World of Coins

Research and reference => Numismatics => Topic started by: Figleaf on April 01, 2012, 05:43:46 PM

Title: Financial policy before 1800
Post by: Figleaf on April 01, 2012, 05:43:46 PM
Elsewhere (,14404.msg99872.html#msg99872), the suggestion is made that rulers were somehow closely involved with coins. I aim to show in the next post that this is a half truth. Most rulers didn't care what their coins looked like, they were not involved in their appearance or denominations except in indirect ways. Like most rulers today, they were preoccupied with financial aspects of money only.

Before 1800, money was coins (leaving aside precious metal bars used in the late middle ages and the slow development of paper money before 1800*.) Between 1800 and 1850, money became notional and coins lost their monopoly, quickly become a minor item in the money supply. Financial policy changed profoundly, becoming a game of balancing money supply with economic growth for the sake of controlling inflation and unemployment. I will cover the former period only.


* these are covered in a subsequent post. Until the times of John Law, they were outside government interests.
Title: Re: Financial policy before 1800
Post by: Figleaf on April 01, 2012, 11:46:13 PM
For centuries, coins were, what is known today as "profit centres". They provided the ruler who controlled the mint (mint lord) with an income. This explains why in medieval times, religious institutions were given mint rights. It would be a source of income for them. Often, they had to compete with local gentry and they often lost that battle. Mint rights could also be part of a dowry, a way for a father to insure an income for a younger son or a daughter. Traders would pay this income to the mint lord, because the coins facilitated trade. The income from coins is seigniorage, the difference between the cost of making the coin and the denomination of the coin. By far the largest cost component of a coin was its metal content.

The freedom of the mint lord to lower the metal content of a coin was limited by several factors, but the most important among them was trust. Traders bought coins below the value of the metal it contained, trusting that they could use these coins for their face value. To them, seigniorage was a risk factor. The larger the risk factor, the lower the trust.

Mint lords generally did not have enough power to order that their coins were the only ones that could be used in their territories. They controlled only tax payments and even there, they rather accepted rivals' coins than risk non-payment. However, among those rivals were not only powerful neighbours, but also minor lords, who would shamelessly imitate the coins of a richer lord, but with a lower precious metal content. These coins could be forbidden to circulate, because that just reinforced the effect that people wouldn't want to accept higher seigniorage coins in the first place.

It didn't help that certain coin types became fashionable, so that everyone was minting similar types, with only minor differences, notably different legends - in a time when analfabetism was widespread. Money changer, a profession already mentioned in the bible, or shroff was a profitable business, full of trade secrets and attention to detail. Money changers were widely believed to be at least somewhat dishonest.

If you had a trusted coin, you could use it to pay for its full face value. If you had a non-trusted coin, the seigniorage you paid when you accepted the coin was wholly or partially lost to the money changer. If the coin was not allowed to circulate, having it was dangerous in itself and all its value was lost. This explains why metal detectorists find so many contemporary forgeries and lightweight imitations. Trusted coins were not necessarily those of the local mint lord. They could include a coin struck far away of a known and accepted standard. One example is the Maria Theresa thaler, struck at various mints for various destinations, never legal tender anywhere, yet readily accepted in large swaths of land. An older example is that of the English sterling, a popular coin in English-controlled parts of France and Flanders, but also in parts of the Holy Roman Empire.

In this way, issuing coins was a competition game and a battle for market share and the resulting seigniorage. The shilling of Henry VIII could not be an international coin: it was devalued repeatedly to pay off the consequences of the war of roses. A successful coin type would be unchanged for decades, even centuries, independent of unemployment or inflation. Some Dutch coin types, like the Lion dollar were meant only for exports. When the country saw high inflation, after a war that pitted the Republic against England, France and Bavaria (1672) the weight and silver content of the Lion dollar remained unchanged.

