Wednesday, October 23, 2013

Was coin debasement always bad?

Dante's 8th level of hell, which housed counterfeiters, among others. Illustration by Doré

In this post I'll argue that debasement wasn't necessarily a bad thing. Periodic debasements initiated by a prince may have been a wise solution to a certain set of problems imposed on an economy by the nature of coins.*

Debasement is a reduction in the metallic content of a realm's unit of account. Most descriptions of debasement focus on the prince's role in the affair. This is usually a sordid story. The prince would have his mint surreptitiously reduce the amount of silver it put in coin. Next he and his friends would bring some quantity of silver bullion to be coined at this new rate, then quickly spend the coins before the public had the chance to learn about the debasement and defensively raise their prices. The prince and his gang gained at the expense of others.

But the prince was rarely the only debaser. Much like the prince, the public actively tried to improve their position by reducing the silver content of coin. They did so by clipping and counterfeiting coin. The latter is self explanatory. In the former, a clipper used scissors to remove small bits off the edges of each coin he or she received before passing them off. The clipped bits could be melted down and turned back into new coins, earning the clipper a good return.

Though clipping and counterfeiting were fraudulent, the public also engaged in non-fraudulent debasement by contributing to the natural wearing-out of coin. The constant passage of coins from hand to hand, clinking together in pockets and purses, etc steadily reduced the metallic content of coin below its stipulated amount.

To simplify matters, let's assume that the royal mint adopted the practice of milling the edges of coin. A clipp'd coin would quickly be outed if its milled edge was scarred, and therefore would cease to circulate. And say that the prince outfitted the mint with good technology and skilled engravers so as to prevent counterfeiting. Having removed the influence of clipping and counterfeiting, this leaves a natural rate of debasement of a realm's silver coinage due to wear & tear of, say, 1% a year.

Two stylized facts about the medieval economy. Mints fixed the number of coins they would cut from a given weight of silver brought to it by any member of the public. A merchant's pound of silver, for instance, might be coined by the mint into 240 pennies so that each penny held 1/240th a pound of silver. The mint, in other words, set the standard. The second stylized fact is that silver coins usually circulated by tale, not by weight. Just as in modern times, shopkeepers accepted coins by looking at their face in order to ascertain their value, not by weighing them on a scale.

So why might princely debasement be a boon in this environment? A perverse interaction between the mint's fixed standard and the constantly deteriorating coinage might emerge. As the coinage was debased by regular and legitimate public use, prices in terms of the unit-of-account would slowly be bid up. Each year a given coin, which now contained less silver, would buy less consumption than before. The twin demands of a higher price level and population growth required that more coin be produced to satisfy the population's expanding transactional demand.

However, our first stylized fact interfered with this process. Any silver brought to the mint would be turned into new coins at the fixed standard of 1/240th pounds of silver per penny. This meant that new coins would effectively contain more silver in them than already-circulating coins which, having undergone a few years of wear and tear, might contain by then only, say, 1/300th pounds of silver.

Once coined, the new and heavier coins *should* have commanded a premium in the market thanks to their higher silver content. Shopkeepers, for instance, might have quoted a higher price in terms of old coins and a lower price in new coins. However, as per our second stylized fact, coins in medieval times circulated by tale, not weight, and therefore a buyer could not get a better price when paying with new coins.

The inability of new coins to purchase the correct market equivalent in goods meant that they were artificially undervalued. All new coins that were brought into circulation would quickly be hoarded, melted down, and sent overseas where the silver therein could purchase a more appropriate real quantity of goods. The effect this had was that no new coins were put into circulation. It made no sense for a member of the public to bring silver bullion to the prince's mint to be coined since the resulting coin would always purchase less than it would have if left in raw bullion form.

This is Gresham's law. The bad, or artificially overvalued silver coin, pushes the good, or undervalued silver coin, out of the realm.

Since citizens no longer saw it fit to bring their silver to the mint to get coin, coin shortages would develop. To meet transactional demand, existing coins would exchange at ever higher velocities, but this would only debase them further, exacerbating the problem.

