Monetary Instability, Lack of Integration, and the Curse of a Commodity Money Standard. The German Lands, c.1400–1900 A. D.

Rössner, Philipp Robinson Article Monetary Instability, Lack of Integration, and the Curse of a Commodity Money Standard. The German Lands, c.1400–1900 A. D. Credit and Capital Markets – Kredit und Kapital Provided in Cooperation with: Duncker & Humblot, Berlin Suggested Citation: Rössner, Philipp Robinson (2014) : Monetary Instability, Lack of Integration, and the Curse of a Commodity Money Standard. The German Lands, c.1400–1900 A. D., Credit and Capital Markets – Kredit und Kapital, ISSN 2199-1235, Duncker & Humblot, Berlin, Vol. 47, Iss. 2, pp. 297-340, https://doi.org/10.3790/ccm.47.2.297 This Version is available at: https://hdl.handle.net/10419/293733 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Credit and Capital Markets 2 / 2014 Credit and Capital Markets, 47. Jahrgang, Heft 2, Seiten 297–340 Abhandlungen Monetary Instability, Lack of Integration, and the Curse of a Commodity Money Standard. The German Lands, c.1400–1900 A. D. Philipp Robinson Rössner1* Abstract Currency debasement, defined as a loss of precious metal content (intrinsic value) of the circulating penny currencies over time, was a common feature in the monetary history of Europe, c. 1400–1900. Over the centuries the loss rate was sustained; between 1400 and 1900 A. D. the (south) German penny currencies lost close to 90 per cent of their intrinsic value. As prior to the twentieth century all circulating means of exchange derived their purchasing power from the value of the precious metal contained in them these debasements reflect considerable fluctuations in these coins’ exchange value. Whilst some of the possible origins of this have been addressed by previous research, comprehensive models are missing, and the social and economic consequences of this phenomenon have only seldom been studied. The present paper contributes to the debate, using long-run data on the circulating small change currencies in the German lands, c.1400–1900. After an introduction (I.) the second section puts the present case study into an international, historical and conceptual context (II.). A third section provides a brief sketch of German monetary history since the Middle Ages with special regard to penny currency debasement (III.). A fourth section analyses some of the reasons for this, highlighting further areas and directions of research which previous models have missed (IV.). A fifth section studies the social and economic costs of monetary fragmentation and coin debasement (V.). A sixth section concludes (VI.). * PD Dr. Philipp Robinson Rössner (1) Lecturer in Early Modern History, The University of Manchester, Oxford Road, Machester M13 9PL, England, UK, [email protected] (main affiliation); (2) Heisenberg Fellow, Deutsche Forschungsgemeinschaft (DFG), Universität Leipzig, Historisches Seminar, Beethovenstrasse 15, 04105 Leipzig, [email protected] (on leave from Manchester 2013–2015). I should like to thank Bertram Schefold (Frankfurt-on- the-Main) and Markus A. Denzel (Leipzig / Bolzano), as well as one anonymous referee for feedback and valuable comments. The usual disclaimer applies. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 298 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 Kleingeldentwertung, monetäre Disintegration und der Fluch des Warengeldes – Das Beispiel Deutschlands, c. 1400–1900 n.C. Zusammenfassung Geldentwertung, gemessen an einer langfristigen Reduktion im Edelmetallgehalt der zirkulierenden Münzwährungen, war ein prägendes Phänomen in der vormodernen Geld- und Währungslandschaft Europas (c.1400–1900 n.C.). In den fünf Jahrhunderten vom Hochmittelalter bis zur Industrialisierung verloren die zirkulierenden Kleingeldwährungen auf dem Gebiet des Heiligen Römischen Reiches Deutscher Nation bzw. seiner Nachfolgestaaten und Staatenbünde 90 % ihres ursprünglichen Edelmetallgehalts um 1400 n.C. Da bis um 1900 sich die Kaufkraft der umlaufenden Münzen noch maßgeblich von der in ihnen enthaltenen Menge an Edelmetall (bei den Kleinmünzen nur Silber) ableitete (Metallismus, Warengeld), resultierten diese Edelmetall- oder Feingewichtsschwankungen in beträchtlichen Wechselkursschwankungen bzw. langfristigem Kaufkraftverlust der betroffenen Münzen. Während vereinzelte Aspekte dieser Problematik bereits ansatzweise thematisiert und untersucht worden sind, kann man weder von einem umfassenden Verständnis noch geschlossenen Modellen, geschweige denn einer robusten ‚Theorie‘ dieser Entwicklung sprechen. Insbesondere die sozialen und ökonomischen Folgekosten von Geldentwertung und Geldverschlechterung in der langen historischen Perspektive sind bislang nur punktuell untersucht worden. Der vorliegende Aufsatz gliedert sich in eine Einführung (I.). Dieser folgt eine Kontextualisierung des Themas und einige methodische Eingrenzungen (II.). Ein dritter Abschnitt bietet einen knappen Abriss deutscher Währungsgeschichte mit besonderem Fokus auf der Kleingeldentwertung und Problematiken wiederholter monetärer Integrationsversuche (III.). Im vierten Abschnitt werden bereits bestehende Modelle kritisch überprüft und weitere Bausteine einer Neu-Interpretation der vor- und frühindustriellen Währungsgeschichte vorgestellt. Ein spezieller Abschnitt ist den sozialen und ökonomischen Folgekosten einer schwach integrierten und durch Geldentwertung geprägten Währungslandschaft gewidmet (V.), bevor eine Zusammenfassung und Ausblick erfolgen (VI.). In dieser Hinsicht leistet der Aufsatz einen Beitrag zu einer Umbewertung und Re-Kontextualisierung deutscher Währungsgeschichte der vor- und frühindustriellen Zeit. Keywords: Money Demand, Money Velocity, Quantity Theory of Money, Velocity of Money, Bimetallism, Bullion, Coinage, Commodity Standard, Currencies, Currency, Gold, Gold Standard, Monetary Regime, Monetary System, Seigniorage, Silver Standard, Specie, Deflation, GNP, Growth, Inflation, Monetary Policy, Monetary Regime, Monetary Standard, Monetary System JEL Classification: B110, E41, E42, E49 E52, N13 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 299 Credit and Capital Markets 2/ 2014 I. Introduction It can be held as a commonplace that a stable currency, measured against the price level (domestically), or in terms of its exchange value against foreign currencies (exchange rate stability) is a key factor for economic growth and development. To what extent these things mattered in historical perspective, however, is much less well understood. Small change debasement, measured in terms of a sustained loss of the circulating penny currencies’ precious metal content, was a common feature in the monetary history of Europe, c. 1400–1900. Between 1400 and 1900 the German penny currencies lost about 90 per cent of their silver content. Until recently (i. e. mid-twentieth century) most systems of monetary circulation in Europe were based on what Schumpeter (1955) called a ‘metallist’ standard, i. e. the conviction that the purchasing power of money ought to be ultimately derived from the amount of precious metal or real wealth it embodied. It goes with the territory that such a loss in intrinsic value of the currency was connected with a host of economic and social problems. Whilst the social and economic consequences of this peculiar monetary landscape, however, have only seldom been studied, the imputed economic origins have been analysed by some scholars, but mainly in terms of modern models that are quite detached from historical reality.1 A lot of open questions therefore remain. The present paper will re-evaluate some of the causes as well as social and economic consequences of small change debasement in the German lands, c.1400–1900 (The Holy Roman Empire2, hereafter ‘Germany’), pointing out new directions for future research, as well as modifications to existing models of the pre-industrial monetary landscape. Special focus will be on the fifteenth to seventeenth century, as well as the small change segment of the currency, or ‘everyday money’. It should be noted in passing that whilst 1 Sargent, Thomas J. / Velde, François R., The Big Problem of Small Change (Princeton, 2003). A much better model is Schremmer, Eckart / Streb, Jochen, ‘Revolution oder Evolution? Der Übergang von den feudalen Münzgeldsystemen zu den Papiergeldsystemen des 20. Jahrhunderts’, in: Vierteljahrschrift für Sozial- und Wirtschaftsgeschichte 86 (1999), pp. 457–476. For the late fifteenth and early sixteenth century a recent model studying the monetary economics in combination with the politics, sociology and culture of monetary policy has been suggested in Philipp Robinson Rössner, Deflation – Devaluation – Rebellion. Geld im Zeitalter der Reformation (Stuttgart, 2012). Many questions, however, still remain unsolved, as subsequent sections in the present paper will highlight. 