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The Evolution of Small Change∗

Thomas J. Sargent
University of Chicago and Hoover Institution

Fran¸ois R. Velde
c
Federal Reserve Bank of Chicago

ABSTRACT
Western Europe was plagued with currency
shortages from the 14th to the 19th century, at which
time a ‘standard formula’ had been devised to cure
the problem. We document the evolution of monetary theory, policy experiments and minting technology over the course of six hundred years. In a
companion paper, we use a cash-in-advance model
of commodity money to provide an analytical framework for the problem of small change.
December 1997

∗

The views expressed herein are those of the authors and not necessarily those of the
Federal Reserve Bank of Chicago or the Federal Reserve System.

Introduction
This paper traces the process through which western monetary authorities learned
how to supply small change. Western Europeans long struggled to sustain a
proper mix of large and small denomination coins, and to escape from the prescription that coins of all denominations should be full-bodied.
The monetary system begun by Charlemagne about A.D. 800 had only
one coin, the penny. At the end of the twelfth century, various states began
also to create larger denomination coins. From the thirteenth to the nineteenth
century, there were recurrent ‘shortages’ of the smaller coins. Cipolla (1956,
31) states that “Mediterranean Europe failed to discover a good and automatic
device to control the quantity of petty coins to be left in circulation,” a failure
which extended across all Europe.
By the middle of the nineteenth century, the mechanics of a sound system
were well understood, thoroughly accepted,1 and widely implemented. According to Cipolla (1956, 27):
Every elementary textbook of economics gives the standard formula for maintaining a sound system of fractional money:
to issue on government account small coins having a commodity
value lower than their monetary value; to limit the quantity of
these small coins in circulation; to provide convertibility with unit
money. . . . Simple as this formula may seem, it took centuries to
work it out. In England it was not applied until 1816, and in the
United States it was not accepted before 1853.
Before the triumph of the ‘standard formula’, fractional coins were more
or less full bodied, and contained valuable metal roughly in proportion to their
nominal values, contradicting one element of the standard formula.2 Supplies
1
2

For example, see John Stuart Mill (1857, chapter X, Section 2).
Going back further in time, Burns (1927, Ch. 12) ﬁnds evidence of token coinage for
small denominations in Greek and Roman times. We start our study with the Middle Ages.

were determined by private citizens who decided if and when to use metal to
purchase new coins from the mint at prices set by the government, contradicting another element of the standard formula. That system produced chronic
shortages of small coins, but also occasional gluts. The process by which a cure
was invented for these problems provides a fascinating window on the growth of
monetary theories and institutions, and a wonderful case study of ‘social learning’. Commentators reasoned about the problem and tried to make sense of
their observations, building up monetary theory in the process. Governments
ran diverse ‘experiments’, more or less informed by the commentators’ advice.
Technical innovations in metal working altered the relative costs of legal and
illegal suppliers of small change, and aﬀected feasible policies. It took centuries
to leave behind the idea that small coins should be full bodied.3 Governments
long experimented with token coinage before they discovered, or accepted, that
as in Cipolla’s standard formula small change should be tokens backed by a government standing ready to exchange it for full bodied large denomination coins
or currency.
The evolution of monetary doctrines about small change was an integral
piece of the process by which a managed ﬁat currency system came to be understood and implemented. Apart from the unessential detail of the substance
on which a ‘promise’ is printed, a token coin is like a government or privately
supplied paper bank note. After a long process of theorizing and experimenting,
most governments eventually monopolized the issuing of bank notes and token
coins. The process of thinking about small change and the feasibility of a system
of token small coins reﬁned the quantity theory.
The Sargent-Velde (1997) model identiﬁes a set of particular circumstances that made the ‘pre-standard formula’ regime likely to produce shortages
of small coins, and describes ‘cures’ for those shortages in the form of debasements and reinforcements of the coinage. The supply side of the model deter3

“Monetary policy would have faced fewer diﬃculties if the commodity money concept
of money had commanded less respect. Its persistence as an ideal obstructed and delayed the
development of a workable system of redeemable token money” (Usher, 1943, 196).

mines a set of intervals, one for each denomination of coin, within which the
price level must reside if both coins are to circulate. Were the price level to hit
the lower bound for a particular coin, that coin would be minted; were it to hit
the upper bound, the coin would be melted. Thus, the existence and supply of
any particular coin depends on the position of the price level with respect to that
coin’s interval. The sizes of these intervals depend on the production costs and
the seigniorage taxes (or subsidies) for each coin. The model asserts that only if
costs and seigniorage rates are properly aligned can all coins be jointly supplied,
and episodes of shortages be ruled out. Further, the technological fact that production costs are proportionately larger for smaller coins makes smaller coins the
ones that are vulnerable to episodes of shortage. In the model, the government
sets the limits of the intervals (the ‘mint prices’ and the ‘mint equivalents’) by
choosing the weight of each coin and the coin-speciﬁc seigniorage and brassage
rates. In making these choices, the government is constrained by its production
costs and by those of its competitors (counterfeiters and foreign mints). Technological developments in the minting process can provide the government with
a cost advantage and give it more freedom to adjust the intervals properly, at
least for a while.
The demand side of the model ampliﬁes Lucas’s (1981) model to incorporate two cash-in-advance constraints, one like Lucas’s that constrains all
consumption purchases, and a new one that constrains small purchases. These
constraints capture how small denomination coins can be used to purchase expensive items, but large denomination coins cannot be used to buy cheap items:
they model a demand for ‘change’. The addition of the cash-in-advance constraint for small change (denoted as the ‘penny-in-advance or p. i. a. constraint’)
adds an occasionally binding constraint and an associated Lagrange multiplier
that plays a decisive role in characterizing ‘shortages’ of small change. When the
p. i. a. constraint is not binding, the model exhibits a version of penny-versusdollar exchange rate indeterminacy, a feature of many models with inconvertible
currencies. So long as pennies and dollars bear the same rates of return, holders
of currency are indiﬀerent to the ratio in which they hold pennies and dollars.
3

‘Shortages’ of pennies are manifested in a binding p. i. a. constraint, and the
emergence of the condition that the rate of return on dollars dominate that on
pennies. This rate of return dominance is the market signal that causes money
holders to conserve on pennies. Exchange rate indeterminacy breaks during
small change shortages. The model makes contact with the ‘quantity theory of
money’ in various ways. The ranges between the melting and minting points
for large and small denomination coins creates a price level band within which
the ordinary quantity theory operates, cast in terms of the total quantity of
money. This operates during periods in which coins of both denominations are
circulating and neither is being melted or minted. During periods in which the
p. i. a. binds but in which neither coin is melted or minted and both circulate,
the quantity theory breaks in two, with one holding for ‘dollars’, another for
‘pennies’. Another version of the quantity theory holds in a regime in which the
parameters of supply have been set to cause all large denominations to disappear
because they have been driven out by token small coins.
We use the model to understand how shortages can emerge, and how they
might be corrected within the rules of the Medieval monetary mechanism. For
example, under the Medieval mechanism, by making the p. i. a. constraint binding, the price signals induced by ‘shortages’ of small change perversely hasten
the day when small coins will eventually be melted unless there are adjustments
in the parameters governing the melting point for small coins. This feature of
the model inspires an interpretation of debasements of small coins as a cure for
shortages of small change within the mechanism.
The model also formalizes the workings of the various corrective elements
of Cipolla’s ‘standard formula’, including the possible roles of a government
monopoly rather than privately chosen quantities of small denomination coins;
of convertibility; of limited legal tender for smaller coins (which modiﬁes the
cash-in-advance constraints) and how they embody the ‘quantity theory’.
With the model in mind, we turn to the historical record, and trace the
evolution of small change as a process involving technology, theory and pol4

icy. We begin by describing the Medieval mechanism for providing coins, and
documenting recurrent shortages and occasional gluts of small coins throughout
medieval and early modern Europe. We describe the technology for producing
coins, and how it changed from 1200 to 1816, occasionally changing the cost
parameters of the government. We describe the development of ideas about
small change: churchmen thinking about equitable seigniorage rates and policies toward debasement, secular lawyers coping with the coin denominations in
terms of which debts were contracted and expected to be repaid (legal tender);
how coins were to be valued, by weight or by tale. We describe how technical
developments in metal working prompted the government of Spain to embark
on an experiment that initially oﬀered eﬃciency gains promised by a well managed ﬁat currency system, based on token copper coins; and how failure to
limit quantities ultimately created unprecedented inﬂation. We cite commentators who responded to these observations with a sharp defense of limited legal
tender provisions for small coins, based on a quantity theory of money. We
describe how, within decades of the Castilian experiment, Sir Henry Slingsby
(1670) stated the ‘standard formula’, and how it took another century and a
half before his recommendation was implemented. We close by endorsing Angela Redish’s account of how technological changes in metal working aﬀected
when the standard formula was to be ﬁrst implemented in Britain.

Small Change in the Middle Ages

Billon Coinage

In Medieval times, small change was either pure silver or billon, a mixture
of silver and copper, whose silver content was either proportional to or lower than
its face value.
In England, the small change was silver. The royal mint never minted
below sterling (92.5%) until 1672.4 The smallest coins (pennies, halfpence and
farthings) were sterling silver, and therefore extremely small. Pennies were often
broken up to create halfpence.
In other countries, silver was mixed with copper to create larger, more
convenient coins, but the silver content of the lower denominations was proportional to their face value, as compared to larger coins. This was the case
in France until the mid-16th century. When debasements occurred in medieval
times, the entire denomination structure was debased simultaneously. During
periods of intense debasement (1340–60, 1417–29) no small coins were minted.
Originally, small coins were under the same free minting regime as larger coins,
but by the 1480s, small denominations were only minted on government orders,
and at times and in speciﬁc areas, prohibitions were even placed on minting.
In addition to silver and full-bodied billon coins, a third form was coins
that were “light” relative to higher denominations, usually by no more than
10 or 20%. Examples are found in Spain, the Low Countries, and Italy. For
example, when the quattrino of 4d was ﬁrst minted in Florence in 1332, it was
17% lighter than the guelfo of 30d. In the course of debasements, the relative
contents could change. In 14th and 15th century Florence, the three silver coins
were the grosso, the quattrino and the picciolo. In 1366, the picciolo only was
4

With the exception of the Great Debasement of 1540 to 1550.

debased; in 1371, the quattrino was debased; in 1385 and in 1461, the grosso
was debased; in 1472 the quattrino and the picciolo were debased.5
How ‘small’ was small change? Munro (1988) provides detailed information on the purchasing power of the Flemish penny, and concludes that “small
silver and petty coins played a far greater role in medieval society than they
do in today’s economy. For most people, such coins were then certainly the
principal means, for many the only means, of transacting retail trade, in buying
and selling daily necessities.”
Table 1 compares the denomination structure with the daily wage of
unskilled labor at various dates in Western Europe. Typically, the daily wage
represented 1 to 3 silver coins, and thus daily necessities required smaller coins.
Another way to appreciate the size of small change is to look at what the smallest
silver coin could purchase. In Florence, in the second half of the 14th century,
the smallest silver coin was the guelfo of 5s: it could purchase 5 liters of the
cheapest wine, 1 kg of mutton, 20 eggs, 1 kg of olive oil; or pay a month’s rent
for an unmarried manual laborer (La Ronci`re 1983).
e

Curiously, from 1461 to 1471 the quattrino was actually the heaviest coin, and the
grosso (worth 80d) was 14% lighter. See Bernocchi (1974, 3:302–8) and Cipolla (1990, 191–209)
for details.

Place and time

Daily wage

Existing denominations
1/2, 1, 2,
1, 3, 10,

Paris, 1402
30d
Paris, 1460
35d
Florence, 1347
30d
Flanders, 1389
48d
Low Countries, 1433 60d
England, 1349
2.2d
England, 1467
5d
Castile, 1471
25mr

5, 10, 270
30, 330
1, 4, 32, 48, 744
1/2, 1, 24, 528
1/2, 1, 3, 6, 12, 24, 288, 576
1/ , 1/ , 1, 20, 40, 80
4
2
1/ , 1/ , 1, 2, 4, 30, 60, 120
4
2
1/2, 2, 4, 31, 420

Table 1: Daily wage for unskilled labor and denomination structure of coinage
in late Medieval Europe. Denominations of billon coins are in smaller font, those
of silver coins in normal font, those of gold coins in italics. Units are the local
pence (deniers, denari; deniers parisis for Flanders; maravedis for Castile).
Sources: France: Baulant (1971). Florence: La Ronci`re (1983, 326).
e
Flanders, Low Countries: Verlinden (2:95, 4:325). England: Postan (1973, 199).
Castile: MacKay (1981, 146).

The Technology

The Hammer and The Pile
Most mints were contracted out to private entrepreneurs who were usually
allowed diﬀerent charges for diﬀerent denominations.6
After melting and reﬁning the metal, the technology for making coins
involved three main steps: preparing sheets of metal, cutting the sheets into
blanks, and striking blanks. From Greek and Roman times to the Renaissance,
the technology employed in each step remained unchanged.7 The metal, once
brought to the desired standard, was hammered into a sheet, and then cut into
6 See Mayhew (1992, 99–103, 114–21, 140, 148, 152–8, 166–71) for the English mints,
Blanchet and Dieudonn´ (1916) for the French mints. Spuﬀord (1988) conﬁrms that similar
e
arrangements prevailed in the Low Countries and elsewhere. The cities of Florence and Venice
managed their mints directly; but, as elsewhere, the mint merely posted prices and let the
private sector choose quantities.
7 This account is based on Blanchet and Dieudonn´ (1916), Wendel (1960), Cooper
e
(1981).

squares with shears. Each square was adjusted in weight and then beaten into
a round shape. The resulting blanks were blanched to remove tarnish, and then
struck.
The striking process itself was simple: the lower die or pile, whose other
end was shaped like a spike, was driven into a wooden block. A worker put the
block between his legs, placed a blank on the pile, placed the upper die or trussel
on top of the blank and struck the top of the trussel several times with a hammer.
The dies were made locally by the mint’s engraver on a pattern provided by the
central government. The engraver prepared a collection of punches, each bearing
in relief one of the elements of the coin’s design. He then used the punches to
engrave the dies with the design, replacing them as they wore out.