One answer to this problem would be for the prince to change the mint price in order to encourage people to once again bring silver bullion to the mint. For this to happen, the old standard of 1/240th a pound of silver per penny had to be reduced to a rate equivalent to the silver content of existing circulating coinage. In essence, to relieve the shortage of coin the prince needed to debase the standard. By reducing the amount of silver in a newly minted coin to, say, 1/300th pounds of silver, citizens would once again find it worthwhile to return to the mint. Since new coins now contained the same silver quantity as old coins, they would circulate together with their older counterparts rather than be subject to Gresham's law.

As long as the prince periodically debased the standard in order to keep up with the natural wear & tear of coins, then the supply of coin would be kept in line with the demand. Princely debasement could be a solution to a very real problem. To say that it could be a good solution, however, doesn't mean that all debasements were benevolent and/or beneficial.**

My justification of princely debasement of coinage as good policy in some way parallels the modern justification for fiat debasement as good policy. Sure, we can always attribute certain malign motives to central bank debasement. A central bank might surreptitiously monetize a government's debt at subsidized prices to help it pay for wars, thus causing high inflation. But there are some very good reasons to ensure that currency is constantly falling in purchasing power. The higher the rate of inflation, the lower the chance of running into the zero-lower bound. And if nominal wages are sticky downwards, then a positive inflation rate will ensure that wages adjust more easily on a real basis should the necessity arise. That debasement could be simultaneously both a good and predatory policy makes it a somewhat difficult topic to unpack.



* Much of this post echoes a comment left by Mike Sproul in my last post on medieval coinage.

**We shouldn't idealize princes as wise monetary doctors. Munro has noted that while princely debasement may have helped solve coin shortages, the motives for debasement were usually personal gain. In medieval times, a large component of a prince's revenues came in the form of seigniorage from his mint. If the standard was kept too high relative to the ever-deteriorating silver content of circulating coin, the mint would do no business and this would impair the prince's revenues. By periodically reducing the standard, the prince could ensure that business would return to the mint and seigniorage restored.

30 comments:

  1. Interesting. So it is the market place that has the fixed price and not the mint. The prince would vary the mint price to match the market price control. Yeah, that's the ticket. New coins would be melted and sent oversees because of the market fixed price. Deteriorated coins wouldn't sell at a discount on the market because of the market price control. Gresham's law is that the market overvalues old coins and undervalues new coins. Uh huh, uh huh. It is not the government mint that overvalued the coins. No, not at all. Flip reality upside down on its head. Nicely done.

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    1. Despite your boorish tone, I think your comment has a kernel of merit. Feudal restrictions on transactions in bullion, forced surrender of raw precious metals to the royal mint (except for the inventory of a few designated jewelers), prohibitions against weighing/assaying coins, mandatory acceptance by tale, and the outlawing of private competitive mints all had highly negative effects on the market for coin provision.

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  2. Good post. Note the parallel between clipping coins and clipping coupons. It's as if coins pay interest. But I'm not sure where to take that thought.

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  3. I agree that it's a good post. Given that the prince was the sole supplier of coins, periodic recoinages (with reductions in precious metal content) were necessary to counteract the effects of clipping, wear and tear, and population/economic growth. However, as I mentioned in our previous conversation, I still believe that from an economic standpoint, the best solution would have been for the prince to get out of the moneying business altogether and to leave coin production to the free market.

    Re: ZLB--inflation/NGDP targeting is a way to deal with this, but it might be better to address it more directly via an indexed unit of account, as you mentioned in your Unidad de Fomento post. According to Robert Shiller, who has been a big proponent of this idea, it might also attenuate the problems of debt-deflation and asset price swings.

    Sticking with modern times, what do you think of Miles Kimball's federal lines of credit idea? It seems to combine the best aspects of a helicopter drop (in terms of maintaining total spending) without increasing the nat'l debt too much, since it would be paid back.

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    1. "...the best solution would have been for the prince to get out of the moneying business altogether and to leave coin production to the free market."

      Agreed.

      "Sticking with modern times, what do you think of Miles Kimball's federal lines of credit idea?"

      I haven't given much thought to the idea. I am, however, a big fan of Miles's idea to create a floating conversion rate between cash and reserves in order to circumvent the zero-lower bound.