2 Heiliges Römisches Reich Deutscher Nation, formed during the tenth century A. D. and dissolved in 1806. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 300 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 the paper primarily engages with a historical problem, it will also have some actual relevance for today. There have been voices in recent debates advocating a return to the ‘gold standard’, remnants of which existed in the United States’ monetary system until the abolition of the Bretton Woods System of fixed exchange rate bands in 1971 / 73. The following remarks may help to promote the basic insight that, from a historical viewpoint, such returns to a non-fiduciary metallist or commodity money standard would be a great fallacy, as the social as well as economic costs are likely to outweigh by far its imputed benefits. After this introduction (I.) the second section puts the present case study into an international, historical and conceptual context (II.). A third section provides a sketch of German monetary history since the Middle Ages. Between 1400 and 1900 the petty currencies (regionally differing penny and heller coins) lost c. 90 per cent of their intrinsic value, expressed grams of silver per coin. As prior to the twentieth century all legal tender moneys derived their purchasing power from the value of the precious metal contained in them, usually silver, such debasements reflect considerable fluctuations in these coins’ exchange value. A lack of economic and monetary coordination prevented a long-term stabilization of coin exchange rates and perpetuated the problem of debasement (III.). A fourth section analyses some of the reasons of these fluctuations (IV.); a fifth one the social and economic costs (V.). A sixth section concludes (VI.). Rather than providing definite solutions the present article is intended to raise a series of new questions and directions for further research into the monetary history of the German lands in the pre-industrial period. II. Monetary Stability, Monetary Integration and Economic Development in Historical Perspective Scholars have examined the monetary history for most nations, regions and states in Europe since the Middle Ages, sometimes from a numismatist’s perspective, sometimes from the perspective of monetary theory: for England3, the Netherlands and Flanders4, several Italian cities5, Spain6, 3 Challis, Christopher E. ‘Appendix 2’, in: Id. (ed.), A New History of the Royal Mint (Cambridge, 1992). 4 Munro, John H., ‘Deflation and the Petty Coinage Problem in the Late-Medie- val Economy: The Case of Flanders, 1334–l484’, Explorations in Economic History XXV,4 (1988), pp. 387–423; Van Gelder, Hendrik Enno / Hoc,Marcel, Les monnaies des Pays-Bas bourguignons et espagnols, 1434–1713: Répertoire general (Amsterdam, 1960). OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 301 Credit and Capital Markets 2/ 2014 Austria and ‘Germany’567, as well as the much-acclaimed general synthesis by Sargent and Velde.8 But our understanding of the consequences and bilateral feedback processes between a lack of monetary coordination, monetary instability and economic development is still rudimentary; the present paper can only make a partial contribution to a better understanding of what is still an ill-understood field. Before the analysis can proceed we need to make a few important specifications. (1) We should note that for the present purpose – a historical study – the question of ‘monetary stability’ must address two issues, i. e. integration on the one, and price level stability on the other hand. Monetary integration may, in modern words, be effected using currency boards, exchange rate pegs and other types of monetary contracts or agreements directed at exchange rate stabilization, up to its most fully-developed version, i. e. a full monetary union with a common currency. Nothing of that sort existed in pre-industrial Germany. There were more than three hundred different states on the territory we call ‘Germany’ (The Holy Roman Empire) in the pre-1800 period, and about twenty separate territorial units after 1806 / 15, which were sometimes loosely united in varying politico-economical confederations of states, such as the Zollverein after 1833 etc. Until 1871 these states retained their own currencies and independent monetary policies. Some integration was achieved temporarily on the regional level through cooperative agreements between adjacent states and cities that were economically integrated. Such agreements sometimes took the shape of currency or coinage unions (German: Münzverein). Such agreements were formed in the ‘Middle Ages’9, stipulating a 5 Bernocchi, Mario, Le monete della Repubblica fiorentina III: Documentazione (Florence, 1976); Galeotti, Arrigo, Le monete del granducato di Toscana (Bologna, [1930] 1971); Papadopoli, Nicolò, Le monete di Venezia, Venedig 1893–1909. 6 Garcia de Paso, José I., La Política monetaria castellana de Trastámaras y Austrias, 1400–1700 (Madrid, 2000). 7 Metz, Rainer, Geld, Währung und Preisentwicklung. Der Niederrheinraum im europäischen Vergleich: 1350–1800 (Frankfurt-on-the-Main, 1990). 8 Sargent / Velde, Big Problem of Small Change. 9 Following a common yet simplistic periodization schedule, ‘Middle Ages’ denotes the centuries between c. 600 and 1500 A. D., ‘Early Modern Period’ will refer to the period between circa 1500 and 1800 A. D., and the ‘Modern Period’ usually refers to the 1800–1914 / 1918 period, after which the ‘contemporaneous age’ begins (Zeitgeschichte). An alternative classification sees a break around 1800, denoting the pre-1800 period as ‘pre-industrial’ and post-1800 as ‘industrial’. It is clear that any such periodization schedule carries an inherent risk of over-simpli- fication. So it must be treated – as any other model or classification schedule – with due caution. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 302 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 common standard of weight and type and coin exchange rates for coins that were still produced at the discretion of each separate state or city. From 1500 onwards there existed a different model of coordination; the so-called Imperial Circles (Reichskreise), supra-territorial political units which included pro-forma but rather imperative, i. e. postulated, agreements to coordinate monetary policy by creating uniform exchange rates and currency standards for all moneys and coins that circulated within each Reichskreis. Scholars have classified both the monetary policy agreements under the Reichskreise settlement (the imperial circles had other purposes, too; such as coordinating military action against the Ottoman Empire), as well as the medieval Münzvereine as currency or monetary unions.10 Full monetary integration in the modern sense, however, was neither achieved nor intended at any point in time before 1871. Numerous competing currencies circulated within most territories. Very often two or more different monetary standards existed even within one particular territory. This was neither uncommon, nor limited to pre-mod- ern Germany (it seems to have been the European norm). This situation resulted in ratios (spot or coin exchange rates) of small change coins, such as pennies, hellers and groschen, compared to the larger denomination coins, such as the gold florin or thaler, that were essentially flexible and re-negotiable by the financial market (but could never be enforced by state legislation, in the same way as today). (2) Two concepts of monetary or price level stability exist in the economic literature, one of which has vanished since the twentieth century with the abolition of metallistic or non-fiduciary currencies and the adoption of what Schumpeter has called theoretical and practical chartalism.11 Today the most common way of measuring monetary stability is in terms of price level changes as measured against a basket of consumables (CPI). There existed, in the economic history of Europe until recently, an alternative yet important concept, in which the purchasing power of a currency was determined also by the intrinsic value of the circulating coins, measured in terms of the number of grams of precious metal (gold, silver) they contained.12 Whenever the intrinsic value of a currency declined, for instance by a reduction of a coin’s fine weight (g Ag / Au), 10 See papers in Cunz, Rainer (ed.), Währungsunionen. Beiträge zur Geschichte überregionaler Münz- und Geldpolitik (Hamburg, 2002). 11 Denoting the idea that money is a sign of value but does not contain any (material) value in itself. Schumpeter, Joseph A., History of Economic Analysis (New York, 1954), pp. 288–300. 