Monetary or Fiscal Policies? Definitions of Debasement Coinage 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 policies My 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 strikes Industrial 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 – 1686 No debasements of gold and silver coinages But massive issues of copper vellon coins from 1599 Quinto tax on silver imports – but important only from 1550s the Fle m is h Silver Coinage Debase m ent of Nov 1428 and its Afte rm ath Ye ar Marcs argent Kilogram s Pe rcentage Output in Pe rcentage Se igniorage Pe rcentage le roy of pure silve r Change £ groot Change £ groot Change 1428 4,598.700 1,078.647 5,267.280 123 1429 72,460.700 16,996.010 1475.68% 93,021.380 1666.02% 2,035 1554.47% 1430 34,992.400 8,207.638 -51.71% 45,065.400 -51.55% 1,316 -35.33% 1431 5,595.200 1,312.381 -84.01% 7,240.240 -83.93% 283 -78.50% 1432 104.300 24.464 -98.14% 135.140 -98.13% 55 -80.57% Flemish Coinage Debasements, June 1418 and November 1428 Debasements of the Flemish Double Groot Coinage Features June 1418 November 1428 Money of Account Value in d groot 2 2 Fineness in Argent le Roy in deniers and grains 6 0 5 8 Percentage Fineness AR 50.00% 44.44% Percentage Pure Silver 47.92% 42.59% Weight: Taille per Marc 68.00 68.50 Weight in grams 3.599 3.573 Fine Silver (AR) Content in grams 1.800 1.588 Pure Silver contents in grams 1.725 1.522 shillings pence decimal £ Percent No. Coins shillings pence decimal £ Percent No. Coins % increase Traite per Marc: coined value of silver 22 8.00 1.133 100.00% 136.000 25 8.25 1.284 100.00% 154.125 13.33% Brassage in shillings and pence 1 2.00 0.058 5.15% 7.000 1 2.25 0.059 4.62% 7.125 1.79% Seigniorage in shillings and pence 0 4.00 0.017 1.47% 2.000 0 6.00 0.025 1.95% 3.000 50.00% Total Mint Charges 1 6.00 0.075 6.62% 9.000 1 8.25 0.084 6.57% 10.125 12.50% Mint Price for Bullion: shillings, pence 21 2.00 1.058 93.38% 127.000 24 0.00 1.200 93.43% 144.000 13.39% Traite per Marc 22 8.00 1.133 100.00% 136.000 25 8.25 1.284 100.00% 154.125 13.33% Flemish Coinage Terms (1) Values in money-of-account 1 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 Troyes Official money-of-account value of the coinage struck from one marc argent le roy Traite = (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.