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    2. Terminology nit pick: to me floating means market-determined. In Miles's system, the currency/reserve exchange rate is "fixed" by the Fed, just not perpetually fixed at 1.0. The rate of change of the "fixed" exchange rate equals the interest earned on currency.

      A truly floating conversion rate would also remove the zero bound in a different way (generally inferior, but with the advantage of not requiring any change to the legal tender status of currency - so in theory could be implemented by a central bank without the cooperation of lawmakers).

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    3. Max is right, I stand corrected. And if we bring things back to the mint, a floating rate would be when the authorities allow pricing by weight so that coin prices 'float' against each other. If Miles was a mint-master in the medieval ages, he'd manipulate the mint price every few months or so to ensure that there wasn't mass exodus from good coin into bad coin.

      Max, are you a fan of Kimball's plan?

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    4. "are you a fan of Kimball's plan?"

      Yes, but because of the legal tender problem, it's not a quick fix. Under the best of circumstances, it would take years to implement.

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  4. Another great post JP. Thanks.

    O/T: I'm asking all my favorite econ bloggers about this: George Selgin thinks this new popular video:

    https://www.youtube.com/watch?v=iFDe5kUUyT0

    is tin foil hat material:

    http://marketmonetarist.com/2013/10/19/more-silliness-from-the-tin-foil-hat-austrians/#comment-28467

    Your take? (A minute or two of viewing should be sufficient)

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    1. It's a bad video with great production values. I watched it after Cullen Roche tweeted about it. Unfortunately the financial system's complexity tends to breed a lot of conspiracy theories. The real system is much less dramatic than the video's audience takes it to be. Hopefully no one takes it seriously.

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    2. I'm afraid they do take it seriously, and then go on to vote. )c:
      Thanks for the review. How far did you make it through.

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    3. Watched the whole thing. Without the slick graphics, I'd have stopped sooner.

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  5. Why wouldn't the prince offer to buy X oz gold (payable in existing coins), then after accepting the market bid mint that same quantity of new coins?

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    1. Sorry jt26, am not grokking your question.

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    2. Sorry, wasn't very clear. The suggestion was to solve the problem of: (1) no one wanted to offer silver for minting, and (2) the prince needing to explictly "debase". It's a "market solution" to demand for currency and the "wear out" of existing coins. Was this ever done in Medieval times?

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    3. Sounds like you might be talking about recoinage? The mint calls in all the existing debased coin, melts it down, and recoins it at the proper standard, returning the same amount of gold to the original owners yet embodied in a smaller amount of coin. Since the coins have all been homogenized, Gresham's law isn't free to operate.

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  6. Very nice post.

    Can you elaborate a bit on your footnote on seigniorage?

    I understand expansion of the money supply increases seigniorage potential.

    But what in your view is the form of the seigniorage calculation itself – i.e. for the prince compared to modern fiat?

    I tend to think of modern seigniorage as a function of interest rates – i.e. the net interest revenue earned by the central bank.

    (Expressing that annuity in present value terms is a bit of a dodge as to how it really works, IMO.)

    Is it different in the case of the prince? I don’t see how. If the prince each year swaps a successively greater amount of coins issued for the same amount of metal used to make them, that inflates the money supply but I’m not sure it has a direct bearing on the rate of seigniorage (as opposed to the amount of seigniorage).

    I.e. the prince’s debasement process would ensure money supply increases, but does the debasement math also affect the seigniorage calculation result per unit of currency issued? What is the role of interest rates? What is the connection between debasement, interest rates, and seigniorage?

    (I haven't thought this through)

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    1. Thanks JKH.

      Central banking is a different sovereign revenue model than minting.

      Under the latter, merchants, traders, and others would bring silver to the mint to be coined. The prince extracted a fee -- a certain percentage of the quantity of silver brought to the mint. In order to increase revenues, the prince would have wanted to increase throughput so that he could extract a larger stream of fees.

      One way to do this was to surreptitiously reduce the amount of silver that his mint turned into coin. If foreign traders were carefully made aware of the change, then they would bring all their gold to the the prince's mint. They would do so because domestic traders had not yet discovered the debasement and had not had the chance to increase their prices. As long as foreigners brought bullion to the prince's mint before domestic traders could react, they could get coin and use it to buy a higher real quantity of goods than elsewhere. The prince enjoyed a large burst of throughput at the expense of competing princes' mints, foreigner merchants enjoyed low costs for a short while, and domestic merchants lost. (I get this from Munro).

