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Monetary or Fiscal Policies?

Coinage Debasements in Burgundian Flanders, 1384 - 1482

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Coinage Debasements in Burgundian Flanders, 1384 - 1482. 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 - PowerPoint PPT Presentation

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Monetary or Fiscal Policies?

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

(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

• 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.

• 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.

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

• The prince’s goal was to increase his 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

• (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.

• 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).

(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’

• 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

• 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)

• (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

(3) To the extent that debasements did lead to some degreee 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)

• (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

(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

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

(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

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.