After the "discovery" of the Americas, the coins of Spain dominated international finance. It could secure passage into the colonies, textile, slave, sugar, coffee, tea or cocoa purchases anywhere. It was the only trusted currency in the Americas and the region around Manilla, even if local coins were made for small change, until the power of Spain began to wane. The shilling and the rijksdaalder increased market share.

So what would mint lords of local currencies care about? To them, it was all a question of optimizing seigniorage. Keep cost as low as possible and sell silver as high as possible. That means beating the dominating currency. You can't beat them by offering more precious metal for the same price; Gresham's law would drive your coins out of circulation. You can only beat them by imitating the dominating currency and offering more stability. If that means offering the same denomination, so be it. If that means a similar design, fine. It is of no concern to the authorities and coherence and ease of use is not one of their worries. Their central concern is seigniorage only.

Title: Re: Financial policy before 1800
Post by: akona20 on April 02, 2012, 06:11:47 AM
What perhaps is somewhat forgotten or perhaps outside the scope of this fine article is the use of bills or letters of exchange (drafts etc) which made up a substantial part of transactions in the business. One understood that they were backed by money somewhere but could be rolled over time and again as a method payment. The Mughal hundi system was extremely sophisticated in its methods and operations.

The debasement of the real value of coinage as practiced in Europe especially had far reaching consequences on what occurred in the east from the 18th century onwards.
Title: Re: Financial policy before 1800
Post by: Figleaf on April 02, 2012, 10:49:14 AM
They are a bit outside the scope of the question, but I don't mind adding my thoughts on them.

Large scale trade in Europe started taking off with the establishment of the empire of the Franks. Roads became safer and merchants better organised. The coins in circulation were small silver pieces, hard to count, easy to lose. The first treasure that gives us an idea of how the problem was solved is the hoard of Pimprez. It is dated to around 1140 and consists of silver ingots and silver Carolingian denarii.

The ingots serve as large scale payments and went by weight, because in subsequent treasure troves, their weight is seen to standardise on the Mark. Unfortunately, there were a large number of different weight standards, all called a mark. Metal content standards also concentrate on a limited number of values, but these remain locally determined. Mediterranean countries used 925, Nordic countries 940 and Eastern Europe preferred 980.

From 1160, a succession of new silver discoveries, notably in what is now Germany, increased the money supply, stimulating economic development. Bars became more prevalent and many were now marked with anything from a coin die to where to cut the bar to obtain halves and quarters. The use of bars was not restricted to Europe. The Eastern European standard of 980 fine spread to Asia. A 13th century traveller mentioned Chinese bars of "ten marks".

As Central and (later) Western Europe began to develop, mediterranean merchants started to show more interest in them. First among them were the Venetians. Their great invention was the embassy, a World Trade Centre of the middle ages, providing services and safety to visiting Venetians - at a price. The Venetian embassies covered trading routes from Napels in the South East to London in the North-West, with the more important embassies in Naples, Florence, Milano and Bruges. Similarly, Burgos covered the Iberian peninsula, Constantinople covered the entrance to the back sea. The important market towns of Nuremberg and Augsburg were gaining in importance, due to the constant inflow of Harz silver, competing with the Venetians in the Geneva-Paris region.

While a vast improvement over Carolingian times, the standardized bars still had to be re-melted at least once, to match local weight and fineness standards. An essentially local invention came to the rescue: the instrumentum ex causa cambii. Originally, this was simply an order to pay from a merchant to a banker (often a wealthy money changer.) The receiver would use it to go to the banker and collect. The value of the paper was based on the reputation of the merchant. Banks could be trusted, because insolvent bankers were beheaded in front of their own house, crude, but simple and efficient.

Once it dawned on merchants that they could trust a known quantity in a faraway embassy just as much as a neighbouring family, these payment orders are comparable to present-day bills of exchange. Such paper bills obviated the need to transport and re-melt precious metal. Since they were addressed to named persons, they could be stolen, but only cashed by the named person, making them safer than silver or gold. The bottleneck was trust. By 1350, ingots had disappeared from international finance in Europe, to be replaced by paper.