      With a mint, the prince was like a pipeline. He takes a cut on throughput. He doesn't swap. With a modern central bank, the prince earns the difference between the revenues earned on assets and the cost of maintaining his liabilities.

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  7. If there was a Nobel prize for econ blogging, you’d get my vote!

    The problem of money shortages and devaluation is even stranger than it seems. Consider this description of American colonial currency:

    “The official spokesmen of Connecticut thought the want of coin the principal obstruction to that colony’s trade. A South Carolina act of 1687 affirmed that ‘it is usual in all parts to encourage the bringing in and keeping money by direct courses’. A few years later the Assembly was complaining that a ‘great decay of trade’ had been occasioned by the lack of specie…

    By far the more common device used to maintain a supply of coin was that of raising the value of foreign money, particularly Spanish pieces of eight…the assemblies raised the legal rates of such coins above their sterling value, until in some cases the 4s. 6d. (sterling) of silver in a heavy piece of eight was declared to be worth 6s. 8d. or 7s. …

    As the supply of coin increased, however, prices of local products would rise, so that a piece of eight at an inflated value would not bring more than it would at places where inflation had not occurred. When this stage was reached, the inflationary colony would give the legal value another boost”. (Nettels, Money Supply of the American Colonies (1934), Chap 9, pp. 230-233.

    Now, the third paragraph makes the inflating colony look like a cheater, but it’s clear that the colonies had unwittingly put price ceilings on the piece of eight, thus causing a shortage of pieces of eight. When a wise colony raised the ceiling and relieved its shortage, the other colonies (and Nettels) would wrongly call it cheating.

    But what about the piece of eight? It was a coin, just like the shilling. Had the shillings worn down while the piece of eight had not? Did shillings pass by tale while pieces of eight passed by weight? I’m still scratching my head over that one.

    Weirder still is ‘proclamation money’, and then there’s the problem of ‘bookkeeping barter’, where people would trade with tobacco and molasses and corn, but keep their books in shillings at officially rated values. Even under that system there were constant complaints of money shortages, and they were always dealt with by devaluation.

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    1. Sounds like you've got a real conundrum on your hands. I find coinage to be a bit of Gordian knot at times.

      The third paragraph reminds me of Munro's story about debasing the standard in order to attract gold to the mint. It works as long as prices are sticky. Just so with the pieces of eight. While increasing the value of pieces of eight in terms of the local unit of account may have temporarily attracted pieces of eight into the colony, once prices had adjusted the inflows would have ceased.

      "Did shillings pass by tale while pieces of eight passed by weight? "

      Given that pieces of eight were decared to be worth 6s. 8d, that would seem to indicate to me that they would have passed by tale, especially in the payment of debts.

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  8. JP Koning October 25, 2013 at 9:21 AM

    That’s pretty straightforward, thanks.

    A small point of clarification on my admittedly loose use of the term “swap” –

    In the second paragraph of the post you say:

    “He and his friends would bring some quantity of silver bullion to be coined at this new rate, then quickly spend the coins before the public had the chance to learn about the debasement and defensively raise their prices.”

    This sounds to me like a swap of silver bullion for silver coins at a preferential price to the prince and his friends – producing a greater number of coins from a given amount of silver than would have been the case under the standard that is nominally in place. The prince under that swap benefits from being able to buy more with more coins than would have been the case had he adhered to the minting standard.

    Also, you say (in your response above):

    “Merchants, traders, and others would bring silver to the mint to be coined. The prince extracted a fee -- a certain percentage of the quantity of silver brought to the mint. In order to increase revenues, the prince would have wanted to increase throughput so that he could extract a larger stream of fees. One way to do this was to surreptitiously reduce the amount of silver that his mint turned into coin.”

    Again, that sounds like a swap - from the perspective of the trader bringing the silver bullion in for minting – a swap of a given amount of silver bullion in exchange for a certain number of coins, plus a seigniorage fee in combination with the stealth debasement.