12 See Sargent / Velde, Big Problem of Small Change, passim. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 303 Credit and Capital Markets 2/ 2014 vis-à-vis a stable price or lesser decline in the silver (or gold) price, the currency depreciated. Inflation would be the result, as more coins than before of the same denomination would have to be handed over for the same basket of goods. This monetary landscape in pre-1900 Europe was fundamentally different from our modern one which is based on a fiduciary (i. e. nominalist or chartalist) monetary standard, which believes that money is a sign or signifier of value, without carrying intrinsic value on top of its purely material value (which is insignificant in relation to its purchasing power13); money should not have value of itself. (3) The pre-modern monetary landscape was marked by the existence of at least three (if not four, if bills of exchange and other means of cashless payments are considered) monetary layers or spheres of exchange. On top were the high-value or full-bodied coins, usually called gulden or florin which were made of gold (e. g. Rhenish florin / Rheingulden) or silver (Silbergulden, Groschen so ein Gulden gilt, Thaler). Usually full-bodied gulden coins contained roughly as much precious metal as they were worth nominally, minus seigniorage, the state’s monopoly revenue arising from the royal prerogative of minting (Münzrecht, Münzregal) as well as brassage (the costs of minting). This ‘upper’ layer or monetary sphere may be denoted as M0. Below M0 came what may be called14 the middle monetary sphere, coins that went in the Saxon and central German lands by the name of Groschen (groat), or Batzen in the south. These coins usually contained enough silver, but never gold, to be accepted by the public as legal tender. They usually circulated at face value. But their exchange value often fluctuated against the high-value full-bodied coins of the same currency type (say, Saxon money). This is a characteristic which modern moneys do not usually exhibit: one EURO is always worth 100 Cents, regardless whether these Cents are Greek, Italian or French EURO- Cent coins. We may denote this ‘middle monetary layer’ of the Groschen- Batzen type as M0’. At the bottom end came the small change currencies, pennies, heller etc., which circulated in the German lands in hundreds, if not thousands of different types and varieties, varying from state to state. There were about 500 ‘states’ that actively exercised their right to mint coin. Moreover, there was variation over time and within each economic or currency area, as old coins coexisted with and were given and taken in 13 Today the British £1 Sterling coin, made of a brass-nickel alloy, has a material value that fluctuates with the prices on the London metal exchange (excl. production costs such as wages and fixed capital input). The material value usually is around six to eight pence, i. e. far below 10 per cent of its purchasing power. 14 Rössner, Deflation – Devaluation – Rebellion, ch.IV. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 304 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 transactions alongside new coins. The financial market would frequently rate these coins ‘on the spot’ at rates that differed from the official or face value set by the state. As pennies contained a high fiduciary value, because they contained much less silver than they were worth, people were tempted to re-adjust their purchasing power to the amount of precious metal these coins contained, as they adhered to a commodity money or metallist standard. These penny currencies may be denoted as M0’’. The remainder of this paper will focus on the small change segment (M0’’), because it is especially in this segment that the monetary history of Germany offers a wealth of surprising insights that are fundamentally different from what general monetary theory, as well as most textbooks on the history of money suggest regarding how monetary transactions should have worked, and what the monetary landscape should have looked like. If we compare available data on petty currency debasement with imputed yet entirely conjectural figures for per capita GDP growth, denoting relative productivity levels rather than GDP, in the early modern period (1500–1800 A. D.), the following picture emerges (Table 1). Table 1 Average Rates of Coin Debasements and (Imputed) Rates of Economic Growth Average yearly debasement rates, small change currencies 150 0 / 180 0 Average rates of growth per capita GDP Poland (Danzig, Cracow) –0.63 0.11 France –0.54 0.15 Germany (Holy Roman Empire) –0.44 0.15 Austria –0.32 0.18 Flanders –0.35 0.14 Netherlands –0.29 0.29 Switzerland –0.28 0.18 England –0.16 0.29 AVE –0.42 0.15 Coin debasement rates: Metz, Geld, Währung und Preisentwicklung, Tables and passim; national income growth rates based on figures in Maddison, World Economy, figures taken from the original database on http: / / www.ggdc.net / maddison / maddison-project / home.htm OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 311 Credit and Capital Markets 2/ 2014 Ordinances (Reichsmünzordnungen) were issued, the first of which (Esslingen 1524) remained purely utopian. It formulated a currency standard that was impossible to implement, given the price for the mark silver on the financial market, which at that time was higher than the amount of coins to be struck from each mark (mint price given in the ordinance). The Imperial Currency Ordinance of Augsburg 1559 introduced an ‘imperial’ silver florin (Reichsguldiner) that should circulate within the Empire at 60 kreuzers. It should contain 22.91 grams of silver. An ‘imperial’ gold florin (Ducat) was also ‘created’ which should circulate at 104 kreuzers. For each imperial circle (Reichskreis) the weight of the circulating nominals, from pennies to groats, kreutzers and batzen, as well as the higher Thaler and other florin nominals was specified. In 1559 the Augsburg Imperial Diet issued a resolution that the Saxon silver florin or Thaler containing 25.98 grams of silver should become the new imperial currency standard (Reichsthaler). Nine thalers should be minted out of the Cologne mark of fine silver, and these thalers should circulate at 24 groats or 68 kreuzers. (c) With the dissolution of the Holy Roman Empire of German Nations in 1806 (Reichsdeputationshauptschluss), monetary policy reverted back to the state of the medieval regional currency unions. The difference now was that the number of separate territories in ‘Germany’ was reduced to 35 plus four former imperial cities. There remained in the German lands more than eight separate currency systems and monetary zones. Coin use retained a distinctly regionalized character, albeit certainly less ‘chaotic’ than in the pre-1806 era.31 Only from the time of political unification (1871) and the subsequent standardization of the currency in 1873 there emerged a truly integrated monetary landscape in Germany. The German Mark Reichswährung of 1871 / 3 was based on gold, and issued in nominals at 20, 10, 5, 2, and 1 Mark, and 50, 20, 10, 5, 2 und 1 Pfennig. The 10 and 20 Reichsmark pieces contained gold to their full-bodied value. The remaining coins circulated with precious metal content significantly below face value, thus containing a partly chartalist or fiduciary element. At around the same time the German economy began to catch up with the English and American economy, becoming one of the larger industrial nations of the world. 31 Sprenger, Geldgeschichte, ch.9. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 312 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 2. Problems of Coordination After 1500 Territories organized in each imperial circle (Reichskreis) after 1500 were expected to follow a harmonized monetary policy, i. e. use a common monetary standard including common coin denomination and types with common weights and fineness of coins, as well as agreements limiting mint output to a certain range of specified mints (Kreismünzstätte) for each Imperial Circle.32 There is some indication that the degree of cooperation indeed increased somewhat over the sixteenth century, as is suggested by the documentary evidence of a growing number of meetings of administrative actors on the imperial circle level which numbered, for the Franconian, Bavarian and Swabian circles, 44 meetings during the sixteenth, and 78 meetings during the seventeenth century. Some historians have interpreted this as evidence of an increasing degree of monetary integration.33 The question, of course is, to what extent these meetings and conventions were successful in terms of achieving what they meant to achieve, i. e. a higher degree of monetary coordination between the economies included in such agreements, marked by a reduced variance of coin exchange rates of the currencies that circulated between and within the imperial circles. There is convincing evidence to the contrary; apparently the Reichskreise neither increased the degree of monetary integration nor monetary stability. Throughout the sixteenth and seventeenth centuries, coin exchange rates remained, at least within the small change sector (to which we may count the groschen segment, thus M0’ plus M0’’), principally negotiable and subject to wide inter- and intra-annual variation around the target rates set by the governments. 