Figure 1: A late medieval mint (engraving by Leonard Beck to illustrate der
Weißk¨nig, 1516).
o

The technology required specialized labor: hammering, cutting, blanching and striking were each performed by diﬀerent laborers, usually members of
a privileged (and hereditary) corporation. The tools were simple, the plant was
10

of limited size (furnaces were the largest piece of equipment), and minting could
be carried out in a decentralized fashion. But this technology had serious drawbacks. Since dies were produced locally, with common goldsmith’s tools, there
was considerable variation in the style and quality of the imprints on the coins,
and an approximate imitation could pass as genuine. The process produced imperfect coins of varying size and weight, with a poorly centered imprint, making
it diﬃcult to spot an altered coin. The coins were thus subject to falsiﬁcation,8
and to clipping.

Production Costs and Seigniorage

Per unit of value, the production process made small coins more expensive
to produce than larger ones, since the same eﬀort was required to strike a coin
of any size, and not much less to prepare smaller blanks than larger blanks.
Table 2 presents data on production costs from a variety of Western European
countries in the Middle Ages.9 Who bore those costs varied by country.
In England, after 1351, a ﬂat rate was allowed the mint-master for all
coins of the same metal, leaving strong incentives to make only the largest coins.
Occasionally, the proportions of the various coins were speciﬁed in the contract,
but the king could not force a competitive bidder to assume such costs. In 14612 the choice of the mix of denominations in production was left to the discretion
of the comptroller, a government oﬃcial, who should consult “the desire, ease,
and content of the People.” Production remained strongly biased toward large
coins until a complete scale of diﬀerential payments across denominations was
adopted in 1770.10
8 There are two kinds of counterfeit: coins that are not full-bodied, for instance plated
or hollowed-out or made of a sub-legal alloy; and coins that are essentially identical to legal
coins, but not produced by an oﬃcial mint. In the second case, the only loss is incurred by the
sovereign who loses seigniorage; but measures designed to prevent the ﬁrst kind of counterfeit
were bound to help prevent the second kind.
9 Sprenger (1991, 83) gives similar ﬁgures for Germany, 2% for Florins, 7% for Schillings
and 15% for Hellers.
10 Craig (1953, 75), Mayhew (1992a, 168).

name
of coin

legal
value

silver/gold
content (mg)

brassage
(%)

Florence, 1347

picciolo
quattrino
grosso
ﬁorino

1d
4d
32d
744d

52
217
1960
3537

15.65
6.22
1.20
0.14

England, 1349

farthing
halfpence
penny
noble

0.25d
0.5d
1.0d
80.0d

283
570
1178
8188

3.64
2.96
1.94
0.42

Flanders, 1389

double mite 0.08d
gros
1d
noble
72d

53
1018
7649

43.71
9.73
1.58

France, 1402

denier
blanc
´cu
e

1d
10d
270d

145
1448
3948

10.67
6.46
0.72

Low Countries, 1433 double mite 0.08d
gros
1d
philippus
48d

45
814
3598

36.34
4.51
0.94

Milan, 1447

denaro
sesino
grosso

1d
6d
24d

37
272
1175

20.50
8.56
2.25

France, 1460

denier
blanc
gros
´cu
e

1d
10d
30d
300d

109
1086
3258
3321

12.50
4.94
2.32
0.56

England, 1467

penny
groat
ryal

1d
4d
120d

707
2828
7643

3.11
3.11
0.55

Castile, 1471

blanca
0.5mr
39
24.39
real
31.0mr 3195
1.49
Table 2: Production costs (brassage) of coinage in late Medieval Europe. Gold
enriquein local pence (deniers, denari) or maravedis
420.0mr 4553
0.50
coins are in italics. Legal values are
(in Spain).
Sources: Milan: Cipolla (1990, 111–23). Florence: Bernocchi (3, 33–
44). Castile: Perez Garcia (1990, 115). France: Saulcy (1879–92, 2:117, 3:226).
England: Challis (1992, 703, 713). Low Countries: Munro (1972, 202–5) and
Munro (1988, Table 5).

In Florence, whose mint was run directly by the city, the opposite tack
was always taken, namely, charging private parties for costs. In 1347 (the period
for which the ﬁgures in Table 2 apply), the seigniorage rate was 0.6% for the gold
ﬁorino, 4.6% for the grosso, 6.6% for the quattrino and 17.8% for the picciolo
(Bernocchi 1974, 3:38–40).
In France and the Netherlands, the mint-master was allowed to deduct
diﬀerent production costs from gross seigniorage.11 This arrangement in eﬀect
paid for the diﬀerent costs out of the king’s seigniorage. Furthermore, the output
mix between gold and silver was often part of the contract, but only the aggregate
value actually mattered, and quantities of small currency were never speciﬁed,
leaving their determination to public demand and the mint-master’s incentives.
The mint-master’s only obligation was to provide a minimal amount of net
seigniorage during his lease. Since he could meet his obligation with any mix of
coins, he preferred to mint larger denomination silver coins, unless ordered to
do otherwise.

Recurring Coin Shortages

Monetary historians (Spuﬀord 1988, 361–2, Carothers 1930, Van der Wee
1969, Munro 1988, Cipolla 1956), testify that there were commonly coin shortages, speciﬁcally shortages of small coins (petty coinage, black money) commonly occurred in Medieval and Early Modern Europe.
In the 15th century in the Burgundian Netherlands, “continual demand
for small change, the lack of which was frequent topic of popular complaint. . . .
There was a considerable lack of oﬃcial small change from time to time, accentuated perhaps by hoarding of even the smallest denominations. The government,
perhaps on the insistence of the estates, attempted to remedy this deﬁciency
11

The mint price for low-grade silver was usually lower, by as much as 10%; but the
mint price does not seem to have depended on the coins in which it was paid.

by writing into the monetary ordinances stipulated proportions of bullion to be
used in the minting of diﬀerent denominations. Comparison between the stipulated proportions and the actual quantities of bullion used indicates that such
stipulations were completely disregarded by the mintmasters” (Spuﬀord 1970,
51, 44).
In France, from 1373 to 1397, royal ordinances repeatedly cite lack of
small change, and orders were regularly issued to various mints specifying quantities to be minted. Such orders appeared again in 1458 and 1461, when small
change was minted with express instructions to subsidize its cost out of other
seigniorage revenue, and recurrently again after 1488 (1488 to 1493, 1498 to
1501, 1508 to 1513, 1520 to 1522, etc). There were complaints of lack of small
change in 1544; curiously, at the same time the government forbade mints to
make small change without prior authorization, and prohibitions on minting
small change were occasionally issued (e.g., in 1545).12
In Spain, which consisted of separate kingdoms until the late 15th century,
there were often shortages of small coins. In Aragon, complaints were voiced
from the 1370s. In 1497, to remedy “the great dearth of fractional money in
the kingdom,” a commission was formed and as a result new billon pennies
were minted that were 21% lighter than silver coins (Hamilton 1936, 87–90).
The quantity minted was limited to 20% of the total silver coinage, and a legal
tender limit of 5d was imposed. In Navarre, a “great scarcity” of fractional
money was noted in 1380 and prompted an issue of billon pennies 18% light.
Similar complaints arose in 1430 and in 1481. In 1487 the kingdom was said
to “suﬀer great injury on account of the complete lack of fractional money”
(Hamilton 1936, 126–34). Valencia and Barcelona seemed by and large to be
free of such problems. In the 1530s, during a scarcity of vellon coinage in Castile,
tarjas (coins from nearby Navarre) circulated at 1/3 above their intrinsic content.
The Cortes of Castile asked the king for issues of vellon in 1518, 1528, 1542, 1551,
1558, 1559, 1583–85 (Hamilton 1934), and there was a small premium on vellon
with respect to silver in the late 16th c. (Dom´
ınguez Ortiz 1960, 238).
12

Saulcy (1879–92), passim.

In medieval England, counters struck in N¨rnberg became current around
u
1328, and were prohibited in 1335. Private tokens are ﬁrst mentioned in 1404
in a petition from the Commons to the king (Boyne 1889, xx). In the late 14th
and early 15th c., pressure was put on the mint to make more small coins. It
was forced to put 1/3 of all silver received into lesser coins. Pence were cut in
half for change in 1393, 1402 and as late as 1446, as observed in a complaint
of the Commons on the lack of halfpence and farthings: “traveling men were
often forced to break a penny in two for change”. At the same time, private lead
tokens circulated as farthings. The ships of Venice brought to London immense
quantities of ‘galley’ coins which were worth about a farthing, yet passed as
half-pence; they were prohibited by name in 1399, 1409, 1411, 1423, and as late
as 1509 (Craig, 81–82, 87). Token coinage at the end of Henry VII (early 16th
c.) is mentioned in Ruding, vol. 2 p. 69.
In the late 16th century, few if any coins were struck below sixpence. In
1582, resort to private tokens was rampant (Craig, 128). Elizabeth I authorized
Bristol to issue lead tokens current within 10 miles of the city. Scarcity of small
change led to private issues of substitutes in lead, brass, copper, or paper. In
London alone it was estimated that 3,000 trades people issued tokens in the
amount of 5 each.

Monetary Theory
During the Middle Ages, three groups wrote about monetary matters: theologians, legists specialized in Roman law, and canonists specialized in canon law.13
Theologians worked from a combination of Scriptures and Aristotelian writings.
They studied money partly because its existence and ultimate purpose had to be
accounted for, partly because Aristotle himself had discussed money in his writings. Indeed, Aristotle’s brief discussions of money (in Politics 1.6 and Ethics
5.8) provided the basis for their abstract conception of money. The two passages
are somewhat at odds with each other: in Politics, Aristotle clearly discusses
money’s role as a medium of exchange, and describes it as a commodity chosen
because of its suitable characteristics to obviate the inconveniences of barter.
But in Ethics, he discusses money as a standard of measure, and derives the
word for money (ν oµισµα) from the word for law (ν oµoς), thus making “money
´
´
a convention, and it is in our power to change it or make it valueless.” The passage from Politics, however, provided inspiration for several passages of Roman
Law,14 which in turn shaped legal thinking throughout the Middle Ages, and
the implications of the passage from Ethics were by and large ignored.
Among theologians, the political economy of money attracted attention.
In particular, nominalist writers such as Jean Buridan in the 14th century and
Nicole Oresme (c. 1320–1382) provided the most interesting views. Oresme
states that money as an institution belongs to the community, for whose welfare
it was created, and that its management must be subordinated to the common
welfare. He sees monetary manipulations as a form of taxation, for which the
assent of the taxpayers is required.
Legists and canonists both worked from an initial body of texts (Roman law and the Church’s regulations, respectively), providing commentary
and glosses. Both traditions touched upon monetary questions, from the point
of view of contracts and legality for Legists, morality and justice for Canonists.
13
14

On Medieval monetary theory, see Velde (1997) and the references listed there.
In particular a section of Justinian’s Digest, written by the 3d c. Roman jurist Paulus,
which contains the earliest statement of the “double coincidence of wants” problem.

The Evolution of Doctrine: from one coin to multiple denominations
At the time of the Carolingian reform, the penny, which was the only coin
minted, contained about 1.7g of ﬁne silver. Over the following period to 1160,
the right to coin money was appropriated by feudal lords and cities, as part
of the disintegration of central authority. Each ﬁef or city had its own penny,
and these coins were minted with progressively lower amounts of silver. By
1160, European pennies contained anywhere between England’s 1.3g to Venice’s
0.05g of ﬁne silver, with ﬁneness ranging from England’s sterling (92.5%) to
Barcelona’s 20% (Spuﬀord 1988, 102–3). Yet, everywhere in Europe the penny
was the only existing coin; large quantities of pennies were counted in dozens
(the shilling) and score dozens (the pound).
Such depreciation rates raised questions when it came to debt reimbursements. If 100 pennies had been borrowed, should 100 current pennies be repaid?
Where money existed simply in the form of the penny, with no other denomination, the answer seemed fairly straightforward, and standard Roman law was
applied to money as if it were a commodity. The earliest known commentary on
the case is by Pillius, around 1180, quoting his master Placentius, in the case of
a 5-year loan in pennies of Lucca. The Roman law he applied (Dig. 12.1.3) states
that “the debtor is not allowed to return a worse object of the same nature, such
as new wine for old wine” and that the debt must be repaid with something “of
the same kind (genus) and the same quality (bonitas) as that which was given.”
The Roman law was clearly concerned with commodities, but Pillius and subsequent glossarists such as Azo (d. 1220) and Accursius (d. 1260) applied it as
such to money. Azo formulated a famous brocard (an elementary principle or
maxim): “The same money or measure is owed that existed at the time of the
contract.”
In 1201 Venice had exacted a vast amount of silver from the leaders of the
Fourth Crusade to ferry them to the Holy Land, and minting them in pennies
would have been a huge task. It was decided to start minting a new, larger coin,
called the grosso, of much higher ﬁneness. The growing needs of the expanding
17

economy ensured that, within thirty years, all major cities of Northern Italy
had followed suit and issued silver coins of about 2g, which were not designed
to replace pennies but circulate concurrently. By the end of the 13th century,
every area of Western Europe (except England) had large denomination silver
coins circulating alongside the traditional pennies. Since the penny was the
original money, the larger coin’s values were expressed in pennies. When the
grossi were ﬁrst issued, they were given silver contents which made them into
exact multiples of the existing penny. Thus, the Venetian grosso was probably
issued so as to be worth 24 pennies, or 2 shillings. As Venice soon found out,
it was not easy to maintain a ﬁxed parity between the two coins, because the
penny continued to depreciate; by 1282, the grosso was worth 32p.
Since the words ‘pound’ and ‘shilling’ meant simply certain numbers of
coins, it became customary in some places to speak of ‘pounds of such coin’
consisting in 240 such coins.15 Often, governments tried to establish some oﬃcial
rate of a coin in terms of pennies, say N pennies to the coin; but, as the market
valuation of the coin changed, accounts were kept in ‘pounds’ containing 240/N
coins.16 Thus, the expression “one pound” could represent diﬀerent amounts of
silver or gold, not only as a function of the date, but also of the type of coin
used.
The question of which unit was meant by a ‘pound’ could, in most cases,
be resolved by an appeal to local custom and likelihood: for example, in Venice
the lira di grosso was 32 times the lira di piccioli , and in most cases there
15

