View
219
Download
0
Category
Tags:
Preview:
Citation preview
Monetary or Fiscal Policies?
Definitions of DebasementCoinage debasement is the reduction of the
precious metal content – silver or gold – in not just the coin itself but in the unit of the money of account
MONEY OF ACCOUNT: the penny, the shilling, and the pound
With 12d (pence) to the shilling, and 20 s (shillings) to the pound, so that 240d = £ 1
How Debasements are effected(1) By a reduction in the fineness: i.e., in the
percentage of fine silver or gold in the coin, by adding proportionately more copper
(2) By a reduction in the coin’s weight(3) By an increase in the nominal money-of-
account value of the coin- reserved normally only for gold coins and high value silver coins
Debasements: monetary policies?• This paper seeks to answer two questions: • (1) were the coinage debasements in
Burgundian Flanders (1384-1482) undertaken principally as monetary or fiscal policies; and
• (2)were they beneficial or harmful? • In a recent monograph, Sargent and Velde
contend that monetary objectives governed almost all medieval debasements, especially to remedy the chronic shortages of petty coins.
Late-medieval bullion ‘famines'• Despite overwhelming evidence that
Burgundian Flanders, along with most of north-west Europe in the later 14th and 15th centuries, experienced severe monetary scarcities and liquidity crises, especially in the periods ca. 1390 - ca. 1415 and ca. 1440 - ca. 1470, both periods of severe deflations, there is no compelling evidence that the Burgundian rulers debased their coinages on the basis of any such monetary policies.
Coinage debasements as fiscal policiesMy thesis is the Burgundian rulers of
Flanders, in competition with neighboring princes, undertook their debasements primarily as aggressive fiscal policies, specifically to finance warfare.
Debasements, however, were also undertaken as defensive policies: as noted below
How Debasements increased a prince’s mint revenues• Their goal was to increase their seigniorage
revenues, the tax imposed on bullion brought to their mints, by two means:
• (1) by increasing the tax rate itself, and • (2) by enticing an increased influx of bullion
into their mints, – both by the debasement techniques themselves – and by auxiliary bullionist policies to prevent
bullion exports and divert them to the mints
Conditions for effective debasements• (1) that merchants supplying bullion received
more coins of the same face value and thus with a greater aggregate money-of-account value than before (or than from other mints);
• (2) that the public accepted such debased coins at the same face value, by tale; and
• (3) that the merchants spent their increased supply of coins quickly, before any ensuing inflation eroded those gains.
Debasements and Inflation• This study further demonstrates that the
inflationary consequences of debasements were always less than those predicted by the mathematical formula:
• ΔT = [1/(1 - x)] – 1• possibly because those debasements failed to
counteract the prevailing forces of monetary contraction and deflation in the later 14th and 15th centuries (1390s to the 1480s).
Defensive Reasons for Debasements(1) to protect their mints from foreign
competition, i.e., from aggressive debasements
(2)to protect their domestic money supplies from influxes of debased and also counterfeit imitations
(3)i.e., to counteract Gresham’s Law: that ‘cheap money drives out dear money’
Debasements and Warfare• If aggressive coinage debasements were
primarily fiscal policies to finance warfare, in late-medieval Europe, monetary contractions and related deflations were often also the products of warfare
• From bullionist policies related to warfare: with almost universal bans on bullion exports
• From disruptions of trade routes that impeded coin and bullion flows
• And from increased hoarding
SOME BRIEF CONCLUSIONS ON FLEMISH DEBASEMENTS• GENERALLY MORE HARMFUL THAN
BENEFICIAL
• (1) Failed to provide any long term remedy for the combined problems of chronic monetary scarcities (‘bullion famines’) and deflation- indeed Burgundian rulers generally ended their rounds of debasements with severely deflationary coinage renforcements (restoring some of the lost silver to the coinage)
Conclusions: 2• (2) The combination of coinage debasements
and related bullionist measures generally served only to worsen the monetary scarcities by impeding bullion flows and coinage circulations;
• And also by encouraging hoarding : by withdrawing coins from circulation, which ipso facto impeded coinage circulation
• Note the monetary flows are often more important the monetary stocks
Conclusions: 3(3) To the extent that debasements did lead
to some degree of inflation, that inflation reduced real incomes of most members of the society – since wages, rents, and other fixed incomes lagged behind consumer prices
- and that imposed an additional tax burden on the entire society (known as the seigniorage tax)
Conclusions: 4• (4) Debasement injured creditors, in a similar
fashion, by reducing the real values of both their principal (capital invested) and their investment returns: whether interest, rent, dividends, profits
• - in that respect Burgundian coinage debasement damaged Flanders’ international economic relations: epecially with the Italians and the Hanseatic Germans
Conclusions 5(5) Coinage debasements and renforcements
as well sometimes provoked social unrest, indeed even industrial strikesIndustrial unrest amongst wage earners was
understandable if, following a debasement, consumer prices rose more than did nominal wages
But paradoxically, strikes were more common after coinage renforcements when the prince or town government imposed wage cuts as part of the monetary reforms
Why were England and Spain Exceptions?England, 1351 – 1542: defensive debasements only (Edward IV, 1464-65,
as a partial exception) before the Great Debasement of Henry VIII and Somerset (1542-1552)
Export taxes on wool and cloth exports as substitute?