    So in either case the prince is “skimming” an amount of newly minted coins off the top as additional seigniorage – in the first case by minting a greater number of coins from the silver he and his friends have brought to the mint than what it is worth according to the previous standard - and in the second case presumably by paying for the silver (brought to the mint by other traders) with coins minted according to a debased standard, keeping the excess silver (and coins minted from it) for himself.

    The general thesis is very interesting. Without debasement intervention by the prince, coin issuance over time presents an arbitrage opportunity - with a counterproductive deflationary effect, which I think goes to your analogy to the problem of modern fiat debasement, given zero lower bound risks, etc. The actuarial structure of the coin population means that bad drives out good - due to the arbitrage opportunity. The way to eliminate that arbitrage from a market “governance” perspective is to neutralize what would be the natural actuarial structure otherwise – which means debasing the metal content of newly issued coins at the same pace as the natural (or clipped) depreciation rate of the total aging coin population otherwise. Without the prince’s intervention, the discrepancy between real content value and monetary face value gets arbitraged by the diversion of newer, higher real content value coins to other markets where they can be sold for a higher nominal monetary value. The prince then weeds out this potential arbitrage opportunity at its origin by debasing the coins to impede it via the minting process.

    I think it would be possible to construct a steady state model on this basis, where every coin in the population ideally has (expected) equal amounts of metal at all times. That would eliminate the economic motivation for deflationary arbitrage.

    Regarding NR’s “clipping” analogy in the comments – maybe that could be extended to a comparison with the monetization of bond coupons through coupon stripping. Bond coupon stripping “debases” the value of the original bond, whose remaining value becomes the present value of the future principal repayment only.

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    1. P.S.

      I had a very quick look at the Munro paper, and found a specific example that helps illustrate further the relationship between seigniorage and debasement:

      “The other mintage fee was seigniorage: the tax that the prince imposed on minting coins, i.e., as a fixed percentage of the bullion delivered to his mint, by virtue of his official monopoly on coinage within his realm. Counterfeiting was, of course, a very serious violation of the prince’s monopoly on coinage, and indeed of his sovereignty; and it was usually treated, therefore, as a capital crime. The term ‘seigniorage’ is still used to this day, for the same purpose: as an important source of government revenue….

      Clearly, at least in proportional terms, the agent who realized the greatest gain was the prince; i.e., Duke Philip the Good. For, in his 1428 Flemish debasement, his seigniorage tax increased from 2 double groot coins (4d) to 3 such coins (6d), a 50-percent increase, increasing his share of the bullion delivered to the mint from 1.47 percent to 1.95 percent. His increased mint profits were thus based on two factors: the increase in the seigniorage rate itself, and the success of the debasement in increasing the Flemish mint output.”

      (Pages 34, 35)

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    2. By saying that the mint didn't engage in swaps, I only meant to differentiate it from a central bank which swaps its liabilities for assets. Let me put it this way -- the mint doesn't engage in the sort of swap that brings an asset onto its balance sheet while putting a liability on the public's balance sheet. I think we're on the same page.

      "The way to eliminate that arbitrage from a market “governance” perspective is to neutralize what would be the natural actuarial structure otherwise – which means debasing the metal content of newly issued coins at the same pace as the natural (or clipped) depreciation rate of the total aging coin population otherwise. Without the prince’s intervention, the discrepancy between real content value and monetary face value gets arbitraged by the diversion of newer, higher real content value coins to other markets where they can be sold for a higher nominal monetary value."

      Yes, that seems to me to be a good explanation of the underlying forces. Another way to eliminate the arbitrage would be to allow coins to pass by weight. But this would put the onus on buyers and sellers to take out scales and measure every coin prior to exchange, hardly conducive to fast and efficient trade.

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  9. JP, after re-reading John Chown's chapter on the Great Debasement of 1542-51 and comparing it to Munro's paper on the same topic, I must conclude that your understanding of monarchical profits is mistaken. Profits were not limited only to increased throughput and increased spending power via a Cantillon effect. At least in Henry VIII's case, the monarch actively filched precious metal after it was brought to the mint. The lynchpin was legal tender laws.

    JP, after re-reading Ch. 5 of John Chown's A History of Money, I must conclude that your understanding of monarchical profits is mistaken. Profits were not limited to increased throughput and increased spending power via a Cantillon effect. At least in the cases of Henry VIII and his son Edward the VI, the monarch actively filched precious metal after it was brought to the mint. The lynchpin was legal tender laws.