In Venice, the penny or piccolo was counted in lira di piccioli containing 240 piccioli.
The grosso was counted initially in lira di grosso containing 240 grossi; thus the ratio of one
lira to the other was the relative price of the grosso in piccioli (26, 28 or 32). The gold ducat
was introduced in 1284 and rated at 18 grossi, and in 1328 at 24 grossi. At that last rate, 1
lira di grossi equaled 10 ducats, and imaginary subdivisions of the ducats were created: the
grosso a oro, representing 1/24 of a ducat. Later, when the gold/silver ratio changed further,
the grosso a oro remained ﬁxed, and a new unit, the lira di grossi a oro representing 10 gold
ducats was created (Papadopoli 1:380–1).
16 This was the accounting system prevalent in Florence. As in Venice, gold-based units
also developed. In 1252, Florence issued the gold ﬂorin at a valuation of 240 piccioli, or one
lira di piccioli. Over time, a lira a oro permanently equal to 1 ﬂorin was developed, divided
in imaginary fractions of the ﬂorin: 20 solidi a oro or 240 denari a oro. For a while, the ﬂorin
happened to rate at 29 silver solidi, and another system of fractions of the gold coin developed,
the lira aﬃorino (and its subdivisions) consisting in 20/29 ﬂorin. The system survived even
as the gold ﬂorin went on to rate for more than 29 actual silver solidi.

would be little doubt over which was the applicable unit. This line was adopted
by jurists, who were usually deferential with respect to local custom. But the
existence of exchange rates between coins of various sizes led jurists to conceive
that the bonitas of a coin is more complex than that of a commodity. By
the mid-13th century, the legist Odofredo Denari (d. 1265) had introduced the
concept of bonitas penes usum, or value with respect to the use. He argued
that the ‘quality’ demanded in Roman law might not be determined exclusively
by intrinsic characteristics of the object, at least for some objects, like money,
and argued for consideration of the purchasing power of the coin. Jacopo de
Arena (d. ca. 1300) coined the terms bonitas intrinseca or intrinsic ‘quality’ of
the coin in terms of its pure metal content, and its bonitas extrinseca, which is
understood to mean its valuation in terms of other coins (the value of a grosso
in terms of pennies), or its purchasing power.
Jurists remained divided over the extent to which purchasing power
needed to be taken into account in the repayment of debts. One reason was
probably the diﬃculty of measuring a coin’s purchasing power. Odofredo’s text,
as presented by Cino da Pistoia, clearly deﬁnes purchasing power. But later
commentators, when quoting Odofredo and Arena, seem to take bonitas extrinseca to be the market valuation of a coin in terms of pennies, which was more
readily observable. Domenico de San Gemignano, writing ca. 1430, makes a full
argument for consideration of purchasing power in the case of a rent owed for
the purchase of land. Changes in the market value of the proceeds of the land
should be taken into consideration in deciding whether to adjust the nominal
value of the debt.17 Other jurists, such as the Neapolitan Andrea d’Isernia,
rejected the consideration of extrinsic value: “If I lend you a measure of wheat
in May when it is expensive and is worth perhaps 3 tarini, and I reclaim it in
July after the harvest when it is worth perhaps 1 tarino, it is enough to return
the measure of the same wheat in kind, even though it is worth less; likewise if
17

Curiously, this reasoning leads San Gemignano to advocate no adjustment in the debt,
even though the coinage had depreciated by 25%, although his argument that nominal wheat
prices had remained constant in that period is not implausible. See Stampe (1928).

it is worth more, for example if I lent it in July and demanded it in the following
May . . . the same reasoning applies for money as it does for wheat and wine.”
Seigniorage rates
In the late 12th century, another theoretical development took place. In
1196, Pedro I succeeded his father as king of Aragon and swore to maintain
the currency as it was (an oath required of the kings upon their accession). He
later discovered that the currency had been debased soon before his father’s
death, and asked the pope to be relieved of his oath in 1199. The pope’s decree
was included in the body of Church law18 in the chapter on oaths, but became
the occasion for canonists’ musings on monetary doctrine. Because the context
was not contract law, but rather a sovereign’s monetary policy, their attention
was partly drawn to new questions. The canonists observed that, in practice,
sovereigns were able to levy positive seigniorage. That is, the value at which
coins were issued was higher than the intrinsic content. Moreover, the papal
decree seemed to declare fraud for a coin whose intrinsic content was less than
some expected norm.
The ﬁrst canonist to comment on this decree was Innocent IV (1195–
1254). He attributed the existence of positive seigniorage to the prince’s right
to issue currency, and to the fact that the prince’s mark gave the coin general
acceptance, thus adding value. But how much seigniorage was allowable? Innocent IV answered the decisively: seigniorage net of production costs should
be zero. The only exception he allowed was in case of emergency, and only for
coins circulating domestically, and with the expressed consent of the subjects.
Anything else would be fraud. Canonists adhered to this position until the 16th
century.
In this respect, they diﬀered sharply from legists. The glossarists of
Roman law (Azo and Accursius in the 13th c.) had interpreted the texts they
18

X 2.24.18. All Roman law and canon law citations will follow the conventions described
in Brundage (1995); they have been converted from the medieval method of citation by incipit,
using Ochoa and Diez (1965).

knew, in particular the account by the Roman jurist Paulus (d. 235 AD) of the
origins of money, in a strict commodity-money view, and saw money as deriving
its value from its content, the stamp being a mere convenience. They thus came
to insist that money should be worth as much in coin as in bullion, and that
the expenses of coining should be borne by the state. This view, expressed most
notably by Bartolo da Sassoferrato (see infra), remained that of the legists down
to the 16th century as well, even if they acknowledged that it was not observed
in practice.

Debasements and Nominal Value of Debts
This recognition that the market value of a coin was higher than its intrinsic value was reinforced by the increasingly common practice of debasement,
whereby a king tried to generate seigniorage by producing lighter coins and
inducing holders of heavy coins to bring them to the mint for exchange into
the new, lighter coins. Thus, variations in the rate (cursus) of a coin could
come about because of the coin’s depreciation, or because of circumstances unrelated to its intrinsic characteristics. Since canonists held strong negative views
about currency manipulations and seigniorage above production costs, they condemned debasements in the sphere of public law, and tried to undo its eﬀects
in the sphere of private law, namely contracts: this approach was started by
Hostiensis (1190–1271), and followed consistently by canonists, who called for
total disregard of changes in rates due to currency manipulations by sovereigns
driven by “greed”.
Philip IV the Fair, king of France, carried out the most spectacular currency manipulations to date between 1290 and 1306, by debasing the penny
(denier Tournois). By 1302, pennies contained a third as much silver as they
used to. In 1306, the king decided to return to the old standard and minted
new ‘strong’ pennies which were oﬃcially rated at 3d (in the debased pennies).
Then, it was announced that, as of Oct. 1, 1306 the ‘strong’ penny was to be
the standard of account, and all sums expressed in pounds, shillings and pence
21

should be understood in terms of the strong money. An ordinance of Oct. 4,
1306 prescribed that “All rents shall be paid in good money. Transactions will
be settled in the coins current at the date of the transaction. If contracts were
written such that payments were to be made over several years, each payment
will be made in the coins current in that year. Housing rents will be paid in current money, but if the rent was so high that the tenant would be burdened, it will
be paid in the coins current at the time of the rental contract.” At Christmas
1306, when landlords in Paris demanded their rent payment in strong money,
riots erupted, and the king passed another ordinance allowing for payments of
the next three quarters’ rents in weak money.
Some jurists were quite uncomfortable with the French king’s actions.
Cino da Pistoia (1270–1336), who cites the episode, prescribes that debts will
be discharged by returning the correct quantity of metal, and not the number
of coins. An application of this doctrine appears in the case of a rent of 300
which the pope ordered to be paid annually by the abbey of Cˆteaux to the
ı
abbey of Clairvaux, in 1302. After the currency reform of 1306, the abbey of
Cˆ
ıteaux argued that he should only have to pay 100 in ‘strong’ currency. The
jurist Oldradus (d. 1335) wrote a consilium defending that opinion.
Yet the French jurist Jean Faure (d. 1340), who taught in Montpellier,
considered that, debts denominated simply in pounds and shillings could be
repaid in current money, whatever it might be: “certainly the king has powers in
such matters, and he is competent to set the rate (cursus) and value of money.”
Such a doctrine, termed in the literature ‘nominalism,’ remained almost unique
until the 16th century. Even the French king’s courts upheld repayment in the
original currency when the obligation arose from a single transaction (Timbal
1:331–91). And Faure himself accepted that the terms of a contract which
required payment in speciﬁc coin had to be honored. Indeed, although the French
king outlawed such clauses in 1330, but the courts nevertheless upheld contracts
denominated in speciﬁc domestic or even foreign coins, and the prohibition was
repealed in 1352 (Timbal 1973).
22

Another departure from strict adherence to intrinsic content was made
by Guillaume Durant (1231–96), who argued that, while intrinsic content was
to be used to repay debt contracts, ﬁnes, salaries and other sums set by law in
units of account had to be interpreted in terms of current money. This opinion
was often cited, though not always endorsed (in particular, it was rejected by
canonists). French courts appear to have followed Durant: for contracts which
required exchange of goods and services against money over time, payment in
current money was upheld by courts (Timbal 1973, 331–91).
Fluctuations in the Exchange Rate between Large and Small Coins
The introduction of gold coins such as the ﬂorin and the ducat in the 13th
century introduced further complexity. The Florentine ﬂorin, issued initially at
240d in 1252, had reached 3 or 720d by the early 14th century, and 1000d by
the mid-15th century. Such a large price made it possible for small variations to
be expressed conveniently, and the ﬂorin’s daily market value against the penny
was observed to ﬂuctuate from day to day, and also to trend up over time. These
ﬂuctuations created new problems for jurists, because it was not clear that they
were due to any change in intrinsic content of either the ﬂorin or the penny
(even allowing for depreciation of the penny by wear and tear).
As the synthesis by Panormitanus (1386–1445) shows, canonists remained
attached to the precept that variations in intrinsic content should be accounted
for, whatever the denomination, and that variations in the rate which did not
reﬂect any change in intrinsic content should be ignored. Thus, day-to-day ﬂuctuations in the market value of the ﬂorin were to be ignored; but Panormitanus
allows that, if the value seems to have changed permanently, an adjustment
should be made.
Bartolo da Sassoferrato (1313–57), a student of Cino da Pistoia and the
pre-eminent jurist of the 14th century, provided a new justiﬁcation for repayment
in current coin under certain circumstances. Bartolo did not deviate from the
standard view in the case of coins whose intrinsic characteristics have been
23

altered, and he also endorsed the legal validity of clauses specifying the coin
in which repayment must be made.19 The problem arose when no such clause
exists, and sums are denominated in pounds and shillings. Bartolo reads such
sums as being quantities of pennies (unless speciﬁed otherwise), and argues that
pennies are the unit of measure, and the smallest unit: any coin or good can be
priced in pennies, but the reverse is not true. Therefore, the value of the penny
cannot be said to have changed, and no adjustment is necessary: sums in units of
account are repaid in current money. The reasoning then relies on the medieval
distinction between incurring a loss, which the debtor must compensate, and
missing out on a proﬁt, which is the creditor’s problem. That the creditor could
have bought other coins with N pennies and obtained more than N pennies
today is a lost proﬁt, not an actual loss. This opinion was rejected by some,
in particular canonists. St. Antoninus of Florence countered that “just as a
ﬂorin can be bought with piccioli, so piccioli can be bought with a ﬂorin if some
necessity requires it.”
Bartolo nevertheless endorsed the general principle that the creditor could
not be forced to accept repayment in another metal than the one lent if he were
to suﬀer a loss thereby; but if there is equivalence in metal content, the creditor
could not object. He also let the local custom override his own prescriptions,
when applicable.20
The Invention of Fiat Money
Canonists had allowed for limited debasement in cases of emergency.
This exception was developed further by a line of jurists, Andrea d’Isernia
(1220–1316), Matteo d’Aﬄitto (1443–1523) (both in Naples) and Gabriel Biel
(ca. 1430–1495) in Germany. D’Isernia allows for debasements when the price
19 Although he held that merely specifying the coin in which the original payment had
been made was not suﬃcient.
20 In the statutes, legal tender limitations were introduced only slowly, because small
coins remained close to full-bodied. There were a few examples in the late Middle Ages,
usually in association with the issue of light pennies: for example, new Aragonese pennies
were limited to 5d in 1497. In England, in 1445, half-pennies and farthings light by 10% were
minted for two years and their legal tender limited to 1/20 of a debt (Craig, 87).