Spain: 1497 – 1686No debasements of gold and silver coinagesBut massive issues of copper vellon coins from 1599Quinto tax on silver imports – but important only
from 1550s
the Flemish Silver Coinage Debasement of Nov 1428 and its Aftermath
PercentageSeignioragePercentageOutput inPercentageKilogramsMarcs argentYearChange£ grootChange£ grootChangeof pure silverle roy
1235,267.2801,078.6474,598.7001428
1554.47%2,0351666.02%93,021.3801475.68%16,996.01072,460.7001429
-35.33%1,316-51.55%45,065.400-51.71%8,207.63834,992.4001430
-78.50%283-83.93%7,240.240-84.01%1,312.3815,595.2001431
-80.57%55-98.13%135.140-98.14%24.464104.3001432
Flemish Coinage Debasements, June 1418 and November 1428
Debasements of the Flemish Double Groot
November 1428June 1418Coinage Features
22Money of Account Value in d groot
Fineness in Argent le Roy8506in deniers and grains
44.44%50.00%Percentage Fineness AR
42.59%47.92%Percentage Pure Silver
68.5068.00Weight: Taille per Marc
3.5733.599Weight in grams
1.5881.800Fine Silver (AR) Content in grams
1.5221.725Pure Silver contents in grams
% increaseNo. CoinsPercentdecimal £penceshillingsNo. CoinsPercentdecimal £penceshillings
13.33%154.125100.00%1.2848.2525136.000100.00%1.1338.0022Traite per Marc: coined value of silver
1.79%7.1254.62%0.0592.2517.0005.15%0.0582.001Brassage in shillings and pence
50.00%3.0001.95%0.0256.0002.0001.47%0.0174.000Seigniorage in shillings and pence
12.50%10.1256.57%0.0848.2519.0006.62%0.0756.001Total Mint Charges
13.39%144.00093.43%1.2000.0024127.00093.38%1.0582.0021Mint Price for Bullion: shillings, pence
13.33%154.125100.00%1.2848.2525136.000100.00%1.1338.0022Traite per Marc
Flemish Coinage Terms (1) Values in money-of-account1 penny or 1 d groot = 24 mites = 12d or 1s
parisis(2) Fineness: reckoned out of 12 deniers argent-
le-roy, with 24 grains per denier= 23/24 or 95.833% pure silver(3) Weight: reckoned in terms of the ‘taille’ or
number cut from the Marc de Troyes of 8 onces= 244.753 grams
Traite of the Marc de TroyesOfficial money-of-account value of the coinage
struck from one marc argent le royTraite = (taille * value)/percent fineness
taille (number of coins struck to the marc)* the face value of the coin/ divided by
The finenesss of the coin (in deniers and grains)
E.g. 68.0 * 2/ (6/12) = 136d = 22s 8d groot
Debasement and Inflation:
a reduction in the silver content of a coin increases the corresponding traite value of silver by the reciprocal:
ΔT = [1/(1 - x)] – 1
Δ T = % change in the traite:x = % change (reduction) in the silver content (as a decimal)
Nov. 1428 debasement of silver double groot by 11.8%:
[1/(1 - 0.118)] - 1 = (1/0.882) - 1 = 1.133 - 1 = 13.3%. increase in the value of the traite.
Recommended