32 Hartmann, Peter Claus, ‘Regionen in der Frühen Neuzeit – Modell für ein Europa der Regionen. Einführung in die Thematik und Problematik des Kolloquiums’, in: Id. (ed.), Regionen in der frühen Neuzeit. Reichskreise im deutschen Raum, Provinzen in Frankreich, Regionen unter polnischer Oberhoheit: ein Vergleich ihrer Strukturen, Funktionen und ihrer Bedeutung (Berlin, 1994), 9–20, Dotzauer, Winfried, Die deutschen Reichskreise (1383–1806). Geschichte und Aktenedition (Stuttgart, 1998), or Nicklas, Thomas, Macht oder Recht. Frühneuzeitliche Politik im obersächsischen Reichskreis (Stuttgart, 2002). 33 A useful recent survey is in North, Michael, ‘Das Reich als Wirtschaftsraum in Europa’, in: Schilling, H. / Heun, W. / Götzmann, J., (eds.), Heiliges Römisches Reich Deutscher Nation 962 bis 1806. Altes Reich und Neue Staaten 1495 bis 1806. Essayband zur 29. Ausstellung des Europarats im Deutschen Historischen Museum Berlin (Dresden, 2006), 158–170, and North, Michael, ‘Geld- und Ordnungspolitik im Alten Reich’, in: Amend-Traut, A., / Cordes A., / Sellert, W., (eds.), Geld, Handel, Wirtschaft. Höchste Gerichte im Alten Reich als Spruchkörper und Institution (Berlin, 2013), 99–101. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 313 Credit and Capital Markets 2/ 2014 From the 1570s onwards, when meetings on the level of the imperial circles (Kreistage, Kreismünztage) became increasingly regular, reports on the lack of coordination and a failure to achieve a common standard in the small change segment increased. Such reports had been ubiquitous more than 100 years before, when the imperial circles had not yet existed.34 A few examples may suffice. A recess of the Franconian Imperial Circle dated February 1564 complains, in §3, about the ‘ubiquitary monetary chaos’ (dieweil sich der Muentz halben allerley Unordnung und Unrichtigkeit befindet35); the June recess of the same year (same circle) identified the problem of ‘evil coins’ (böse muntz), including forged and debased or bad small change coins.36 A recess from the following year reminded the actors to issue printed lists and surveys of such ‘bad’ coins circulating within the Franconian imperial circle, so as to make the public aware of the problem and reduce the damage done to the economy by bad money.37 A Probierordnung38 of the Lower Saxonian imperial circle (1566) spoke of the agio or premium (Aufwechsel) charged on payments made in bad coin. If too many bad coins were in circulation the merchants and financiers would increase the exchange rate of small coins against full-bodied large coins beyond the legal targets set by government edicts. It was suggested that the princes and states should stop minting small change coins so as to prevent the good or high-value coins from appreciating against the small change coins.39 This was part of the general phenomenon christened by Cipolla the ‘big problem of small change’, not only in the Holy Roman Empire (Germany): it was European-wide.40 The same complaints were heard in Franconia in February 34 Rössner, Deflation – Devaluation – Rebellion, ch.IV for a detailed discussion of discourses on ‘bad’ money around 1500. 35 Moser, Friderich Carl, Sammlung des Heil. Römischen Reichs sämtlicher Crays=Abschiede und anderer Schlüsse, nebst vilen darzu gehoerigen Beylagen, auch mit Summarien, Marginalien und Anmerckungen versehen und grossen Theils erstmals an das Licht gestellt von Moser, Friderich Carl, Hochgräfl. Reuß=Plauischen Secretario, Ersther Theil (Leipzig / Ebersdorff im Vogtland, 1747), 381s. 36 Moser I, 332s. 37 Moser I, 344s, 380s. 38 Official schedule to be followed in the assaying and rating of coins, in which coin exchange rates were fixed by a convention of experts after an extensive sample testing of available coins that circulated within the respective imperial circle. 39 Moser I, 517s. 40 Cipolla, Carlo M., Money, Prices and Civilization in the Mediterranean World. Fifth to Seventeenth Century (New York, 1967); Sargent / Velde, Big Problem of Small Change. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 314 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 157141, in January 157242, May 157243, July 157244; in the Upper Saxon Imperial Circle in September 158845, September 1592, and again September 1593 in a common resolution of the Franconian, Swabian and Bavarian Imperial Circles46; in August 1593 in a recess of the Franconian Circle (September / October 1593)47; in the Lower Saxonian Circle in 159548, and in the Westphalian Imperial Circle in 1599.49 Two recesses of the Upper Saxonian Circle in 1595 (October) and 1596 (March) highlighted the negative effects underweight small change coins had on general welfare, the level of economic activity (as well as, curiously enough, the Emperor’s prestige).50 This sample of complaints could be multiplied at will by a more complete evaluation of the available documentary evidence. Such complaints had been on the public agenda since the 1470s. They continued into the nineteenth century.51 Whilst the ‘high’ or full-bodied coins such as gulden and silver florins (M0) witnessed some degree of monetary integration since the fourteenth century, the small and medium change segment (M0’, M0’’) of the monetary landscape remained far from integrated prior to 1871 / 3. IV. Debasement and a Fragmented Monetary Landscape 1. Long-run Debasement – The Standard Model Arguably one of the best models explaining coin debasement and the long-run transformation of the German monetary landscape from a metallist to a chartalist or fiduciary monetary system between c.1400 and 1900 A. D. can be found in Schremmer and Streb (1999). 52 According to this model, which is differentiated into a macroeconomic (state, governance) and a microeconomic component (actors on the financial market), 41 Moser II, 109. 42 Moser II, 161s. 43 Moser II, 213. 44 Moser II, 235. 45 Moser II, 410s. 46 Moser II, 497s (1592), 509s (1593). 47 Moser II, 513s. 48 Moser III, 121. 49 Moser III, 292s. 50 Moser III, 159s (1595), 221 (1596). 51 Rössner, Deflation – Devaluation – Rebellion, 58. 52 Schremmer / Streb, ‘Revolution oder Evolution?’ OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 315 Credit and Capital Markets 2/ 2014 per capita silver supplies faced a protracted decline in the long run (c.1350–1900 A. D.), as, apparently, population and total economic activity in the German lands outstripped monetary growth. Within an economy and society that grew in terms of numbers (population), market participation (share of subsistence sector declining over time), as well as frequency of goods changing hands within the economy increasing, silver supplies that grew at lower rates than total economic activity must have led to ‘persistent deflationary pressure’ 53 . As price stability would have been the rulers’ aim, a claim that is not backed up by direct evidence in the model 54 , but which can be easily corroborated by studying economic discourse and political economy pamphlets since the 1300s 55 , it follows that, given an ever-increasing silver price over time, which had a persistent deflationary impact on the general price level, price stability could only be achieved by a persistent downwards adjustment of coins’ precious metal content over time, so as to avoid deflation in real terms, measured in terms of grams of silver used in the circulating coins. Nominal price level stability was thus achieved at the price of monetary instability or deflation in real terms, as the circulating currencies became progressively debased. 56 The microeconomic component of the model stresses that minting, i. e. the production of money, was a business. Mint masters were profit-orien- tated private entrepreneurs. The public brought silver to the mint, where the mint masters would transform it into current money according to a mint price (Ger. Münzfuß) set by the ruler or ‘state’. This mint price stipulated how many coins of a given denomination should be struck from a given unit of weight of precious metal. Naturally, coins would contain 53 Schremmer / Streb, ‘Revolution oder Evolution?’, 458. 