of silver as metal has been changed: for example, when more metal is discovered
in mines than before, or more is extracted, or when a passing army spends large
amounts of money and raises prices. Depreciation or appreciation of silver can
be compensated by making larger or smaller coins. Long-term deterioration of
the coinage, by wear and tear or oxidation, is also a legitimate ground for debasement, and the consent of the people is not required because the prince acts
for the common good.
But d’Isernia also makes the observation that kings in emergencies often
make money from base material such as iron or leather and order it to be accepted as if it were good money, because “the common good is preferred to the
private good.” D’Isernia ﬁnds this acceptable,21 even without the explicit consent of the people, but on certain conditions. Once the emergency has passed, the
king must compensate the holders of the vile money, and accept it in exchange
for good money (Isernia points out that the current holders of the money need
to be compensated, not the original recipients). Matteo d’Aﬄitto repeats these
prescriptions and strengthens them: failure to redeem the emergency money is
a mortal sin: “Alas! How many princes have been damned because of this, and
indeed we have seen in past wars many men destroyed because they sold their
goods for vile money such as new copper pennies and after the peace was made
those pennies were worth nothing.”
The emergence of the modern state in 16th century Europe was accompanied by a radical change in thinking about the nature and value of money. As
we said earlier, Scholastics distinguished between intrinsic content and market
value, but insisted that the two remain identical or nearly so. They also denied kings the right to circulate coins far above their intrinsic content, and to
21

He does not argue in favor or such methods. But in the late 15th century, Biel notes
that “some think that in case a large sum of money must be collected for ransoming a prince
or for defense, an alteration in the coinage is the better and more expeditious method. They
reason that this is the easier way to collect quickly the required funds without fraud and undue
exactions from the subjects. It is, moreover, felt less and for this reason more easily borne
without protest and without the danger of a rebellion on the part of the people. It is the most
general form of taxation embracing all classes, clergy, laity, nobility, plebeians, rich and poor
alike. But whether these reasons are valid or not, I leave to the diligent reader” (Biel 1930,
34–5).

debase the currency without the consent of their subjects. Faced with repeated
episodes of debasements, a degree of realism crept into jurists’ writings. Thus,
Martino Garati (writing in 1438 in Milan) concedes that if a prince has been free
to alter the currency without popular consent for as long as anyone remembers,
he may rightfully continue to do so; and Grimaudet, writing in 1575, restates
the traditional medieval doctrine but adds that, in France, the king’s power is
absolute and he may do as he please with the currency. Aristotle’s passage on
money as a convention was adduced as authority.
Besides the question de jure was the question de facto: could a coin’s
two values, intrinsic and extrinsic, be substantially diﬀerent? In the late 15th
century, a few writers assert this possibility: Girolamo Butigella (1474–1515), an
Italian jurist, wrote that “in a coin no attention should be paid to the material,
nor to the intrinsic value, or quality, or weight: but only to the public valuation,
so that it would be possible to make a money of lead, or leather, as long as it be
publicly approved, and it would then be possible to use it to repay a contractual
debt in place of any gold or silver money.” The jurist Matteo d’Aﬄitto (1443–
1523) also held the same view, which, although violently rejected by some writers,22 proved inﬂuential in the second half of the 16th century. For example, the
French jurist Grimaudet (1585, 18) typiﬁes a new mode of inquiry which relied
much more on historical precedent and factual observation than had Scholastics.
While he does cite the Canonists’ and the legists’ standard views on money, he
then adds that “the opinion of those who think that the value of money is in the
will of the Prince, is the one always put in practice, and from this Princes have
drawn great proﬁt above and beyond the value of the content.” He then lists
examples of coins made of lead or leather in Scandinavia and medieval Germany,
examples of necessity money, as when the Emperor Frederic II, besieging Faenza
in 1241, paid his troops with leather money which he redeemed into gold after
the siege and mentions Chinese “paper-money of square shape with the image
22 Charles du Moulin (1577, §798), who quotes Butigella, rejects the view as “irrational
and ridiculous: indeed, by the same reasoning it would be possible to make a money out of
paper imprinted with a design, which is no less ludicrous and ridiculous than a child’s game,
and not only contradicts the origin and deﬁnition of money, but also experience and common
sense.”

of the king imprinted on one side.” He concludes that, “although we see that
princes can make in other material than metal, nevertheless the most common
habit among men has been to make money in metal,” but sees this as a matter
of convenience. The material value is “taken into account by the Prince only
in the minting” and “subjects have no power to refuse money in trade on the
grounds that the imposed value is higher than the value of the content, as we
see in the case of billon money where the imposed value is six times higher than
the content.”
In a similar vein, Budel (1591) cites the case of obsidional monies23 (lead
in Vienna in 1529, tin in Neuss, copper in Maastricht in 1579, paper in Leyden
in 1574) and concludes: “I hold it to be indubitable that a Prince in the midst
of costly wars, and therefore in great necessity, can order that money be made
out of leather, bark, salt, or any material he wants, if he is careful to repair the
loss inﬂicted thereby on the community with good and better money.” A few
years later, the Spaniard Pedro de Valencia states that “this has been to relieve
immediate needs, for that one time, and not so that these who receive them
should be regarded as actually having been paid, but that they should serve as
credit certiﬁcates, in order that the republic or captain that used such a system
should, as soon as possible, make ﬁnal payment in true, legal money” (GraceHutchison 1993, 84). The restrictions which they both placed are reminiscent
of the allowance which canonists made for high seigniorage rates justiﬁed by
ﬁnancial necessity.
Ultimately, one sees a writer such as Jakob Bornitz (1608) deﬁne money
not based on its intrinsic characteristics, but on its function: returning to Aristotle’s narrative of the origin of money, he deﬁnes it as “any object of public
value measuring (aequaliter dimetiatur) goods which are not commensurate (inaequales)”. He admits that this deﬁnition includes both “true money”, made of
things that best fulﬁlls the monetary function (divisible, stable value, etc), as
23

The Oxford English Dictionary deﬁnes “obsidional” to mean “of or pertaining to a
siege”, and “obsidional coins” to mean “coins struck in a besieged city to supply the want of
current coins.”

well as “quasi money”, which lacks something of true money, but has received
the stamp of public authority. But, while the content is the “material cause,”
the public stamp is the “eﬃcient cause.”
The major practical challenge of medieval jurists had been to deﬁne legal tender rules. In this area too, writing in the second half of the 16th century represents a radical departure. The turning point is undoubtedly Charles
Du Moulin’s De Usuris, ﬁrst published in 1546. He ﬁrmly rejects the relevance
of intrinsic content in almost all cases of contractual payments. He reinterprets
the medieval bonitas intrinseca to be the face value, determined by public authority, rather than the market valuation, and adds that “the rate and imposed
value of any money is properly speaking its true intrinsic value, inasmuch as it
is considered as money, of gold or silver; to consider it as matter is to consider it
not as money.” The public authority’s valuation of coins cannot be questioned,
unless it is clearly arbitrary, unstable and driven by proﬁt.24 Du Moulin’s writings were very inﬂuential. Considered the best jurist of his time in France, his
position on debt repayments is cited with approval by many subsequent writers. His writings also reﬂect a shift in jurisprudence. While medieval courts
did not enforce repayments at face value and protected clauses which required
payment in speciﬁc coins,25 by the 1530s Du Moulin himself, as solicitor, was
successfully arguing before the Paris Parlement that such clauses are void, and
that only the nominal value of a debt matters.26 This altered the very concept
of denomination. As pennies themselves became secondary coins, used only for
very small transactions, and produced infrequently by the mints, the unit of
account ceased to mean “240 pennies”, but progressively became an abstract
measurement unit, whose equivalent into coins was not precisely deﬁned at any
time.
The sixteenth century therefore saw a shift toward the concept that intrinsic content was not the main determinant of the value of money. This shift
24 Du Moulin’s ‘nominalism’ makes his violent rejection of Butigella’s ﬁat money rather
puzzling.
25 See Timbal (1973).
26 Thireau (1980).

was clearly due to an accumulation of evidence pointing to the possibility, and
was comforted in legal theory by the rising model of the Prince as absolute ruler.
The resulting theory, dubbed “chartalism” or the “state theory of money” in the
19th century,27 emphasized legal restrictions or conventions over intrinsic content, and admitted the theoretical possibility of intrinsically worthless money.
It was in this context that certain technological innovations occurred.

Theory ahead of Technology

For brass I will bring gold, and for iron I will bring silver
Isaiah 60:17
By the end of the Middle ages, theorists accepted that a coin’s intrinsic value
could diverge from its market value. Whether divergence could be sustained
other than by legal restrictions or particular circumstances is not entertained in
the writings we know. But someone must have hit upon an early formulation of
Cipolla’s standard formula, speciﬁcally in Catalonia around 1481.
Catalonia, ruled by the king of Aragon, suﬀered from small change shortages like many other countries. The town of Gerona had some experience with
token coinage. In 1462 and 1463, the town was besieged: its commander issued
obsidional money, which the town continued to issue after the siege, but which
depreciated. Still suﬀering from a scarcity of small change, the city asked permission from the king to issue small change, and the king granted it. In 1481, he
allowed Gerona to issue coins of whatever metal they wished, but no more than
200 llivres, and on condition that “the city be known to pledge, and eﬀectively
pledge to receive said small money from those who might hold it, and to convert
it and return for it good money of gold or silver, whenever and however much
they be asked.” The king required the city to appoint an individual to carry out
the exchange.28
27
28

See Knapp.
Botet i Sis´ (1908–11, 2:326–37, 3:11–40, 3:480), cited in Usher (1943, 232).
o

Initially, Gerona withdrew the remaining siege money and restamped it.
The collection fell short of the 200 llivres, and it was decided to mint new coins
copper alloyed with 6.25% silver. The resulting coinage contained 25% of the
silver in an equal face value of croats, the main silver coin. A total of 1,300
llivres of such coins was minted between 1482 and 1484. The coins depreciated,
in part because of counterfeits, and in 1489 the town was authorized to announce
a recall for 15 days, after which it was not obliged to convert them anymore.
The coins found to be genuine were countermarked and issued again; the next
year, another series was issued, of pure copper.
In 1494, an interesting episode occurred: as part of a kingdom-wide monetary reform, the king had placed a legal tender limit of 6d for small change. As
a result, the coinage of Gerona was less demanded and many coins were turned
in for exchange, at great cost for the city. Gerona applied for relief from the king
and was authorized to maintain the currency at its original legal tender value
for three months, presumably without convertibility. A restamping operation
was also carried out. More operations of restamping and new issue were carried
out in 1510 and in 1515: the latter occasioned diﬃculties because the city found
more than half of the coins to be counterfeits. These new issues were convertible, and the issues from 1515 contained 4% silver. In 1535, the large number of
counterfeits gave rise to a rumor that the city would suspend convertibility, and
another restamping operation was carried out to remove counterfeits. The last
authorization for Gerona was in 1575.
Gerona’s innovation was quickly imitated by several other Catalonian
cities: about a dozen are known to have issued convertible coinage in pure
copper or billon. Sometimes the city was required to commit in writing to the
convertibility into royal coins of gold or silver current throughout Catalonia. The
proﬁts were presumably retained by the city, but often it was speciﬁed that they
must be used for the upkeep of the city’s military installations. The coins were
often given legal tender value in a very limited range around the city. Indeed,
the capital, Barcelona, which was the seat of the oﬃcial mint, disapproved of
30

these local currencies, maintaining that only it had the privilege to mint royal
coins, and prohibited the local issues on its own territory.
The problem of counterfeiting was prevalent, and restamping operations
were carried out as in Gerona. In 1532 the city of Vic tried to forestall depreciation by agreeing to buy back counterfeits, but this only increased counterfeiting
and it soon had to resort to a restamping. The last issue to be speciﬁcally convertible was in 1576 in Puigcerd`, and it was legal tender throughout the Rossell´
a
o
and Cerdanya region (in spite of the protests from the city of Perpiny`).
a
This ﬁrst attempt at using a convertible token coinage was thus a partial
success, since it was pursued by several cities for decades. But the medieval
hammering technology proved too accessible to counterfeiters, and the cities were
plagued by depreciation and recurrent crises, which they met by periodically
weeding out counterfeits from the money stock and issuing new types of coins.
The turbulent events of the 17th century (vell´n inﬂation in nearby Castile and
o
the bloody war of secession of 1640–52) put an end to this experiment.

The Age of Copper (16th–17th centuries)

To this next came in course the brazen age,
A warlike oﬀspring, prompt to bloody rage,
Not impious yet . . .
Ovid, Metamorphoses I:125-7, translated by Dryden

A substantial technological change occurred around 1550, which made it possible
to make coins more immune to counterfeiting. As this innovation diﬀused across
Europe, it was accompanied by the ﬁrst attempts governments to dissociate the
metallic currency from its intrinsic content in a systematic fashion, a possibility
now suggested by theory. These attempts took the form of large issues of copper
31

coinage, issued at ﬁrst as a substitute for small change, and circulating at much
more than its intrinsic content. The extent of these experiments varied across
Europe, as well as the consequences. Theorists quickly drew lessons about both
the viability and the dangers of ﬁat currency.