    Two terms need to be defined: "mint equivalent" (or the Continental term traite, noted by Munro) and "mint price." The mint equivalent was simply the total face value of the coins minted from one pound of silver. The mint price was the "value of the coins that would be given to the citizen who tendered a pound of silver to the mint. The difference between the two was the gross profit to the mint" (Chown, 44). So in 1526, the mint equivalent (in decimal pounds) was 2.432, while the mint price was 2.378. The ratio of (mint price) / (mint equivalent) can be seen in the last column of Table 1 of Munro, p. 461. The monarchical profit can be easily calculated as 100% – 97.78%, or approximately 2.2%.

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    1. [Oops, apologies for the sloppy formatting. I meant to delete the 2nd paragraph above]

      Quoting Chown again: “Before April 1544 a citizen bringing a pound of silver to the mint would receive 584 good quality pennies. After that date he would have received 629 slightly lighter ones. If he assumed that the quality of silver was unchanged there was little real change in the deal he was being offered. In fact the silver content had been reduced from 0.925 to 0.75 fine. The mint equivalent was 768 pence. 139 pence, about 22 per cent [of the mint price, or 18% of the mint equivalent], had been kept by the mint. This was nearly all profit, but a modest skim compared to what was to come.” (Chown, pp. 46-47, comment and emphasis added)

      Munro’s table shows a gross profit of around 18% for the king by May 1544, a significant leap from 2.2%. Following the column onto the next page shows this figure steadily increasing to a maximum of 61.1% in April 1546. [Calculating “profit” here is a bit confusing to me, and I may be assigning the wrong numbers to the numerator and denominator. But the basic idea is that a pound of silver was being hammered into an ever larger number of coins of ever decreasing fineness, with the missing silver being appropriated by the king. As Chown explains in Ch. 2, mints never worked exactly like laundries, with a bullion holder presenting silver on Monday and picking up coins hammered from that batch a few days later. Typically, after the metal was assayed, the bullion holder was given coins on the spot.]

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    2. Mint output did in fact increase during this period, but why did anyone present silver plate or old coins for reminting when they realized (eventually) that they were getting less silver? Chown solves my agio conundrum that I had trouble with in the previous thread:

      "The owner of silver plate... had to compare the utility of the plate as such with the utility that could be derived from the purchasing power of the coins the Mint would give in exchange for the silver content of the plate."

      Thus, agio can be thought of as the difference between the mint price and the non-monetary utility of silver. Chown presents a hypothetical example to show the thought process of bullion holders:

      "Supposing a Tudor citizen owns 146 pre-debasement groats with a face value of 2p.8s.8d. (2.43 pounds), and containing exactly one pound of pure silver. In the year 1545-46 he knows that the mint price is 2p.16s.0d (2.80 pounds). He does not know, but may be able to infer, that the mint equivalent is 4p.16s.0d (4.80 pounds). If he takes his coins to the mint he will hand over coins with a face value of 2p.8s.8d., and containing one pound troy, or 12 ounces of fine silver. He will receive in return coins containing only 7 ounces fine silver, the other five having, in effect, been confiscated by the mint.

      That is the bad news. The good news is that he now has 168 groats with a face value of 2p.16.0d. (2.80 pounds). In terms of silver, he has lost, but... he is from a practical point of view... better off by 0.37 pounds. The king has made 2.00 pounds: who has lost? The answer of course is those holding the debased coins when the music stops." (Chown, 48-49)

      And, I would add, the "poorer strata of society suffered the most" (Munro, 436), since they bore the costs of the ensuing inflation but had little pre-debasement coin, foreign coin, or silver ornaments to present to the mint to reap the gains from the increased mint prices.

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    3. The tl;dr version for anybody still following this thread:

      "The profits of the debasement resulted form the dramatic increase in the mint equivalent [face value of coins hammered from a pound of silver] as the silver content of the coins was reduced. Citizens were induced to bring coins to the mint by a steady increase in the mint price [face value of coins given to presenter of a pound of silver to the mint].