The bills of exchange subtly changed the financing scene in North-Western Europe, the new economic power centre after the fall of Byzantium. Money-changers found a new occupation as what we would call today deposit bankers: a party that would accept bills of exchange. That changed the trust equation. Rather than having to deal with this or that merchant family, a merchant could deal with one deposit bank for al the merchant families in town. The result was spectacular. One researcher (Hanham) notes that in 1484, merchants from Holland came to Calais with just enough money on them for travel expenses. They bought wool from England and paid with paper bills drawn on the house of Jacob de Bloke in Antwerp, where they had an account. De Bloke paid off the owner of the wool, the Cely family, based in London. Deposit bankers like the De Medici family could leverage their wealth into royalty.

In this sense, bankers networks were at once the enablers and the restrictions of trade networks. Individual networks had to be connected to become more widespread and efficient. This was achieved by couriers: common "postal" services that sent payment orders from one city to another. A central figure in the courier networks was Jacob Fugger, himself a banker. The house of Fugger ( could finance a war by shifting capital in his network and work itself into nobility. However, when he financed a disastrous, losing war (the thirty years war) and didn't get repaid (there was no recourse on the Holy Roman Emperor,) even Fugger proved to be vulnerable.

The last invention in the pre-banknote era was made by the Bank of Amsterdam ( in 1609. It allowed merchants to keep accounts in bank money. Depositors could take silver coin into the bank, which accepted the coins at actual silver weight (gross weight times fineness) minus a handling fee. The bank would pay out in local coin, converting bank money into the same amount of silver, in local coins. Re-melting had become a thing of the past even for small amount, to the chagrin of mint lords, who saw part of their income disappear.

It took a gambler to take the final step towards the banknote. The Scotsman John Law (, run out of England because of an unfortunate duel, found refuge in Venice, where he became involved in the state lottery. He combined his knowledge of gambling with his gift for mathematics and developed a theory that wealth was in goods, not in money. Therefore, as long as money was trusted, it could consist of any metal. Paper money would be trusted as long as people trusted that the paper could always be exchanged for precious metal, but not all people would want to convert their paper at the same time. After the failure of the Banque Générale, Law's name was Mudd, but in fact he was right, except for two important details. First, rulers cannot be trusted to maintain the convertibility of paper into precious metal. The kings of France - not Law - issued such enormous quantities of assignats that trust was undermined. The lesson was that central banks had to be independent. Second, Law had not foreseen the bank run. The lesson is that banks can become a risk for the whole financial system when they fail, so they need supervision from a central bank, who can, if necessary, bail them out of a liquidity crisis.

Ironically, the place that most reviled Law, was the most instrumental in establishing both banknotes and fiduciary money: London. The reason is obvious. Britain should have lost the Napoleonic wars. France was bigger, more populous and richer and its political message of sovereignty of the people and human rights was far more attractive than British conservatism and a class society. So why could Wellington win? Because France, under the influence of the failure of the Banque Générale, restricted itself to a sound currency, the Franc de Germinal. Its issues were covered by gold in the Banque de France, leaving Napoléon always strapped for cash. The Bank of England, meanwhile, withdrew all gold coins and issued paper instead, making Wellington financially independent. In 1810, Wellington had a Chinese wall built to stop French troops from taking Lisbon, the Lines of Torres Vedras ( This work had to be financed immediately by precious metal. It could be done by issuing paper back home. Napoléon could never have done that.

When, after the Napoleonic wars, the Bank of England wanted to re-introduce gold, they failed. People were used to paper and found it more convenient. Subsequent gold coins were issued for speculation only.

Title: Re: Financial policy before 1800
Post by: Figleaf on April 02, 2012, 10:58:38 AM
Apologies for the euro-centricity of the above. There were paper and token currencies in India and China. I do not have enough information to write about them.