The Technology: Mechanization
The ﬁrst innovations arose out of the art of medal-making, which began in Italy
in the 1430s.29 Medals, often much larger than coins, were usually cast (and
eventually chiseled), but around the turn of the 16th century the demand for
high-quality medals had increased and ways to strike medals were sought.30
This required a mechanized technology both to prepare the larger ﬂanks and to
strike them with suﬃcient force and accuracy. Ultimately, the key innovations
occurred among goldsmiths of Southern Germany and Switzerland around 1550.
They quickly disseminated to the rest of Europe.31 Two methods of striking
the coins developed: one using a screw-press, the other using two cylinders on
which the dies were engraved, thus laminating and striking at the same time.
The screw-press came to be adopted in France and England in the 17th century,
while the cylinder-press was adopted earlier in Austria, Germany, Spain, Italy
and Sweden. In the 18th century, the screw-press overtook the cylinder-press as
the main minting apparatus.
We begin with a discussion of the development of each method separately
in the next two sections, which leads us to a certain amount of back-and-forth
across countries, since some countries experimented with both. In the subsequent sections, we examine the impact made by both methods on governments’
policies on small coinage, and the experiments that were undertaken in the 17th
century.
29

This account is based on Cooper (1981) and Wendel (1960).
Some medals were cast and then struck over. This method was imported from Venice
to produce groschen in Tirol in 1484 (Wendel 1960, 103).
31 Earlier developments in Italy by Bramante, Leonardo da Vinci and Benvenuto Cellini
(who directed the Rome mint from 1529 to 1534) were not followed upon.
30

The Screw-Press
In 1547, the French king Henri II decided to reform the coinage of his
realm. A ﬁrst step was taken that same year, by appointing an engraver-general
who produced all the punches for making dies in all mints, thus bringing greater
uniformity to the realizations of the designs. He also asked his envoys in all
countries to report new technologies that could be put to use to produce better
coinage. In 1550, he learned from his ambassador in Germany that an Augsburg goldsmith had perfected equipment to produce high-quality coins.32 The
ambassador’s brother was sent along with an engineer named Aubin Olivier to
Germany. They negotiated the rights to the machines, had them built in Augsburg and brought to Paris. The machinery was set up in a building on the ˆ
Ile
de la Cit´ in Paris, where a water-mill that had been installed in the 1530s for
e
´
gem-polishing.33 The Mill Mint (Monnaie du Moulin des Etuves) began producing gold coins in 1551, and Olivier became its director in 1556. A rolling mill
(powered by the water-mill) created smooth strips of metal or ﬁllets; a drawing
bench brought them to the exact width; a hand-activated cutter or punch press
perforated the strips into blanks; and a press struck the blanks on both sides.
By 1555, Olivier had improved the press by adding a segmented collar to hold
the blank in place. During the strike, the collar impressed on the edge of the
coin a design or a motto (the collar had to be segmented so as to remove the coin
after the strike). The new machines thus mechanized each step in coin-making,
and also marked the edges to prevent clipping.
Whether the original Augsburg machinery used a traditional drop-press
or a modern screw-press is not clear,34 but by the mid-17th century, the screwpress was well-developed: its ﬁrst known depiction is on a painted window in
32
33

The details are in Vaissi`re (1892).
e
Hocking (1909), Mazerolle (1907, 26–31).
34 It is usually assumed that the stamping was originally done by a screw-press or ﬂypress, but there is actual evidence for its use in Paris only after 1600. It is rather unlikely
that an Augsburg goldsmith would have had an operating screw-press in his workshop, and
more plausibly some kind of drop-press was involved Wendel (1960, 130). A 1676 depiction
of the Paris Mint machinery shows both a drop-press and a screw-press. Which mint-master
introduced the screw-press is unknown, and no connection with the earlier advances in Italy
has ever been found.

Figure 2: The screw-press (engraving for Diderot’s Encyclop´die, ca. 1755).
e

the Constanz mint in 1624. It gained its force from the momentum of two large
lead balls (weighing 40 to 150 lb each) at the extremities of a horizontal bar.
At the time of its installation in London in 1662, it could strike 30 coins per
minute. By the late 18th century, the removal of struck coins and feeding of
new blanks had been made automatic; the Paris press took 16 men to operate
and could produce 60 coins per minute.35

Cooper (1988, 59), Craig (1953, 164), Wendel (1960, 158).

The new mint set up at the Moulin did not function long as coinage
mint, however, because of the high costs of operation, and perhaps some initial
mismanagement. It was claimed that the wastage amounted to 30%, as opposed
to 2% in the hammering process.36 In 1563, the Mill Mint was restricted by the
Cour des Monnaies to medals and tokens. In 1575 its mandate was extended
to pure copper coinage. It continued to function in that capacity, producing
high quality medals and small copper coins in limited quantities, until 1625.37
Historians usually attribute this failure to the resistance of entrenched interests
among mint-workers and the Cour des Monnaies, although other problems, such
as those that England encountered in the late 17th century, may have been
foreseen at the time.
England became interested in the new process early on, and in 1554
some attempts were made at imitating the French press. In 1561, a former
employee of the French mint named Eloi Mestrell came to England and was
allowed to introduce the new technology at the Tower Mint. After 11 years, the
machines were found to be ten times slower than the hammering process and
the experiment terminated.

In 1630, an engraver from Li´ge named Jean Warin became director of
e
the Mint-Mill (now called the Medal Mint and located in the Louvre Palace). On
the occasion of a general overhaul of the French coinage in 1640, he was allowed
to try again to use screw-presses for minting coins, and obtained in 1645 that
the mechanized process be used in every French mint. It should be noted that
the general recoinage had already been decided upon when the technology was
adopted.
Once again, England followed the lead within a few years. In 1649, the
Frenchman Pierre Blondeau was invited to England to bring with him the technology: his sample coins were approved in 1651, but the ﬁrst coins produced
with the new method appeared in 1658. The method was extended to the whole
36
37
38

Bodin (1578, 6:???). Cutting a circle out of a square wastes at least 1 − π/4 or 21%.
Mazerolle (1907, 26–34), Blanchet and Dieudonn´ (1916, 192–5).
e
Craig (1953, 118–23). Mestrell himself was terminated in 1578 for counterfeiting.

English coinage in 1662. The rolling mills were driven by horses. In his diary for
1663, Samuel Pepys noted that the machinery made coinage more expensive for
the king.39 In England, however, the coins produced for the next thirty years
proved to be of such high quality that they were used more as bullion than as
money, that is, they were hoarded, melted or exported. By the mid-1690s, the
circulating medium was no better, and in fact much worse, than in 1662. It
was decided that a general recoinage was needed, as a consequence of the new
technology (unlike the French case). In distinction with France, the recoinage
was carried out at government expense, and the worn and clipped coins were
exchanged one-for-one with the new milled coinage.

The screw-press was not widely diﬀused until after its nearly simultaneous
adoption in England and France: it was adopted in Brandenburg soon after the
peace of Westphalia in 1648, and by the Netherlands in 1671. Spain switched
to the screw-press in 1728.41 Thus, the screw-press, which ultimately proved
to be the superior technology, was not fully adopted for a hundred years after
its appearance; largely, it seems, because of a reluctance to accept its high
investment costs, both physical and in terms of acquisition of skills.
The Cylinder-Press
While Henri II of France was actively searching for a new technology,
Charles V, German Emperor and king of Spain, was inspired to do the same.
One of his advisers, count zu Solm-Lich, recommended mechanization to reduce
minting costs; in 1551, he proposed the principle of a cylinder-press, similar to
the rolling presses already in use by goldsmiths to produce ﬂat strips of metal.
The cylinders themselves would be engraved with the coin die; the coins would be
cut out of the stamped strips afterwards. Horses or water-wheels were to provide
39

Pepys (1970, 4:147).
Craig (1953, 184–97). See contemporary discussions by Lownde and Locke.
Walther (1939). The screw-press technology is also known to have been transferred
to the small kingdom of Navarre (soon to be united to France), where a similar mint was set
up by a former engraver of the Paris mint in 1556. Wendel (1960, 132) mentions that two
German brothers obtained a patent for a screw-press to be used in minting from the king of
Poland in 1578, but nothing further is known.
40
41

power. The Emperor’s brother Ferdinand, count of Tirol, showed interest and
asked his mint oﬃcers in Hall to investigate the possibility.
The ﬁrst working cylinder-press, however, was set up in Z¨rich in the
u
early 1550s, by two goldsmiths.42 The mechanism had the advantage of both
laminating and stamping the metal at once. A disadvantage was that it was
necessary to engrave oval dies. Also, the coins often came out slightly warped,
which made serrating of the edges impossible. In spite of these ﬂaws, the process
proved very popular. The Swiss inventors set up a partnership to develop the
new invention commercially and export it abroad; they obtained a patent for all
of Germany. Ferdinand bought it for Tirol and it was installed in Innsbruck in
1568. Austria would remain faithful to the cylinder-press until 1765.
The cylinder-press was soon adopted throughout Germany and beyond:
Heidelberg in 1567, Cologne in 1568, Augsburg in 1572, Dresden in 1574, Danzig
in 1577, Nyk¨ping (Sweden) in 1580, Madgeburg in 1582, Hamburg in 1591,
o
Saalfeldt in 1593, Rostock in 1594, Osnabr¨ck in 1597, M¨nster in 1599. It
u
u
reached Poland in the late 16th century, where the G¨bel brothers secured a
o
patent and exported it to K¨nigsberg, Riga, Denmark. Before 1600 it had also
o
reached Clausthal-Zellerfeld in Hannover near the mines of the Harz, Berlin and
Strasbourg. Sweden began using cylinder-presses in 1625 in Kopparberg, near
its large copper mines.43
A variant of the cylinder-press developed in the 17th century: instead
of engraving a whole cylinder, two mushroom-shaped pieces were engraved and
inserted in slots of rotating axles. This design was known as Taschenwerk, and it
required pre-cut oval-shaped blanks (their passage between the dies made them
round). It was introduced in the early 17th century in France and England, but
did not take root. A man named Nicolas Briot had begun his career as mintmaster in Northern France and Lorraine, and traveled extensively to Germany,
where he learned of the various techniques used there. He became director of the
42

See Hahn (1915, 19) and Newald (1897) for the early development of the cylinder

press.

Walther (1939), Wendel (1960, 134).

engraver of the mint in 1606, and in 1620 obtained the lease for the Paris mint.
In 1617 a trial of his proposed minting device was carried out before French
oﬃcials, but resulted in failure: wastage was high and the coins were not of
good quality.44 In 1625, he left for England where he became chief engraver of
the mint. In 1629, he was allowed to experiment with machinery which he had
been using to strike medals; he was also put in charge of producing pure copper
coinage at the mint in Edinburgh, but neither attempt proved conclusive. In
1639, he tried again in Scotland with silver coinage: he used a Taschenwerk for
large denominations and a screw-press for small denominations. The machinery
was in part moved by horses. The costs were substantial, and the machines
apparently remained experimental. Later, during the Civil War, Briot (who
died in 1646) minted coins for the Royalists using cylinder-presses.45
From Germany, the screw-press technology quickly spread to Southern
Europe. Mechanization came to Florence in 1576, when machinery driven by a
water-mill was installed in a new Zecca on the banks of the Arno, near Santa
Croce. The machinery was imported from Germany, and operated by German
engineers who proved to be excellent workers and great consumers of Chianti
wine.46 Rome had similar equipment by 1581.That year, Philip II of Spain asked
his cousin the archduke Ferdinand, count of Tirol, to send him a copy of the
Innsbruck machines, and the archduke obliged by sending 6 German craftsmen
who built them in the Segovia mint, henceforth known as the Ingenio.47 The
ﬁrst coins, silver reales, were issued in 1586.

44
45

See Poullain (1709) for the minutes of the trial.
Craig (1953, 147–50), Mayhew (1992b).
46 Cipolla (1990, 233). Only silver coinage was produced in the new mint; gold was
produced in the old Zecca. Cipolla does not specify the method used, but Wendel (1960, 134)
states that it was a cylinder-press.
47 The story of the Segovia Ingenio is told in Rivero (1918).

The Coinage of Pure Copper

The 16th century saw the emergence of a technology for producing coins
with high ﬁxed costs and a large and standardized output. Aside from residual
variations due to the imperfection of hand-produced dies, coins were round,
sharply imprinted and nearly identical. These characteristics presented high
barriers to counterfeiting. It became possible for governments to produce coins
whose intrinsic content was considerably lower than their face value, in particular
pure copper coins.

