s Philip IV the Fair (r. 1285–l314), the monarch responsible for launching the disastrous late medieval guerres monétaires. Initially, from 1295 to 1303, he debased only the silver denier coins, while maintaining the fineness and weight of the prized gros tournois, the sou or shilling coin that Louis IX had introduced in August 1266. But he was forced to raise its money of account value from 12d to 15d tournois, and then (after 1303) to 26.25 d.t., while also reducing its fineness by 25 per cent.⁶ Whatever the method employed, the consequence of any debasement, of both silver and gold, was a reduction in the precious-metal content of the money of account units: the penny, shilling and pound.

The Legal and Commercial Advantages in Using Legal-Tender Coin Instead of Bullion

Finally, the economic and legal distinctions between coined money and bullion are necessary to understand fully the nature and economics of medieval, early-modern debasements. In most European realms during this long era (except for the Italian city-states and early-modern Holland), especially from the commencement of the guerres monétaires, in the late thirteenth, early fourteenth century, trading in or exporting ‘bullion’ was illegal, with severe penalties in the form of both confiscation of the metals and fines (or even prison or exile). In most such realms, the legal definition of ‘bullion’ excluded all legal-tender coins and those metals allotted, by licence only, to goldsmiths and jewellers to be fashioned into plate, jewellery or other industrial goods. Some bullion exports were permissible: for government agents on official business abroad and for some merchants engaged in international trade, but only on the purchase of costly licences. Otherwise, all other forms of precious metals not covered by these exemptions had to be surrendered to the ruler’s mints for conversion into domestic legal tender coins.

Similarly, these principalities also prohibited the importation and circulation of foreign silver coins and most foreign gold coins, with the exception of some favoured international ‘dollars’ of the day: e.g. Florentine florins, Venetian ducats, English nobles, French écus. Apart from those exceptions, they were also declared to be ‘bullion’, with the obvious requirement that they too be delivered to the ruler’s mints for recoinage.⁷ England’s Parliament went even further, with legislation in force from January 1364 to May 1663 that prohibited the export of all forms of precious metal (except under licence) – all gold, all silver, in both bullion and legal tender coin – and also the domestic circulation of any foreign coins (except briefly, in the 1520s, under Henry VIII).⁸ The aim of such bullionist proto-Mercantilist legislation was to protect the domestic realm from debased or otherwise fraudulent foreign and to promote an increase in the ruler’s own mint outputs.

For most merchants and the general public, using coin rather than bullion provided two major savings in transaction costs. First and most obvious was in avoiding the risks and thus costs of confiscation and heavy fines, but also the costs of obtaining licences for legal exports of bullion. The second and far less obvious advantage lay in avoiding the costs of estimating the true market value of the precious metals: that is, the very error-prone costs of weighing the precious metals and assaying their true fineness, and of then ascertaining the proper money of account values. In contrast, legal-tender coins, stamped with identifying symbols on the obverse and reverse, as the sovereign’s guarantee of their true precious-metal value, allowed them to circulate by ‘tale’ – i.e. by counting the coins, at their assigned ‘face value’. The lower the denomination, the higher the transaction cost of assaying coins and not accepting them by tale.

One of the most contentious issues in monetary history is whether or not coins ‘passed’ or circulated by tale; and the denial that they did so constitutes a prime reason for doubting the efficacy of medieval debasements. All of the available commercial evidence does indicate that silver coins were accepted at official face value in domestic trade, with only rare exceptions. Consider the fact that by the later Middle Ages almost all European silver pennies had undergone some debasements, yet all were still treated as pennies in commerce. For example, the first Flemish silver penny groot, struck in May 1300, had an almost perfect fineness (95.667 per cent), containing 3.794 g pure silver; but, by the coinage ordinance of June 1418, that same Flemish silver penny groot had a fineness of only 41.667 per cent and contained only 0.850 g pure silver: just 22.40 per cent as much as in the original penny. Are we to assume that the 1418 single groot then circulated at a discounted value of just slightly more than one-fifth of a penny?⁹ Thus, when did such discounting of silver pennies commence; and how was it calculated, in usable commercial values, over time? These questions reveal the very absurdity of denying the obvious: that penny coins always circulated by tale at this face value, irrespective of their intrinsic metal contents.¹⁰ We might assume, however, that gold coins were more likely to circulate at ‘market’ values than by tale; but the evidence for England and the Low Countries indicates that, except for times of radical debasements, or sudden shifts in the market’s bimetallic ratios, most gold coins did circulate at official values: but only so long as the public retained confidence in the ruler’s coins, as stamped with his insignia.¹¹

Considerable savings in these two sets of transaction costs correspondingly provided legal tender coins, including legal-tender foreign coins, with an agio or premium over their bullion values.¹² That premium value represented the sum of the mintage fees, which were deducted from the total value of the coins produced from the bullion: a value known as the traite in medieval Flanders, and the pied de la monnaie in France.¹³ So long as this agio was at least equal to the sum of the mintage fees, so that coins remained more valuable than bullion, merchants would continue to deliver bullion to the mints. Conversely, whenever domestic coins lost that agio, bullion would cease to be delivered to the prince’s mint, and would most likely be either hoarded or exported to some f...