Title: Re: Financial policy before 1800
Post by: akona20 on April 02, 2012, 12:40:26 PM
The rather euro centric idea of money rather brought about the fall of the east. We have briefly discussed elsewhere The EIC's idea of money in India which brought about our previous discussion should be also viewed, all be it technically after 1800, the Opium Wars in China where the EIC pitted itself against the Chinese wish to be paid for its trade surplus with the UK in Spanish silver such was the trust in Spanish silver. So the EIC grew opium in Bengal and sent it to China to balance the trade books. If only China had wanted other silver the world could be a different place excepting that we know there would have been another euro excuse to control China.
Title: Re: Financial policy before 1800
Post by: villa66 on April 02, 2012, 06:38:24 PM
Elsewhere (,14404.msg99872.html#msg99872), the suggestion is made that rulers were somehow closely involved with coins. I aim to show in the next post that this is a half truth. Most rulers didn't care what their coins looked like, they were not involved in their appearance or denominations except in indirect ways. Like most rulers today, they were preoccupied with financial aspects of money only.

Being one of the persons who contributed “elsewhere,” I want to make it clear my own comments there were quite narrow, centered as they were on the origins of United States coinage and whether it can be fairly dismissed as a Franco-Spanish cut-and-paste job.

This related thread is interesting, and its generalizations may well apply to things European, or even beyond—I never discount Figleaf’s ability to marshal information—but where the United States coinage of the 1782-1800 era is concerned, I don’t believe that the task he set for himself is truly met.

I do believe the American leaders of the time were closely involved with the new American coinage; and I do believe the leaders of that day cared what American coins looked like, and I do believe the American leaders of that time—chief among them President Washington—were quite directly involved in the appearance and the details (including denominational) of the country’s new coinage.

Speaking of the Mint Act of 1792, author Q. David Bowers, in his book The History of United States Coinage (As Illustrated by the Garrett Collection), quotes from the “original legislation, prior to its April 2nd passage,” saying it “proposed that:

‘Upon each of the said coins there shall be an impression or representation of the head of the President of the United States for the time being, with an inscription which shall express the initial or first letter of the Christian or first name, and his surname at length, the succession of the presidency numerically, and the year of the coinage; the reverse of the gold and silver coins to eagle with the inscription UNITED STATES OF AMERICA.’"

But then Bowers also writes that “Washington protested the use of the president’s portrait as being ‘too monarchial,’ so the section referring to this was changed to specify ‘an impression emblematic of liberty with an inscription of the word Liberty, and the year of coinage...’”

Bowers relates a couple of interesting historical notes, and then says more about Washington’s level of interest in the coinage’s baby-steps: “The following Tuesday, September 11th [1792], saw the purchase of six pounds of old copper acquired for one shilling, three pence per pound—being the first metal acquired for coinage. Coining presses had been ordered from England and arrived on September 21, 1792. President Washington, who lived on High Street only two or three blocks from the Mint, was said to have been a frequent visitor.”

And then, specifically: “In his fourth annual address, November 6, 1792, President Washington mentioned that the national coinage had commenced: ‘There has been a small beginning in the coinage of half dismes; the want of small coins in circulation calling the first attention to them.’”  (Although note this early coinage of half-dimes is not thought to have been accomplished at the new mint itself.)

The mint as “profit center?” I take the point—and indeed there was a move to disestablish the U.S. mint early on, but the effort failed. But there was much more to the coining of money in the new United States than mere profit, and in my own opinion, the same obtains many other places as well.

Bowers again, with my italics added: “Expenses of the infant Mint were high, production was irregular, deliveries were often inconsistent, and many other problems arose. From time to time outside proposals for a contract coinage were received. Earlier, Matthew Boulton proposed his services in Birmingham, England, but as the right of coinage was important to the United States, his overtures were refused.” (This despite, as Bowers quickly points out, "the coins and tokens produced by Boulton & Watt were of superb quality and finish, far above those subsequently produced by the Philadelphia Mint.”)

And etc., etc., of course.

It just seems obvious to me that the American leaders who put together the country’s coinage were demonstrably not “preoccupied with the financial aspects of money only.”

 :) v.