Several countries experimented with the new technology by using it for
small change. However, their approaches diﬀered. Spain49 began issuing token
copper coinage in 1596, for reasons of eﬃciency, but soon embarked on a largescale ﬁat money experiment that lasted several decades. England issued its ﬁrst
copper coinage in 1613 (Spuﬀord 1988, 372), but remained leery of token coinage
and maintained its coins close to full-bodied. France, which ﬁrst experimented
with mechanized minting of small change in 1577, displayed ambivalence, and
occasionally started down the road of large-scale token issues, without following
through. Finally, several other countries experienced episodes of replacement or
displacement of large coins by token coinage; in Russia, this resulted from an
outright policy decision to replace silver with overvalued copper coins, whereas
the German experience resulted from a lack of adequate small coinage, to be
ﬁlled by competing states vying for seigniorage revenues.50 These experiments
often resulted in large inﬂations, and we examine them in turn.
Other students of the period have noted the prominence of copper in 17th
48

These were not the ﬁrst pure copper coins. The ﬁrst examples appeared in Naples and
in Venice in 1472, and later in the Spanish Low Countries in 1543. The Italian copper coins
were full-bodied and were issued to drive out over-valued currency imported from neighboring
countries (Grierson 1971).
49 more precisely Castile; the kingdom of Aragon, while part of Spain, had its own
monetary system that was not aﬀected by the events in neighboring Castile.
50 Although the use of the new minting technology is not a clear factor in the German
and Russian cases, both illustrate the diﬃculties of governments grappling with the problem
of circulating ﬁat coinage and the consequences.

century monetary history, but explained it diﬀerently. Spooner (1972, 41) writes
that “it was not possible, actually, for silver alone to meet the total monetary
demand. As a result, copper achieved exceptional success, promoted almost
to the status of a precious metal. . . . There was a temptation, and perhaps an
obligation, to use [coins of pure copper] when bullion was relatively scarce.” Our
interpretation of the 17th century “Age of Copper” will be very diﬀerent.
The Castilian Experience (1602–60)

Philip II of Spain explicitly recognized the impact of the new technology
in the royal decree of 1596 by which he announced the production of pure copper
coinage in the cylinder-presses of the Segovia mint (Maria del Rivero 1918–19,
document 14). He justiﬁed his decision as follows: “we have been advised by
people of great experience, that the silver which is put in those billon coins is
lost forever and no proﬁt can be drawn from it, except in their use as money, and
that the quantity of silver which is put to that use for the necessities of ordinary
trade and commerce in this kingdom is large. We have also been advised that,
since we have established a new machine (Ingenio) in the city of Segovia to mint
coins, if we could mint the billon coinage in it, we would have the assurance that
it could not be counterfeited, because only a small quantity could be imitated
and not without great cost if not by the use of a similar engine, of which there
are none other in this kingdom or the neighboring ones. And it would thus
be possible to avoid adding the silver.” Until then, copper, silver and minting
costs each represented a third of the face value of vell´n (billon) coinage. With
o
Philip II’s decree, the silver was withheld and the copper content reduced.
Philip II had eﬃciency in mind: he ordered that the new copper coins be
issued only to retire existing small denomination coins. In terms of the model of
Sargent and Velde (1997), the aim was to replace m2 (small denomination coins)
with token coinage, but to preserve the mechanism with its melting and minting
points for providing of m1 (large denomination silver coins). Retaining the
mechanism for supplying m1 would keep the price level within the appropriate
40

melting and minting points so long as some large denomination coins continued
to circulate. But Philip II’s successors Philip III (1598–1621) and Philip IV
(1621-64) saw that the cylinder press oﬀered opportunities to enhance revenues,
and in the process increased m2 to the point that it replaced m1 .51 This released
the price level from the constraints imposed by the melting-minting points for
m1 , and unleashed the quantity theory cast in terms of m2 as the determinant of
the price level. Figure 3 and Figure 4 record some of the results of the Spanish
monarchs’ experiments with token coinage. Figure 3 graphs the real and nominal
values of the stock of copper coins. Figure 4 displays how the market value of
a particular coin (the vell´n cuarto) fared relative to its intrinsic value over the
o
period.

35
nominal
30

million Ducats

real

1600

1610

1620

1630

1640

1650

1660

1670

1680

Figure 3: Nominal value (in copper mr) and real value (in silver mr) of the
vell´n stock, 1595–1690. 1 ducat (D) = 375 maravedis (mr).
o

The story of vell´n inﬂation in Castile is told in Hamilton (1934), Dom´
o
ınguez Ortiz
(1960), Motomura (1994), and Velde and Weber (1997).

Three money supply operations govern these movements: coinage, restamping, and devaluation. By coinage we refer to the government’s making fresh coins
out of copper purchased for that purpose. By restamping, we refer to the following oﬀer made by the government: bring in two coins marked x maravedis,52
let the government stamp both coins with 2x, allow the government to keep one
and leave with the other.53 By devaluation we refer to a sudden announcement
by the government that coins marked 2x are now worth x (i.e., a reduction in
et in the model of Sargent and Velde 1997). The purpose of the coinage and
restamping operations was to raise revenues for the government, in the process
increasing the nominal and also the real stock of vell´n coins. Devaluation was
o
a tool to be applied after so many vell´n coins had been issued that all silver
o
had been driven from circulation and a pure quantity theory cast in terms of token coins determined a price level exceeding the ‘melt down point’ for the silver
coins. The purpose of devaluation was to drive the price level back to a level low
enough that silver not only would not be melted but actually coined, thereby
restoring the restraints on the price level associated with the melting-minting
points.
Figures 3 and 4 show the workings of these operations in succession. In
1602, the government decided to reduce by half the copper content of the small
denomination coins it was producing, and observed no depreciation (in Figure 4,
the coin’s intrinsic value was reduced to 1/8 of its market value). It then decided
to recall the coins minted until 1602 and restamp their value by a factor of 2. No
inﬂation ensued, and the government of Castile was encouraged to mint large
quantities of the new coins, not just in Segovia but in the other mints as well,
even though they continued to rely on the medieval technology, producing poor
quality coins known as ‘thick billon’ (vell´n grueso).
o
By 1626, the vell´n coinage had completely replaced silver as medium of
o
52

The maravedi was the unit of account in Castile.
Strictly speaking, such an operation leaves the private agent indiﬀerent. To break
the indiﬀerence, the mints of Castile oﬀered a small premium, in the form of a travel cost
allowance.
53

8
market
7

silver maravedis

2
intrinsic
1

1600

1610

1620

1630

1640

1650

1660

Figure 4: Market value and intrinsic value (in silver mr) of a vell´n cuarto
o
coin, 1597–1659.

exchange, and inﬂation set in.54 A comparison of nominal and real balances of
the vell´n coinage in Figure 3 indicates that by 1626 an upper bound on real
o
balances had been reached (which corresponds to total money demand in the
model of Sargent and Velde 1997), and further issues only created inﬂation.55
Alarmed policy makers halted the minting and deliberated for two years about
the best way to stem the inﬂation. They started an open-market operation
to exchange copper coins for bonds but soon cancelled it. That they seriously
considered this operation shows that they understood how the price level was
under sway of the quantity theory cast in terms of the vell´n coins. Eventually,
o
in 1628, they used devaluation: they halved the face value of the copper coinage
overnight. This brought the market exchange rate between copper and silver
54

Hamilton (1934, ???) states that 95% of transactions used vell´n. Castilian vell´n
o
o
even began circulating in bordering areas of France in 1626 (Spooner 1972, 178).
55 Velde and Weber (1997) estimate the pre-existing silver stock at 15m to 25m ducats.

coins part but not all of the way back to its pre-1602 value: the premium on
silver fell from 50% to 18% (in Figure 4, the market value of a 4-maravedis coin
did not return to 4 mr in 1628).
Castile did not issue any more copper coinage until 1660, but it carried
out four restamping operations to multiply the face value of the copper coins
by 2, 3 or 4. Each of these restamping operations was soon followed by a
downward devaluation of the copper-silver exchange rate. These show up in
the downward movements in nominal values in Figure 3 and Figure 4. Each
restamping operation succeeded in generating revenues, as individuals brought
in coins to exchange them unit per unit, aﬀording seigniorage rates of 1/2, 2/3 or
3/ .
4

But the government found that the revenues it could raise were diminishing.

In Figure 3, it is apparent that the real balances of vell´n fell over the course of
o
time.
From 1660 to 1680, Castile issued small coins made of a mixture of copper
and 7% silver, this time using the cylinder-press technology in all mints. Initially,
the government tried to give the coins a face value above intrinsic content, but
depreciation forced it to abandon that project, and the coins were issued at close
to intrinsic value, like medieval billon. Extensive counterfeiting (in spite of the
use of the new technology) ultimately forced the government to abandon billon
altogether: its cost advantage had already been dissipated. After 1680, the
small coinage in Castile was, like elsewhere in Europe, full-bodied copper, with
a return to the hammering method. Not until the advent of the French Borb´n
o
dynasty were the hammers and the cylinder-press replaced with imported screwpresses in 1728.
The shape of the time series for real balances in Figure 3 bears a remarkable resemblance to the graph for real balances of the French paper assignats
issued during the French Revolution. (The diﬀerent time scales show a much
more rapid pace of events during the French Revolution.) In both cases there
initially occurs a build up of real balances of the token currency, accompanied by
only modest depreciation of the token money. In both cases, real balances of the
44

token currency eventually climb to constitute the entire stock of real balances,
driving out other monies, thus threatening to activate the quantity theory. In
both cases, there emerge periods of persistent inﬂation accompanied by declining real balances of the tokens. Thus, in the Castilian example, the period from
1602 to the early 1620s is one where one token currency replaces another, with
little observed inﬂation, as occurred with the introduction of a paper currency
during the French Revolution (Sargent and Velde 1995).56 In the French case,
the subsequent period of declining real balances of the token money exhibited
all of the features of a classical hyperinﬂation along lines described by Cagan
(1956). It is intriguing to speculate that related forces account for the long
decline in real balances in Figure 3, because the repeated pairings of restamping with soon to be followed devaluation operations must eventually have been
come to be expected, prompting people to economize on real balances of m2 .
But the model of Sargent and Velde 1997 is not set up in a way that permits us
to simulate this mechanism.
France and England in the 17th century
In England, the provision of pure copper coinage in an oﬃcial form began
in the 17th century. From 1613 to 1644, there existed a royal license to manufacture token farthings, but the tokens were never legal tender. The monopoly
was owned by various people in turn; they used mechanized minting even as
the Royal Mint continued to hammer coins, until the Puritans abolished the
monopoly.
In France, the notion that mechanized minting allowed a ﬁduciary coinage
seems to have dawned at the same time. The mechanized mint had been set up in
1552; in 1575, it produced the ﬁrst pure copper coins (the smaller denominations
had until then been made in billon); the intrinsic content was worth about 45%
of the face value. To quote Blanchet and Dieudonn´ (1916, 172): “The date of
e
this reform is important: in distinction with medieval currency which, however
56

A notable diﬀerence is that, in the Castilian case, the convertibility of the token
coinage was an equilibrium outcome, rather than a feature of the environment.

alloyed, had never had value but for its content of ﬁne metal, we see the birth
of subsidiary ﬁduciary coinage, thanks to the progress in public credit, as well
as to a sharper understanding of the relative roles of metals in circulation.” It
is important to note that these copper coins were produced in the mechanized
mint (ibid., 337).
The minting of pure copper coins continued on a rather limited basis. In
1596, it was decided that all pure copper coinage would be made in the Mill
Mint exclusively, and very little was produced. From 1602 to 1636, however, the
French king began granting private individuals licenses to produce copper coins
using presses, just as in England, although they were legal tender. The licenses
limited the total coinage, and the Cour des Monnaies tried to restrict these
issues as much as it could, so that they remained very limited.57 Throughout
this period, imitations of French copper coinage were being actively minted in
foreign enclaves in the French kingdom (Dombes, Orange, Avignon); typically,
they circulated in rolls (Spooner 1972, 178, 186).
When, however, mechanized minting was extended to all mints in 1640,
new emissions of pure copper soon followed, small amounts in 1642 and 1643, and
much larger ones between 1653 and 1656, at a time of extreme political crisis.58
The minting was subcontracted to private entrepreneurs who established presses
in small towns with water-mills. The amounts remained small, however, at
least in comparison with the Spanish experience. The output of 1653–6 only
represented the equivalent of 1.6m Spanish ducats and amounted to 2 or 3% of
the French money stock.
France thus followed a similar course to England in some respect (handing
out limited monopolies to produce copper coins with presses), similar to Spain
in others (large quantities of ﬁat copper), in spite of the numerous warnings of
monetary oﬃcials.59
57
58
59

Spooner (1972, 174–8, 185–92, 336–9).
The output was 0.3m livres in 1642–3 and 7.3m livres in 1654–6.
Spooner (1956) documents the opposition of the Cour des Monnaies.

Inﬂationary episodes in Germany and Eastern Europe
In Germany, eﬀorts by successive Emperors since the 15th century to
coordinate the coinage policies of the many constituent states of the Empire
culminated in an imperial mint ordinance (Reichsm¨nzordnung) of 1559. This
u
left the responsibility for minting coins to selected group of princes, but ﬁxed
the intrinsic content of coins throughout the whole denomination structure, and
made small coins full-bodied. This arrangement led the oﬃcial mints to produce only large denomination coins (silver Thalers and Guldiner) and caused a
shortage of small change that was increasingly met by unauthorized mints that
produced light-bodied coins. Over time, these coins became lighter, so that by
1610 they were already 20 to 25% lighter than prescribed in the mint ordinance.
When the Thirty Years War began in 1618, the stage had been set for
what became known as the Kipper- und Wipper Zeit, meaning ‘the clipping and
culling times’.60 Throughout Germany and the Habsburg lands, local princes
as well as private mints competed with each other and produced increasingly
debased petty silver coinage (Groschen, Kreutzer and Pfennigs), driving the
intrinsic content to 1/8 of the amounts prescribed in 1559. Some states even
issued pure copper coinage. People queued at the mints to turn their copper
pots and pans into coins. The large coins remained unchanged. Their prices in
terms of the small coins are tracked in Figure 5. Commodity prices also increased
greatly, although not quite as much. The inﬂationary episode ended abruptly
in 1623, when the princes’ deteriorating tax revenues forced them to return to
a better standard. However, another episode of inﬂation, less spectacular and
more drawn out, was to take place in the late 17th century (the so-called second
Kipper- und Wipperzeit).
The Kipperzeit of 1619–23 reﬂected the problem of small change. The
60 Gaettens (1955, chapter 4), Rittmann (1975, Chapters 9 to 12), Sprenger (1991, chapter 7) for general surveys and references to the numerous regional studies. A brief treatment
in English is Kindleberger (1991). This episode has attracted little interest in the English
language literature, even though German writers called it ‘the Great Inﬂation’ until it was
superseded in 1923.

index: 1608 = 1

0
1610

1615

1620

1625

Figure 5: Price of the the Gold ﬂorin (circles) and the silver Thaler (stars) in
terms of Kreutzer coins, Bavaria. Source: Altmann (1976, 272–3).

