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FlemishDebasementsV3 Powered By Docstoc
					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
 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
  – both by the debasement techniques themselves
  – and by auxiliary bullionist policies to prevent bullion
    exports and divert them to the mints
Conditions for effective
• (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
(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

• (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
Why were England and Spain
 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
                      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

    ΔT = [1/(1 - x)] – 1

    Δ T = % change in the traite:
    x = % change (reduction) in the silver content (as a

    Nov. 1428 debasement of silver double groot by

    [1/(1 - 0.118)] - 1 = (1/0.882) - 1 = 1.133 - 1 =
    13.3%. increase in the value of the traite.