54 Schremmer / Streb, ‘Revolution oder Evolution?’, 459 state (without providing references) that ‘In der Zeit der Münzgeldsysteme wurde Preisniveaustabilität von den Marktteilnehmern erwartet und erwünscht. Insbesondere in der feudal-mer- kantilistischen Wirtschafts- und Gesellschaftsordnung, in der monetäre ebenso wie nichtmonetäre Zahlungsverpflichtungen langfristig oder “auf ewig” fixiert waren, wären Gläubiger dieser Zahlungen durch inflationäre Entwicklungen, Schuldner durch deflationäre Entwicklungen geschädigt worden.’ 55 Monetary theorists since the time of Oresmius, or Biel, Gabriel (d.1495) up to German Cameralists such as von Seckendorff, Veit Ludwig or Gottlob Justi, Johann had developed detailed arguments why coins should always contain a stable intrinsic value and why price level changes would hamper economic life. See detailed discussion in Rössner, Deflation – Devaluation – Rebellion, 530–547. 56 Schremmer / Streb, ‘Revolution oder Evolution?’, 460: ‘Die Feingewichtsverringerungen wirkten der Deflation bezogen auf die Preise in Nennwerten entgegen, doch die Deflation bezogen auf die Preise gemessen in Gewichtseinheiten Edelmetall musste hingenommen werden’. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 316 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 less silver and gold than they would be worth nominally. Brassage (minting costs) and seigniorage (princely prerogative of minting) would have to be deduced, so as to allow a profit for the mint master and a ‘tax’ for the ruler. It is obvious that whenever silver’s price increased, coins would have to be reduced in weight, so as to keep minting profitable.57 As the silver price was more or less continuously increasing in Europe c. 1400– 1700 A. D. it follows almost automatically that, whenever a new round of monetary production (mint output) was called, the mint price (Münzfuß) had to be increased. The currency thus became debased. Thus both the macroeconomic, as well as the microeconomic components of the model worked in the same direction. They are centred on the silver price as the independent variable predicting both the microas well as the macroeconomic outcomes of the model. However, several modifications need to be made in the light of recent research.They underline that the monetary history of Germany or Europe cannot be captured accurately by general or catch-all models, or models that focus exclusively on the monetary economics of minting. 2. Towards a New Model: Possible Strategies Only a select range of the more significant problem fields can be discussed at present, if very briefly, without presenting an alternative model that could claim to be in any way complete. The following points will rather highlight open questions and directions for future research.Numismatists as well as most monetary historians and theorists have in the past either asked the wrong questions; or used modern models that are unfitting for the pre-modern monetary landscape, or – including the present author – formulated ‘stepping stones’ rather than unified models. (1) The analytical ‘trick’ of reducing historical price series given in nominal currency units to their silver weight by dividing them by the imputed ‘silver content’ of the circulating coins is untenable from the methodological viewpoint. It is still a rather popular method amongst historians studying economic fluctuations or price and wage data, particular in global Asia-Europe comparisons.58 It rests on two false assumptions. The 57 E.g. Sussman, Nathan, ‘Debasements, Royal Revenues, and Inflation in France During the Hundred Years’ War, 1415–1422,’ The Journal of Economic History, 53.1 (1993), 44–70. 58 E.g. Allen, Robert C., ‘The Great Divergence in European Wages and Prices from the Middle Ages to the First World War’, Explorations in Economic History, OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 317 Credit and Capital Markets 2/ 2014 first is that there was a uniform and identical estimation of silver across space and time. As studies by Volckart and others have shown, however, even within Europe financial markets were not fully integrated, with gold-silver-ratios fluctuating widely across time and over space.59 In the global context the exercise becomes even more meaningless. In China for instance one ounce of silver was worth twice as much as in Europe.60 Thus silver was a completely different commodity in the monetary, economic and cultural landscape of Asia. Comparing global series of ‘deflated’ silver price and wage series does not yield particularly meaningful results. The second false assumption is that the monetary stock used for payment would always have been homogenous, and that we could therefore know with certainty which type of coin was used at which place and for which transaction. But as a number of new studies have highlighted61, even if we do have the normative documents, produced by the state, which prescribe what one local penny should contain (in terms of grams of silver) in any given year, the factual composition of the total monetary stock used for payments at any one point in time and space cannot be reconstructed with any level of certainty. Native coins circulated alongside foreign ones; usually local money represented the minority in total monetary stock, as numismatic studies have shown.62 There were no delineated currency areas in the modern way with one specified currency as XXXVIII (2001), 411–447; Id., ‘Progress and Poverty in Early Modern Europe’, Economic History Review, Second Series, LVI (2003), 403–443, and many more. 59 E.g. Chilosi, David / Volckart, Oliver, ‘Money, States, and Empire: Financial Integration and Institutional Change in Central Europe, 1400–1520’, The Journal of Economic History, LXXI / 3 (2011), pp. 762–791. 60 Most recently Flynn, Dennis O. / Giráldez, Arturo, ‘Conceptualizing Global Economic History: The Role of Silver’, in: Gömmel, Rainer / Denzel, Markus A., (eds.), Weltwirtschaft und Wirtschaftsordnung. Festschrift für Jürgen Schneider zum 65.Geburtstag (Stuttgart, 2002), 101–114. 61 Boldizzoni, Francesco, The Poverty of Clio: Resurrecting Economic History (Princeton, NJ, 2011); Rössner: Deflation – Devaluation – Rebellion, ch.III with case studies for early sixteenth-century Saxony. 62 E.g. North Michael: Geldumlauf und Wirtschaftskonjunktur im südlichen Ostseeraum an der Wende zur Neuzeit (1440–1570). Untersuchungen zur Wirtschaftsgeschichte am Beispiel des Großen Lübecker Münzschatzes, der norddeutschen Münzfunde und der schriftlichen Überlieferung (Sigmaringen, 1990); Schüttenhelm, Joachim, Der Geldumlauf im südwestdeutschen Raum vom Riedlinger Münzvertrag 1423 bis zur ersten Kipperzeit 1618. Eine statistische Münzfundanalyse unter Anwendung der elektronischen Datenverarbeitung (Stuttgart, 1987); Eichhorn, Hansheiner, Der Strukturwandel im Geldumlauf Frankens zwischen 1437 und 1610. Ein Beitrag zur Methodologie der Geldgeschichte (Wiesbaden, 1973). OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 318 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 legal tender. Furthermore old coins circulated alongside new ones. As we therefore do not know which type of coins were used in which transactions and whether or not these confirmed to official legislation regarding fineness and weight (i. e. the documentary evidence used to ‘deflate’ the nominal currency series to their imputed grams of silver content), we strictly cannot be sure about the real amounts of silver that changed hands in each transaction; wage or price series that are ‘reduced’ to grams of silver remain profoundly fictitious. The only viable excuse remains that there is no better method of abstraction at hand. For these reasons the present author may be excused for using this fallacious method indirectly (see 2 below) – but only for reasons of illustrating the general context between possible fluctuations in precious metal content of the currency and adjustment to such changes in terms of the overall price level – and with all due caveats and caution in mind. (2) If we do, then, study available grain price data for south German markets, usually grain and bread prices quoted in local small change currencies, comparing nominal prices (no corrections made for changing silver weight of the coins) with the officially documented silver content of the circulating local currency (currency edicts), assuming economically rational behaviour, i. e. that financial markets adjusted ‘coin exchange rates’ to changes in the locally-stipulated minting standards (with all due caution, see point 1), it seems as though virtually all debasements, especially the more notable ones of the 1520s, 1619–23, the years around 1660 or 1680, or the Seven Years War (1756–1763), were either accompanied or followed with only a slight time lag (of a few years) by some nominal inflation (Fig. 3). This finding is in line with evidence from other European countries.63 Obviously economic actors adjusted their individual estimation of the debased coins to changes in their silver weight, as soon as the debasement became known to the wider public (Figure 3). If it really had been the rulers’ goal to achieve nominal price level stability by a downwards adjustment of the silver content of circulating coins to an increase in silver’s price, it is striking how unsuccessful they seem to have been in achieving this goal. Only in the very long run some stability seems to have been achieved. The price data suggest that the loss in terms of precious metal content in the south German penny currencies in the order of 62 per cent between 1500 and 1800 (as displayed 63 Sargent / Velde, Big Problem of Small Change, passim. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 319 Credit and Capital Markets 2/ 2014 0 50 100 150 200 250 300 350 Intr_Val_Penny AVE_Nom_Price_South Prices_South_Germany_Deflated Silver price (1600 = 100) Figure 3: Development of the Intrinsic Value (Fineness of Coins) of (South) German Currencies, 1400–1800 A. D. (1600 = 100) Places covered: Augsburg, Frankfurt-on-the-Main, Leipzig, Speyer, Munich, Würzburg. Sources: Currency: Allen-Unger-database http: / / www.history. ubc.ca / faculty / unger / ECPdb / data.html, corrected by data in Metz, Geld, Währung und Preisentwicklung, Tables and passim. Grain prices taken from series presented on http: / / www.gesis.org / histat / de / data / themes / 5. Original source: Thomas Rahlf, Thomas, Getreide in der Sozial und Wirtschaftsgeschichte vom 16. bis 18. Jahrhundert. Das Beispiel Köln im regionalen Vergleich (Trier 1996); Moritz John Elsas, Umriss einer Geschichte der Preise und Löhne in Deutschland. Vom ausgehenden Mittelalter bis zum Beginn des 19. Jahrhunderts. Vol.1 (Leiden, 1936); Vol.2A (Leiden, 1940); Vol.2B (Leiden, 1949); Hans-Jürgen Gerhard / Karl Heinrich Kaufhold (eds.), Preise im vor- und frühindustriellen Deutschland. Grundnahrungsmittel (Göttingen, 1990); Auguste Charles Hanauer, Études économiques sur l’Alsace ancienne et moderne, Vol.2 (Paris / Strasbourg, 1876 / 78). OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 320 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 in Fig. 3) smoothed out the general price level trend which in nominal terms rose eightfold between 1507 and 1779 (two troughs in the deflated price series), but only tripled if ‘deflated’ by imputed silver contents (Figure 3). (3) Germany’s monetary history exhibits some marked fluctuations over time, with significant changes in pattern and rhythm, which make each period idiosyncratic. This should warn us not to devise either longrun or general-purpose models but ones that should be time-space specific. First, there was marked short term variation in the rates of debasement. Whilst in the long run the German penny currencies lost about 90 per cent of their silver content (1400–1900 A. D.), there were marked bouts of coin debasement, when devaluation rates were significantly above average (there were revaluations or ‘enhancements’ of the currency also, but much less frequently). Such periods were the first three decades of the sixteenth century, a period that has recently been studied in detail as a deflationary depression64; or between 1590–1620, culminating in the big ‘Kipper-and-Wipper-Inflation 1619–2365; or between 1660 and 1690 (Wars against the Turks; ‘Second Kipper Inflation’). These were times when the short-run price level for silver was significantly above the (likewise increasing) long-term trend increase in silver’s price. At these times there usually also was a net outflow of silver due to a negative balance of payments of central Europe with the Baltic, south-east Europe as well as Asia.66 (4) Long-term variation in the rate of small change debasement was also considerable. Debasement was particularly high during the fifteenth century, when the circulating south German currencies lost 50 per cent of their silver content.67 The cumulative rate of debasement for the sixteenth, seventeenth and eighteenth centuries on the other hand was 64 Rössner, Deflation – Devaluation – Rebellion, 126–251. 65 Most recently, Paas, Martha White / Paas, John Roger / Schofield, George C.: Kipper Und Wipper Inflation, 1619–23 – An Economic History with Contemporary German Broadsheets (Yale, 2012), 1–17. For the ‘second Kipperzeit’, see e. g. Gerhard, ‘Neue Erkenntnisse’. 66 For the first three decades of the sixteenth century, see Rössner, Deflation – Devaluation – Rebellion, 251–310; for a most recent calculation of silver flows and outflows of silver, see Pfister, Ulrich, ‘Silber’, in: Jaeger, Friedrich (ed.), Enzyklopädie der Neuzeit, Vol.12 (Stuttgart, 2010). 67 Calculated from data presented in Fig. 1, based on information by Metz, Geld, Währung und Preisentwicklung, and Elsas, Umriss, as reproduced in the Allen-Unger database and corrected by the findings in Metz, Geld, Währung und Preisentwicklung, passim. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 327 Credit and Capital Markets 2/ 2014 clined (k↓ and therefore 1 / k=V ↑), which is in line with the monetarist model of the early modern ‘Price Revolution’ (1470–1620) suggesting that M and V increased simultaneously, it is striking that the short term variation was also considerable. The first decade of the sixteenth century for instance (the time immediately preceding Martin Luther’s 95 theses) was a time when the level of hoarding (and thus k) was significantly above the long-term average, i. e. increased (velocity reduced) vis-à-vis a trend line that was downward sloping (y=–8.0444x + 509.62 for the data on k in Table 2). In other words velocity exhibited considerable variation over time, but most likely increased in the very long run. (12) Segment-specific velocities. Most standard models do not usually differentiate velocity according to different coin types or monetary segments. It can be empirically shown, however, that small change coins devalued much faster than full-bodied coins. This process is known as spontaneous debasement or, colloquially ‘Gresham’s Law’ (Sir Thomas Gresham, 1519–1571, was neither its inventor, nor was this ‘law’ discovered in the sixteenth century; it had been known since the fourteenth century at latest). Gresham’s Law is a process where the good money drives out the bad, as a result of different monetary segment-specific velocities.81 Let M0 be the available amount of ‘good’ or full-bodied gold and silver coins in circulation (e. g. Rhenish Florin, Hungarian Ducat and foreign gold coins), M0’ the amount of medium-sized coins such as groats and batzen (coins that were nearly full-bodied but contained some copper or other base metal, i. e. a fiduciary component), and M0’’ the amount of debased or underweight small change that consisted mainly of copper and other base metals and whose exchange value significantly exceeded these coins’ intrinsic value. Let V be the velocity, or frequency with which the full-bodied coins changed hands, V’ the equivalent for medium-sized denominations, and V’’ the velocity for small change. Then the simple Fisher equation (1) can be re-written as (5) MV + M’V’ + M’’V’’ = PT. 81 E.g. Munro, John H., ‘Precious Metals and the Price Revolution Reconsidered, The Conjuncture of Monetary and Real Forces in the European Inflation of the Early to Mid-16th Century’, in: Flynn, Dennis O. / Morineau, Michel / von Glahn, Richard (eds.), Monetary History in Global Perspective, 1500–1808 / L’histoire monétaire: une perspective globale, 1500–1808 / Historia monetaria: una perspectiva global, 1500–1808 (Seville, 1998), 35–51, at 47. Cf. Latimer, Paul: ‘The English Inflation of 1180–1220 Reconsidered’, Past  & Present, CLXXI (2001), 3–29, at 25. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 328 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 The empirical historical evidence82 suggests that (6) V < V’ < V’’ ‘Gresham’s Law’ (equation 6) explains quite well why even at times of monetary contraction, measured in terms of available silver resources (g / kg Ag) per capita of the population, debasement may be followed by nominal price inflation within the small-change sector of the economy (see Fig.3). As people were sceptical towards the debased coins’ ability to safeguard basic monetary functions, such as storing and expressing value reliably over time, they would try to get rid of them more quickly than of the better or older coins (which contained more silver). Debased coins circulated more quickly. This result is in line with empirical findings by Sprenger, who found that during the ‘Price Revolution’ (1470–1620) the price level for a given basket of consumables increased about three times as fast when expressed in pennies compared to prices quoted in florins. 