      At every stage of the debasement the mint price offered in newly minted coins exceeded the mint equivalent of some earlier issue, thereby encouraging the older and finer coins to be brought to the mint for recoining." (John Chown, A History of Money, 49)

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    4. "The difference between the two was the gross profit to the mint"

      My thinking on this is that competition among various mints meant that the agio (market value less commodity value of a silver coin) was about equal to the mint's gross profit (or the cost to the public of minting silver). Should the prince increase his % seigniorage (the amount he filches), then the cost to the public would exceed the agio. As a result, no one would go to the mint anymore, thus reducing the prince's profits.

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    5. A few thoughts:

      1. By "competition among various mints," are you referring to foreign mints? (I'm assuming that the mint equivalent and mint price were uniform throughout England; Munro's tables seems to imply this).

      Foreign coins wouldn't work as substitutes for English coins for large English merchants (the only ones who could afford to take their silver abroad). It wouldn't make sense to try to use them for domestic commerce (1. why use finer coins when debased coins accepted by tale are readily obtainable; 2. foreign coins couldn't circulate by tale, and assaying would be a hassle; and 3. if the objective of the debasement was to increase revenue, Henry VII probably prohibited the use of foreign coins for transactions). So I can't see how or why anyone would use foreign coins as a domestic MOE. In terms of store of value, why go to the trouble of taking the silver abroad to have it coined? It would be simpler and cheaper to leave it in the form of ornaments or pre-debasement coinage.

      2. Re: agio--Chown's hypothetical example of the Tudor citizen explains how the mint manipulated the agio (defined, as I see it, as [mint price minus non-monetary value of silver]) to incentivize holders of finer coins to bring them to the mint. By steadily raising the mint price, each stage of the debasement provided an ever increasing agio.

      Merchants needed some kind of MOE. Why spend finer coins by tale when one could exchange the silver content for a larger number of new, debased coins? Merchants gained, and the king gained even more; peasants w/o a store of silver to exchange and aristocrats on nominally fixed incomes were the losers due to inflation.

      3. Should the prince increase his % seigniorage (the amount he filches), then... no one would go to the mint anymore

      But in fact they did continue to go to the mint! Chown, citing JD Gould's figures, shows that despite the ever widening gap between the mint equivalent and the mint price, the mint's output was positive during each round of coinage during the debasement:

      Coinage Date Silver mint output Seigniorage
      (face val, pounds) (% of mint equivalent)
      Henry VIII
      3rd coinage May 1542 52,927 16.6
      4th Apr 44 149,287 18.1
      5th Apr 45 440,213 41.7
      6th Apr 46 451,811 61.1

      Edward VI
      1st Apr 47 397,572 55.5
      2nd Jan 49 401,072 55.5
      3rd Apr 49 52.8
      4th Jul 50 102,272 52.8
      Dec 50 52.8
      5th Apr 51 252,955 58.3

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    6. [Ok, that was a format fail. But you can see the silver mint output in the 3rd column, starting with "52,927"]

      The figures for gold tell a similar story, although the gold coinage wasn't debased nearly as much (probably since merchants who made transactions in gold had strong incentive not to transact by tale).

      You can refer to Munro's table to see how the mint price was raised steadily to give a better deal, i.e. increase the agio. If monarchical profit were simply a result of increased throughput, the mint price would have risen in tandem with the mint equivalent, and seigniorage would have held constant at around 2-3%. That doesn't seem to have happened; the gap between the two steadily rose, with the king adding to his store of silver (to pay for the wars).

      Estimates of the tax revenue gained from the Great Debasement (well over 1 million pounds; Munro, 454) make it clear that increased throughput alone couldn't have been the source of the crown's profits. Between 1542 and 1551, the mint produced around 3.6 million (face value) in gold and silver coins (Chown, 58). If the mint had kept seigniorage constant at 2-3%, the maximum profit could only have been around 100,000 pounds. The gap can only be explained by monarchical theft.

      (Re: old coins--page 437, note 27 of Munro states that old coins were demonetized and had to be surrendered to the mint. But of course, no one would spend them by tale, anyway.)

      Again, I'm sorry for badgering you on this issue. It's just that I can't understand your thought process on this one (a rare occurrence, to be sure).

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