1559 ordinance’s strict adherence to the concept of full-bodied coinage throughout the denomination structure opened a gap that was ﬁlled by unauthorized
and uncontrolled coinage. Under the ﬁscal pressures of the Thirty Years War,
this coinage developed much as the Castilian vell´n had.61 The scale of inﬂation
o
evident in Figure 5 even surpasses Castile’s experience, with the price of silver
coins tripling from March 1621 to March 1622. Minted quantities for all of Germany cannot be known, but there is information for Saxony, a major state and
important silver-producing area. In the twenty years preceding the inﬂation,
Saxony minted 0.4m ﬂ. per year, almost all in large silver coins. During the four
years of the Kipperzeit, at least 12.5m ﬂ. in small coins were minted, 5.5m ﬂ.
in Dresden alone. During the following 28 years, 0.1m in large silver coins were
minted per year (Wuttke 1894, 142).
As Richard Gaettens wrote (1955, 95): “From the point of view of monetary history the Kipperzeit had undoubtedly also a positive side. Indeed it became apparent that alongside the main currency a ﬁduciary money was needed
for small change. . . . The development of subsidiary coinage received in the
61

The similarity with the Castilian inﬂation is noted by Redlich (1972, 12).

Kipperzeit its decisive impulse.”
In the second half of the 17th century, large issues of small coins and a
consequent depreciation of the large currency recurred in Eastern Germany and
in Poland. While engaged in a war against Poland, the Russian Czar began to
mint pure copper imitations of silver rubles in 1655, and decreed that they should
exchange at par with the latter. Initially successful, this currency collapsed after
a few years. The pattern shown in Figure 6 (stable exchange rate for several
years, followed by a rapid collapse) seems less puzzling when compared with the
Castilian experience. In 1663, the copper rubles were bought back by the mints
at 1% of their face value.62
16

Copper Rubles / Silver Ruble

0
1655

1656

1657

1658

1659

1660

1661

1662

1663

Figure 6: Exchange rate of copper rubles to silver rubles, Russia (1655–63).
Source: Chaudoir (1836, 1329–30).

Mechanization came to Sweden in 1625. The following year, Spain stopped
minting copper. An unintended consequence of Spain’s monetary reform was to
export inﬂation to Sweden. Here is how this happened. When Spain withdrew
62

See Chaudoir (1836, 128–30) and Bruckner (1867) on Russia, Bogucka (1975) on

Poland.

from copper, it caused the demand for Swedish copper (the biggest producer in
Europe) to collapse, because Spain had been consuming the equivalent of half
of Sweden’s copper output (Wolontis 1936, 221). The Swedish king, Gustavus
Adolfus, repeatedly pressed his French ally to buy Swedish copper and to mint
it. In 1636 he almost succeeded, but the project was blocked at the last minute
by the French Cour des Monnaies (Spooner 1972, 189–90). To promote demand
for Swedish copper, Sweden then decided to move to a copper standard itself,
which it retained until the mid-18th century when it went to a paper currency.
The Swedish experience diﬀered from the Spanish in that the coins were fullbodied rather than ﬁduciary—its aim was to enhance the demand for copper;
a full bodied coinage achieved this aim more aptly than did a token one. The
inﬂation that occurred in Sweden was entirely due to a declining copper content
of the unit of account (Heckscher 1954, 88–91).
A ﬁnal example comes from the Ottoman Empire. In the 1680s, a Venetian convert was hired to construct screw presses and replace the old hammering
method. The ﬁrst use of the new machines was to produce massive amounts of
copper coinage from 1687 to 1690, when the mankur , whose copper content was
worth about 0.14 silver ˆk¸e, was ordered to pass for 1 ˆk¸e (Sahillioˇlu 1983,
a c
a c
g
289; Pamuk 1997). The Ottomans were thus using the same methods as the
Castilians to ﬁnance their own, large wars (and achieved the same degree of
success in the prosecution of those wars).

Monetary Theory

Quantity Limitations
Gasparo Thesauro (1607) gave an early statement of the risks inherent in
excessive issues of small coins. He attributed variations in the value of money
to three possible causes: ﬂuctuations in the gold/silver ratio, debasement of
the petty coinage, and excessive issue of petty coins: “when too much copper
coinage is issued or imported from elsewhere, the price of the better coin is
always altered, and this variation is detrimental to the creditor if he is repaid
in that money; for, even if the quantity of copper coinage corresponds to the
correct valuation in gold or silver, because of the tediousness of counting, the
inconvenience of storage and the cost of transportation, some loss results for the
creditor, and therefore it is thought that good coins of gold and silver correspond
to a larger quantity of copper coins than the exact valuation requires, and thus
their value changes. To avoid this alteration it is good that an insuﬃcient
amount of small and copper coinage be made, since it is customarily made for
small purchases of food and to supplement large coins, not to repay creditors;
the same goes when inferior foreign coins are brought in.” Thesauro’s main
motivation was price stability: money “is everlasting, and should have a ﬁxed
proportion, since it is used to value all things, and not be valued by others: the
measure of all things.” Thesauro favored limiting legal tender and not allowing
repayment of debts in small coins. He endorsed a Portuguese ordinance limiting
the use of small coins to a fourth of a debt, and an ordinance of Ferdinand
limiting their legal tender to 25 gold coins.

In Naples, A. Serra (1613) suggested issuing small money “in quantities
63 Thesauro (1609, 629–33), partially quoted in Cipolla (1956, 30). In fact, legal tender
limitations on small change, whether full-bodied or not, became more common. Aragon limited
legal tender in 1494 soon after the introduction of convertible token coinage. In England
between 1613 and 1644, the copper coinage made under license was not legal tender. In 1672,
royal farthings were limited to 6d (Carothers 1930, 12). In France, the new copper coins of
1577 legal tender for a third of a debt up to 100 sols. In Germany, the Imperial ordinances of
1559 and 1576 limited small change to 25 ﬂorins in legal tender. In the United Provinces, in
1622, it was limited to 1/24 of sums over 100 guilders (Monroe 1923, 97).

suﬃcient for making change depending on the size of the state”; he also advocated that it be made “not of alloyed silver but of pure copper, in which only
the form and not matter gives value, because this would result in a considerable proﬁt for the prince without generating any of the inconveniences, and in
any case it will be very easy to determine the quantity which does not generate
them.” But he conceded that it would be very easy to counterfeit, and did not
say exactly how the correct quantity could be determined.
In Germany, Faust (1641) proposed to coin petty money according to
need, and not make it legal tender, with the explicit intention of thereby limiting
its quantity. His aim was to avoid debasements.
Petty (1682) estimated the quantity to which small change should be
restricted: one is a per household ﬁgure (12d; recall that Petty also estimated
total population), another was based on the denomination structure and the
need to make change. He also admitted that the coins could be “debased”64 to
a limited extent, and the seigniorage accrue to the king. Petty regarded privately
issued trade tokens (a common phenomenon in England at the time) as not base
so long as they were convertible; but he did not propose that state-issued small
change be convertible. (Monroe 1923).
Lessons from the Castilian Experience: Fiat Money
In Spain: Juan de Mariana (1609)
Spaniards were among the ﬁrst to draw lessons from the vell´n experio
ment. The most famous was the Jesuit Juan de Mariana (1536–1624), whose
De Monetae Mutatione was written between 1603 and 1606 and published in
Cologne in 1609 to avoid royal censure (the Inquisition nevertheless paid him a
visit).65
64

Monroe’s words: does he mean ﬁduciary?
See Mariana (1994) for a modern critical edition of the Latin text with German translation and Laures (1928) for an English summary and analysis. A contemporary Spanish
version has also been republished recently (Mariana 1987). Contemporary Spanish economic
thought is discussed by Gracie-Hutchison (1978, 1993).
65

Though he came down against the vell´n experiment, in the careful mano
ner of the Jesuits, Mariana carefully lays out arguments in favor of the vell´n
o
experiment as well as against; he even carefully refutes what he takes to be
weak reasons against the experiment. In doing so, he is probably describing the
controversies between the advisers who pushed the kings of Spain toward that
policy, and their adversaries. Among the advantages cited were the fact that
silver was no longer wasted in making coins; that the silver received from the
Indies, instead of going to maintain the money stock, could be spent by the
king for his war-time supplies; that without a stock of silver coins as a potential
reserve to settle the balance of trade, trade and production would eventually
have to adjust to make deﬁcits less likely, thereby turning the balance of trade
in Spain’s favor and stimulating production; that the copper money was lighter
and easier to transport, and that its cheap provision would lower the rate of
interest and stimulate agriculture and industry.
Mariana disposes of some arguments against the vell´n. For example,
o
he admits that the over-valuation of copper coins will provide huge incentives
for counterfeiting, but counters that new technology can resolve the problem,
and recommends that coins only be made in the Segovia mills. He notes that
the arguments on balance of trade and stimulus of the economy can be made
to go either way, and “since they can go in either direction, they have force in
neither.”66
Among his own main objections against the policy is the fact that laws
limit the quantity of small change, and for good reason, because small change
should only be used for small transactions, and while copper coinage is necessary
in limited quantities, an excess will lead to a disappearance of silver. He is also
motivated by the historical observation that debasements have always led to a
rise in prices: he assimilates the issue of vell´n to a debasement and predicts that
o
excessive quantities of copper coins will make them worthless. He notes that in
some places, a premium of 10% is already observed on silver coins, and elsewhere
66

Mariana himself claims to prefer historical examples to a priori theorizing.

5%. Price controls will be set by the king, but individuals will either ignore
them or abstain from trade. Ultimately, the king will be forced to demonetize
the coins, or else revalue them, so that “overnight, as if in a dream, the owner of
300 ducats in this money will have 100 or 150.” He sees the projected sequence
of inﬂation and deﬂation as disruptive to trade and contracts, and therefore to
the king’s tax revenues. He also views the high seigniorage rates of 1/2 in the
restamping operations as immoral, because in his view the king has no right
to tax his subjects without their explicit consent, and notes that such high tax
rates would never be tolerated on any other tax base. The worst consequence he
predicts is general hatred of the king: quoting Tacitus, he recalls that “everyone
claims prosperity for himself, but adversity is blamed on the leader.”
In France: Henri Poullain (1612)
The Frenchman Henri Poullain, an oﬃcial at the Cour des Monnaies,
advised the government on monetary policy.67 In the course of his duties, he
dealt repeatedly with proposals by private individual to mint copper coins under
license. In a 1612 memorandum on one such proposal, he wrote: “In any state,
depending on its size, productivity and endowment in things useful to human
life, there must also be a proportionate and deﬁnite quantity of coins, for the
needs of the trade and commerce which takes place within it.” He estimated the
quantity of money in France and the quantity of copper coins recently minted,
and noted that, in 1596, tax collectors were receiving large amounts of small
coins, from which he concluded that the quantity of small coins in circulation
was more than suﬃcient for trade. He then distinguished between foreign trade
and domestic trade, and supposed that the total money supply is used, half in
one and half in the other. He asserted that copper could displace large coins
in domestic trade: “When the prince mints quantities of billon or copper coins,
such bad coins remain in his state for the domestic trade, and the good silver
and gold coins are taken out of the kingdom by its residents to purchase foreign
goods. Thus bad coins hide and expel good coins; because within the state they
67

Some of Poullain’s writings were published (Poullain 1709). Others are discussed by
Harsin (1928).

stand in for, and serve just as well, as the good ones; no more or less than in a
card game, where various individuals play, one avails oneself of tokens, to which
a certain value is assigned, and they are used by the winners to receive, and by
the losers to pay what they owe. Whether instead of coins one were to use dried
beans and give them the same value, the game would be no less enjoyable or
perfect.”
Poullain explained how copper coins were more expensive to make, and
could not contain more than a third of their face value in metal: “they cannot
pay or receive any price alongside the good coins of gold and silver without
resulting in (leaving aside all other problems) an increase in the prices of all
sorts of commodities, as it always happens with such devaluations.” He cited
the example of Spain’s vell´n coinage and the “horrors” that ensued, and also
o
referred to Juan de Mariana’s 1609 treatise.
In a separate memorandum on the Castilian “monetary disorder” in 1612,
he explained the mechanism by which prices increase. ( Please note that as
shown in ﬁgure Figure 3, the “monetary disorder” to which he refers is the
substitution of light copper coins for full bodied coins; in 1612, the vell´n exo
periment was still working well in that vell´n coins were not going at discount.)
o
“Any state is always in need of a moderate quantity of billon or copper coinage”.
But an excess of such coins brings about a general rise in the price level: as gold
and silver coins become rarer in proportion with the production of bad coins, so
the price of imports rises. Eventually domestic goods also rise in prices, because
“in any state there are always foreign goods of the same kind as the ones made
within it”.
In 1683, Geminiano Montanari, a mathematician and astronomer in Padua,
wrote: “If a state had no commerce with the other states and lived solely on its
own productions, as China and a few others have done for so long, the prince
could set the value of money as he pleased, and make it of whatever content he
wished.” He cited the case of Chinese paper money described by Marco Polo.
“But if a prince wants his own coins of gold and silver to be accepted by for55

eigners, so that his subjects can trade with them, he cannot value them if he
does not set the right content.” In this case, the prince can only collect a small
seigniorage, inferior to the cost of transporting metal to neighboring states. But
he is not so constrained for small change, and “it is clear enough that it is not
necessary for a prince to strike petty coins having metallic content equal to their
face value, provided he does not strike more of them than is suﬃcient for the
use of his people, sooner striking too few than striking too many. If the prince
strikes only as many as the people need, he may strike of whatever metallic content he wishes.” In case of over-issue, the small coins will replace the large coins,
and merchants dealing with foreigners will need large coins, for which they will
have to pay a premium, and prices will increase. The prince’s latitude in setting
a high seigniorage rate is limited by the threat of counterfeiting, although the
death penalty which is imposed on counterfeiters means that people willing to
counterfeit will require much higher wages than legal moneyers.68