83 Therefore, a focus on full-bodied coins, or else a model that does not differentiate according to different types of coins (M, M’, M’’) and different segment-specific velocities (V, V’, V’’) may not accurately capture the monetary and social dynamics of pre-industrial currency systems. The preceding list of points could certainly be extended by further differentiation. Whilst the Schremmer-Streb-model still provides the best analytical starting point, it must be considerably modified and extended by factors discussed above, as well as possible modifications in future studies. Other European countries witnessed debasement rates that were similar to the German currencies in the Early Modern period, suggesting that the monetary problems were similar elsewhere. The Castilian small change currency (Maravedí) lost 89 per cent of its fine weight between 1390 and 1700. The Florentine currency was debased by 46 per cent 1400–1800. The Venetian small change lost 59 per cent 1400–1800. The French denier was debased by 85 per cent (1400–1800). In Flanders the 82 See works referred to in previous note. 83 Sprenger, Bernd, ‘Preisindizes unter Berücksichtigung verschiedener Münzsorten als Bezugsgrößen für das 16. und 17. Jahrhundert – dargestellt anhand von Getreidepreisen in Frankfurt / Main’, Scripta Mercaturae, 1 (1977), 57–69; Id. ‘Münzverschlechterung, Geldmengenwachstum und Bevölkerungsvermehrung als Einflußgrößen der sogenannten Preisrevolution im 16. und beginnenden 17. Jahrhundert in Deutschland’, in: Kaufhold, Karl Heinrich / Riemann, Friedrich (eds.), Theorie und Empirie in Wirtschaftspolitik und Wirtschaftsgeschichte. Wilhelm Abel zum 80.Geburtstag (Göttingen, 1984), 127–144. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 329 Credit and Capital Markets 2/ 2014 debasement between 1400 and 1713 amounted to a 77 per cent loss in the intrinsic weight of the local penny and mite (heller) currencies.84 One last modification of a general model of the history of money in the German lands c.1400–1900 must be made before a brief conclusion will summarize. V. Economic and Social Costs of Coin Debasement Assume that there is a plethora of coins that all bear similar names and carry similar denominations, i. e. a penny or groat, and that they are all meant to exchange at face value. A penny’s a penny, a groat is a groat. Now assume that these coins are minted by different monetary authorities. Remember that there are about 500 open mints, and that money travels across borders (there are no specifically delineated areas of circulation for one particular currency). The public (financial market), acting rationally within the general framework given by a metallist monetary standard, will try to rate these coins at their market, not their face value (i. e. the official coin exchange rate set by the government). What will happen? In order to get a tentative answer we may take a look at a select range of historical examples. To what extent these are representative is another matter; but the source coverage for the pre-industrial time is thin compared to the nineteenth and twentieth centuries. Still, the examples used in the following, which have been examined in greater detail in a larger study85, give away some of the central problems in early modern economic exchange. In 1514 the peasants of Elchesheim and Steinmauern in the Margraviate of Baden complained that they had to pay the yearly tax (Bede) in full-bodied gulden coins. Whenever the sums due were below the value of one gulden, or else the peasants did not have gulden coins at hand, the authorities would charge them an agio or premium on the official coin exchange rate between the florin and the groschen / batzen.86 Exchange 84 Sargent / Velde, Big Problem of Small Change, 16, Fig. 2.1. I am indebted to François Velde for providing the data in an excel table via email attachment. 85 Rössner: Deflation – Devaluation – Rebellion, ch.V. 86 The original reads: So wyr armen zu gwonlichen zytten vwern gnadenn dye Järlich Bethen vßrechtten vnnd darvmb bezalung thon sollenn, wollen dye Amptlute von vnns Armen, ab Sychwol zu zytten dye Sum, so eyn Armer gebenn muß, nitt vff eyn guldynn lauft, Goltt habenn vnnd vermeynen dye gwonlich, landtleuffig Muntz, von vwern gnaden geschlagenn, von vnns nytt anzunemen, dardurch wyr oft vnnd vil vmb dye wege gezogenn vnnd gemuwet werdenn, vnns vmb Goltt OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 330 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 rates were formed according to the laws of supply and demand. Neither the Margraves of Baden nor anyone else could control the amount of money and different types of coins in circulation. This can be illustrated using historical evidence from sixteenth-century Saxony: Let P represent the target exchange rate of the Saxon groat against the Rhenish florin, i. e. the rate fixed in the official ordinances and edicts, which was 21 groats to the florin until the 1540s; later on 24:1, the official ‘Reichsthaler’ relation (see above). Now assume that a larger-than-de- sired quantity of non-Saxon underweight groats is coming into circulation within the Saxon economy, due for instance to an import of debased groats from Brandenburg to be used for payment on the Leipzig fairs or other markets (this arbitrage operation by foreign merchants was frezu bewerbenn, Hiemytt das vnßer versumen vnnd verzeren musßen. Dye will nu gnediger Herr, wyr Armen zu vnnßerm wyllen nytt allwegenn goltt vberkommen mogen, vnnd dan auch nach vermoge vwer gnadenn lanndßordnung den Wechßel berurende vnns by schwerer straff verboten wyrdt, vff dheynen Guldyn ychtts vffzugebenn etc., So ist vnnßer flyssig bytte, v. f. g. wolle ynbezalungen vwergnaden Bethen vnnd zynßen von vnns Armen derselbenn vwergnadenn vnnd derglichen Muntzen gnediglich thonn empfahenn vnnd annemen, as quoted in: Kattermann, W.: ‘Bäuerliche Beschwerden in der Markgrafschaft Baden und dem Bühler Armen Konrad von 1514’, Zeitschrift für Geschichte des Oberrheins 95 (1943), 110–205, at 147. M M' P P P' D M Figure 4: Schematic Representation of Coin Exchange Rate Formation OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 331 Credit and Capital Markets 2/ 2014 quently complained about in the early sixteenth century87). This will increase the total supply of groats, both native and foreign, over demand (MàM’), driving down the spot exchange rate of the groat from P to P’, leading to a depreciation of groats in terms of Rhenish florins (say 22, 23 or 24 groats to the florin or thaler). Spontaneous debasement (‘Gresham’s Law’) will decrease the purchasing power of all types of groats, as payments will usually be made from a mix of native and foreign, old and new coins, the precise intrinsic value of which we cannot determine. The taker of the sample of coins handed over will either have to accept them at face value, or – if she acts economically rationally – accept them at a discount due to the inherent risk these coins bear in terms of reduced utility as a means of storing of wealth (and dubious means of payment also). Actors may be expected to charge an agio or premium, which is the difference in the factual vs. nominal coin exchange rate in this transaction. In the same parts of southern Germany complaints had been heard since the 1470s by the raftsmen (Flößer) on the upper Rhine who were paid for their rafting services at the official coin exchange rate of 24 white pennies (Albus groats) to the florin. This was the rate stipulated in the official ordinances. But whenever the peasants paid taxes their reeves and other officials would frequently refuse to accept white pennies (albi) at the official rate, driving the exchange rate of the full-bodied florin or gulden up to 27 albi or white pennies (three albi more than stipulated in the currency ordinances as the ‘legal’ or target exchange rate).88 Even Goethe, in his several positions as high-ranking official in the service of the Duke of Saxony-Weimar-Eisenach in the later eighteenth century, made similar remarks that the state was in no obligation to accept small change currency (which the state itself had produced in the first instance!) at face value when it came to tax payments.89 The peasants on 87 Rössner, Deflation – Devaluation – Rebellion, ch.III. 88 “So wurd ich ouch bericht, wiewol etlich arm lut im Murgental und andern enden ir holtz und anders in die herschafften Baden und Eberstein umb gold verkoffen, wann sy dann bezalung haben wellen, muessen sy nyemen fur ain guldin vierundzwaintzig wisspfenning oder mangeln, und verkoffen doch dieselben schiffherren das holtz an den Rin ouch umb gold und nyemen dann fur ainen guldin sechs- oder subenundzwaintzig wisspfenning, damit sy das gold verlaussen und wisspfenning nyemen und des also gewin haben den andern zuo beschwaerd, den sy die billich gaeben als synaemen; dadurch dann das gold ouch nit zuoland komm,” quoted in Günter, Heinrich, Das Münzwesen in der Grafschaft Württemberg (Stuttgart, 1897), 40, n.1. 89 I am indebted to Bertram Schefold (Frankfurt-on-the-Main) for this reference to Goethe. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 332 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 the other hand, as well as anyone else holding ‘bad’ coins, viewed this premium or agio (or auffgeld, as it was usually called in contemporary documents) as a form of undue extraction or economic rent (Fig. 2). It is likewise obvious that whenever such transactions took place avoiding the legal or target exchange rate, e. g. of 21 groats to the florin in central Germany, or 24 albi to the florin in the southwest, transaction costs increased due to the enhanced (coin) exchange rate and increasing degree of haggling, bargaining and re-negotiating of individual exchange relations between the different coins. People incurred extra information and transaction costs when checking coins or else trying to obtain good A eM A 24 Full-bodied coin „High“ money Silver florins 23 Gold florins merchants money changers 22 mint masters B C 21 eN Debased coin Medium/small change peasants artisans „The Common Man“ Costs of bad money to society (Transaction Costs) C Legend pays for a commodity using the official exchange rate pays for a commodity at a higher-than-officially-fixed rate (market exchange rate) merchant peasant eN (exchange rate) = Nominal rate of full-bodied coin to small change or petty coin (e.g. florin to groschen) eM (exchange rate) = Market exchange rate resulting from individual renegotiation of eN AB = eM–eN, Difference between official and market exchange rate (Asymmetry) C = Number of total transactions / C * AB = social cost or transaction costs (Marxists would call it „exploitation“) Source: Rössner: Deflation – Devaluation – Rebellion, 48 (Fig. 2). Figure 5: Asymmetrical Exchange Scenarios Due to Differential Cash Structure Held by Different Social Classes OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 333 Credit and Capital Markets 2/ 2014 money. As there always was a certain level of indeterminacy about exchange rates for small-change coins (M’+M’’), and economic exchange frequently involved conflicts over coin exchange values, it is also clear that many of the circulating coins neither fulfilled their full function as a means of exchange (as there could be debates about the exchange rate); nor did these unstable or underweight coins fulfil, to full extent, the criteria as a means of storing value. Whoever managed to get a favourable coin exchange rate out of the deal where legally-fixed target rates existed, would gain an economic rent. Whenever such practices were carried out habitually with the intent to make a profit (arbitrage, speculation) we may call this practice ‘usurious’90, using Luther’s words, as it –potentially – involved practices of enrichment that were in conflict with the law (which said that all coins must circulate at face value) and frequently, if the above complaints are to be believed, were based upon another person’s lack of reliable market information and bargaining power. The issue became prominent in the numerous social revolts and peasant uprisings of the middle ages, culminating in the great Peasants’ War of 1524–26.91 Thus the product C*(A–B) in the above graph (denoting market size, C times the difference between factual (A, Em) and legal or target exchange rate (B, En) can be interpreted as the difference or additional costs of the system, covering increased transaction costs as well as economic rents to be gained from a non-integrated monetary landscape, as compared to a hypothetical counterfactual or fiduciary monetary standard, where the intrinsic or material value of coins and banknotes is insignificant vis-à-vis their official value or purchasing power, and where the face value of a particular means of payment within the respective currency system is open to neither doubt nor re-negotiations. 90 “Nu ist an allen zweyffel niemant, der do wolt, das yhm rocken auff korn, boeße muntze auff gutte, poße wahr auff gute wahr gelyhen wurd. It is klar, das solche leyher widder die naturhandelnn, todlich sunden, wucherer seyn und ungleych handelln mit yhrem nehstenn. For Luther, usury was defined as scenarios of exchange where people mehr odder eyn anders widder geben mussen, das besser ist, dan sie geporgett haben.” Martin Luther, Gesammelte Werke Vol.VI (Weimar, 1888), 48–9. 91 Rössner: Deflation – Devaluation – Rebellion, ch.IV. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 334 Philipp Robinson Rössner Credit and Capital Markets 2 / 2014 VI. Conclusion As the present paper has suggested, if tentatively, monetary stability and monetary integration are likely to promote social stability and economic growth. Whilst some of the numerical long-run data presented in Table 1 are ambiguous, case studies demonstrate that the lack of coordination was seen as critical by contemporaries, creating social (economic rents) as well as economic costs (increased transaction costs). Some members of the population, especially merchant-bankers, frequently seem to have made arbitrage and speculation profits out of this uncoordinated monetary landscape. But it is doubtful whether these profits outweighed the economic losses made by the majority of the population (section V). Secondly, a commodity money standard is suboptimal compared to fiduciary or chartalist theories of money. In the pre-industrial period the technique of free minting precluded a proactive monetary policy, as the state monopoly on money only extended to the quality, i. e. weight, fineness and shape of coins, but neither the amount (arguably an important tool for modern monetary and economic policy) nor composition of money in circulation, i. e. the changing relations between small change and ‘full-bodied’ change coins. This was left to the public i. e. the free market. As the present paper has shown, this version of a commodity money standard was arguably suboptimal, compared to a chartalist (i. e. modern) standard, since it increased social as well as economic costs, causing multiple disequilibria. Thirdly, is monetary competition good for development? Within the Holy Roman Empire there was a certain degree of institutional competition or ‘institutional arbitrage’ opportunities. Scholars have highlighted that economic actors would be able to ‘choose’ the economic or political environment that fit their purposes best.92 The territorial fragmentation of medieval and early modern Germany may be expected to have increased the system’s institutional efficiency by institutional arbitrage. This logic is ambiguous to say the least: with respect to the largely uncoordinated monetary landscape the costs of competition could be considerable. As 92 See e. g. Volckart, Oliver: ‘Politische Zersplitterung und Wirtschaftswachstum im Alten Reich, ca. 1650–1800’, Vierteljahrschrift für Sozial- und Wirtschaftsgeschichte (1999), 1–38; Id., ‘Einleitung: Obrigkeitlicher Wettbewerb als Faktor der Wirtschaftsentwicklung’, in: Id. (ed.), Frühneuzeitliche Obrigkeiten im Wettbewerb: Institutioneller und wirtschaftlicher Wandel zwischen dem 16. und 18. Jahrhundert (Baden-Baden, 1997), 11–30. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54 Monetary Instability, Lack of Integration 335 Credit and Capital Markets 2/ 2014 the present paper suggests monetary competition increased, rather than decreased the social and economic costs of the system, even though it would be difficult to quantify the negative as well as the positive effects of this. Fourthly, we are still far from a comprehensive model of the pre-indus- trial monetary landscape. The time is not yet ripe for formulating a ‘new’ or general model (such as the one in Sargent / Velde 2003, or Schremmer / Streb 1999); to the contrary: we are only at the beginning of a fundamental re-interpretation of pre-modern monetary history, which will obviously require many future years and research efforts into what was a very intricate and infinitely complex monetary landscape: the Holy Roman Empire in the pre-industrial period. Fifth, any monetary or historical theory of pre-modern money that leaves out idiosyncrasy, politics, sociology, culture and geography, is bound to remain incomplete. Such factors belong into monetary theory lest the models become unrealistic. This is to be redressed by future studies. References Acemoglu, D. / Robinson, J.A. (2012): Why Nations Fail. The Origins of Power, Prosperity, and Poverty, London / New York. Allen, R. C. 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OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.47.2.297 | Generated on 2023-01-16 13:24:54