Laisser-Faire or Monopoly: England’s Hesitations

English coins had always been made of sterling silver (except during the
Great Debasement of 1540–60), and the smaller coins, from the farthing to
the penny, had become too small to be produced and handled. By the mid16th century, royal coinage of these smaller sorts ceased altogether. Until 1816,
when the issue of convertible token coinage was organized, England alternated
between three regimes for the supply of small change: private monopoly of
inconvertible token coinage, government monopoly of full-bodied coinage, and
laisser-faire resulting in private competition in the supply of convertible token
coinage. Each time the government put an end to the laisser-faire regime, it did
so immediately after adopting a new technology.
Private Monopoly The private monopoly regime lasted from 1613 to 1644. A
68

Montanari (1804, 104–119). partially quoted in Cipolla (1956, 29).

royal patent granted some individual the exclusive right to manufacture copper
farthings. The patent set a minimum weight for the coins, but that minimum
was low: at the current price of copper, the coins’ intrinsic content was no
less than 4% of face value. The coins were thus issued at a high rate of proﬁt,
which was shared with the king. The coins were not made legal tender: the king’s
proclamation of 1613 said that the coins were ‘to pass for the value of farthings .
. . with the liking and consent of his loving subjects.’ Some patents instructed the
manufacturers to rechange the tokens into sterling for a year (1613), establish
an exchange oﬃce (1617), to ‘relieve’ anyone ‘overburdened’ with coins (1625).
Predictably, the coins were counterfeited, and in the 1630s counterfeits were
oﬀered at 24s to 26s for 20s sterling. The design was changed, and a brass insert
added to the coins to make them harder to counterfeit, in 1636; the patentees
were again instructed to exchange tokens for sterling, but it is not clear whether
they did. The monopoly was abolished by Parliament in 1644.69
Laisser-Faire The laisser-faire regime occurred several times: from the mid-16th
century to 1613, from 1644 to 1672, and from the 1740s to 1817. Each time, the
government desisted from making its own coins, but did not seriously interfere
with private suppliers of coinage, or even gave its oﬃcial assent.
Private suppliers were numerous. In the late 16th century, up to 3,000
London merchants issued tokens (Craig 1953, 139–40). Citing complaints ‘against
the tokens of lead and tin, generally coined and uttered instead of such small
monieds by grocers, vintners, chandlers and alehouse-keepers,’ a projected proclamation of 1576 announced the issue of royal copper farthings and half-pence,
providing that ‘such cost and charge should be employed thereon as that any,
so evil-disposed, should hardly attain to counterfeit the same’; the coins were to
have limited legal tender and privately issued tokens were forbidden. But the
proclamation was never issued.70 Instead, a city like Bristol obtained oﬃcial
permission to issue square lead tokens the following year.
69
70

Details in Peck (1960, 19–49).
Peck (1960, 9–10, 581–2).

From the period from 1644 to 1672, over 12,700 diﬀerent types of tokens
have been catalogued, issued in 1,700 diﬀerent English towns. Suppliers were
either city councils, owners of ﬁrms, local retailers. Tokens usually bore the
name of the issuer, and convertibility was implied or explicitly promised. One
of the better documented issuers was the city of Bristol. It obtained permission
to issue copper farthings in 1652, and made further issues in 1660 and 1669
(Thomson 1988, vii–xxxiii). By a city ordnance of June 1652, the Mayor and
magistrates “to the end also that no person or persons shall or may suﬀer any
loss or prejudice by them, have published and declared that they will from time
to time receive and take them in and allow them after the rate of penny for
4 of them, and so after that rate for any quantity whatsoever, if at any time
hereafter they shall be refused to pass within the said city, or any obstruction
be in the utterance of them.”
The Slingsby Doctrine Throughout the period of the Commonwealth, projects
were put forward to replace these private tokens with government issues. One
such project was made by Sir Henry Slingsby (1621–90), who was to be masterworker of the London Mint from 1662 to 1680, and at the time a prime mover
behind the ongoing mechanization of the minting process (Mayhew 1992b, 343).
In a memorandum to King Charles II, dated June 5, 1661, Sir Henry
Slingsby proposed to mint farthings ( 1/4d, the smallest existing silver coin being
1d).71 He made what may be the earliest statement of Cipolla’s standard recipe,
when he wrote: “Copper is the ﬁttest metal; a contract should be made with
Sweden for the supply thereof, and it should be coined at so little increase of
price as to make counterfeiting disadvantageous. To avoid a danger of glut, the
Mint should be always ready to exchange farthings for silver money, if requested,
and should forbear to make more than demanded.”
But theory was still ahead of technology. As the Castilian experience
demonstrated, governments’ cost advantage over their competitors were insuﬃ71

The text is quoted in Boyne (1889, xlii).

cient, in spite of the new minting process.72 The government of England, like
those of most other countries, held back from token coinage for another 150
years.
Government Monopoly Instead, soon after implementing mechanization in 1660,
the royal government decided to mint its own copper farthings and half-pence, for
the ﬁrst time. The proclamation of August 1672 asserted that “our subjects would
not easily be wrought upon to accept the farthings and half-pence of these private
stampers, if there were not some kind of necessity for such small coins to be made
for public use, which cannot well be done in silver, nor safely in any other metal,
unless the intrinsic value of the coin be equal, or near to that value for which it
is made current.” The mint was ordered to make half-pence and farthings “to
contain as much copper in weight as shall be of the true intrinsic value and worth
of a half-penny and a farthing respectively, the charges of coining and uttering
being only deducted.” The new coins were made legal tender for payments up
to 6d. Slingsby was put in charge of the copper coinage, and contracted with
a Swedish merchant to purchase copper. The face value of a pound of copper
was 22d, the cost of the copper was 14 1 d and expenses were 4d (Craig 1953,
2
175); net seigniorage was thus 16%. The coins were widely counterfeited, and
the minting stopped in 1676, after about 40,000 had been minted.
The English government kept looking for ways to avoid counterfeiting,
by adding reeded edges to coins, or by using plugs of a diﬀerent metal inside
the coin, or looking for better alloys. Tin was experimented with between 1684
and 1694, although more as a means of subsidizing Cornish producers at a time
of decline in the price of tin. the net seigniorage rate was 40%; to defeat counterfeiters, the coins had a copper plug and the edge was inscribed (Peck 1960,
107–8, 151–2). In spite of those measures, the House of Commons found those
coins wanting in value and too easily counterfeited, and ended their production
in 1694, over the protests of the Cornish mines.
72

The Bristol farthings, at a face value of 32d to 40d per pound of copper, are known
to have been counterfeited.

The lack of success in ﬁnding measures against counterfeiting explains English monetary oﬃcials’ attachment to full-bodied copper coinage. The copper
coinage of 1694-1701 was issued at 21d per lb, even closer to intrinsic value than
in 1672. When the government decided to resume copper coinage in 1717–18,
Sir Isaac Newton insisted that it be minted at intrinsic value plus costs.73 Small
quantities of copper coins were issued in the 18th century (1717–24, 1729–55,
1770–5), and little was done to repress private imitations of the oﬃcial coinage.
This absence of repression soon led to another Free Token Era. “By
the 1740s competition had driven the copper in private coins of mixed metal
down to one-eighth of that in legal coin” (Craig, 253). In 1754, oﬃcial coinage
was stopped on a petition from London retailers complaining that copper had
overtaken gold and silver in retail coinage. Counterfeits, which had appeared
after 1725, became numerous after 1740. In 1751, the ﬁrst ‘evasions’ appeared:
those coins imitated the general appearance of the oﬃcial coinage but was clearly
diﬀerentiated. Counterfeiters sold them at half-price to wholesalers, who resold
them at 28s to 30s for a gold guinea of 21s. Not being exact copies, they were
not counterfeits and the government tolerated them. By 1753, 40 to 50% of the
stock of copper in circulation was counterfeit, and by 1787, the mint estimated
that only 8% of copper coins in circulation “had some tolerable resemblance to
the king’s coin.”74
Then, after James Watt ﬁrst harnessed the steam engine to a minting
press in 1787, trade tokens issued by ﬁrms and employers became extremely
common: convertible tokens once again emerged as the predominant form of
small change in England. Most of the trade tokens were made by Birmingham
ﬁrms, were of the same weight as the oﬃcial coinage, and carried the issuer’s
name for redemption.

73 “Halfpence and farthings (like other money) should be made of a metal whose price
among Merchants is known, and should be coined as near as can be to that price, including the
charge of coinage . . . All which reasons incline us to prefer a coinage of good copper according
to the intrinsic value of the metal” (in Shaw 1896, 164-5).
74 Peck (1960, 205–15).

The Industrial Revolution and the Advent of the Standard Formula
The last chapter of our tale starts with the decisive shift in the technology
which gave governments the needed cost advantage to introduce token coinage.
As the earlier chapters make clear, technology was not the only requisite: an
understanding of the Standard Formula, and ability as well as willingness to
implement it, were needed.
By the 19th century, the problem of small change is not limited to copper
or bronze coins, at the lowest end of the denomination scale. Indeed, when
England implements the Standard Formula in 1816, it applies it to all of its
silver coinage, thus establishing the ﬁrst full-ﬂedged implementation of the gold
standard. Thus, in the 19th century, debate over the Standard Formula was
to be a debate between the gold standard and bimetallism. England was not
followed by other countries for another 60 years, in spite of the technology’s
wide availability.

Technology: the Steam Engine

During the 17th century, the only substantive change was the marking of edges
of coins with the Castaing machine (invented in England and adopted in France
in 1685), a process by which a coin was rolled on a horizontal surface between
two steel bars, one of which bore a motto or serrated design in relief.
Several innovations occurred in the late 18th and early 19th century. The
portrait lathe and hubbing were invented by the Swiss J-P Droz around 1780:
this ﬁnally permitted coin dies to be identically reproduced, and eliminated one
of the last sources of variation from one coin to the next; it was adopted by
Dupr´, engraver of the French mint, in 1791.
e
More importantly, in 1786, Matthew Boulton of Birmingham, partner
of James Watt, adapted steam-power to the minting press; by 1810, output
61

was 70 to 80 coins per minute. Private minters ﬁrst took advantage of the new
technology, the Anglesey Copper Company in 1787 soon being followed by many
others. In 1797, the government contracted with Boulton and Watt to produce
oﬃcial copper coins, called cartwheels. But the coins were close to full-bodied,
and in the ﬁrst issue, the penny weighed a full ounce. As the price of copper
rose during the Napoleonic wars, the coins were made lighter, to two thirds of
an ounce. Royal coinage stopped in 1807, and private coinage continued to be
issued until 1817, when they were made illegal by the Act of Suppression. The
year before, the government had established its new silver coinage on a token
basis, after having installed Boulton’s machines at the London mint in 1810.
Matthew Boulton’s new technology attracted immediate attention abroad:
as early as 1791, the Monneron ﬁrm in Paris contracted with him to produce
private copper coinage in France; Russia was the ﬁrst government to buy his
presses in 1799, followed later by Denmark and Spain (Craig 264). Steam engines, however, were not easily adapted to the old screw-press, and there were
technical problems in accommodating the rotation and recoil of the screw. In
1817, D. Uhlhorn, a German engineer in Grevenbroich near Cologne, invented a
lever or knuckle-action press which could more easily be driven by steam. His
machine could strike 30 to 60 coins per minute, depending on the size of the coin.
By 1840, Uhlhorn had built presses for mints in D¨sseldorf, Berlin, Utrecht, Viu
enna, Munich, Karlsruhe, Schwerin, Stockholm, Wiesbaden and Naples; Uhlhorn
machines were also in use in Australia since 1853.75 The method was adapted
by Thonnelier in France in 1834, and the Thonnelier press, striking 40 coins
per minute, came in use in Paris in 1845.76 By the late 19th century, when the
Thonnelier press was in use throughout Europe, it could strike 60 to 120 coins
per minute.77
Redish (1990) discusses in detail the circumstances of the Coinage Act of
1816. It made gold the sole standard of value, and made silver coins representa75

Meyers Conversationslexicon (1840).
Blanchet (1890).
Encyclopaedia Britannica, 9th ed. The London mint bought its ﬁrst lever presses in
the 1870s, which produced 90 coins per minute.
76
77

tive; however, it still allowed for free minting of silver although its legal tender
was limited to 2.1. The free minting clause was reserved and never applied.
But the Bank of England voluntarily adopted a policy of accepting silver coins
at face value in exchange for gold or its notes; only in 1833 was it agreed that
it could sell its inventory of silver coins at par value to the Mint, establishing
convertibility in fact if not in law.

Bimetallism versus Gold Standard
The policy was only slowly adopted in other countries; moreover, it was initially
implemented only with regard to bronze or small-denomination coinage, not to
the whole silver coinage as England had done. Thus, bimetallism persisted in
the U.S. and much of Europe until the late 1870s.
In the United States, the process of adoption a long and arduous one.78
The Mint Act of 1792 established a bimetallic system with gold and silver coins
freely minted on demand and unlimited legal tender, and full-bodied copper
coins minted on government account. The gold discoveries of California and
Australia around 1849 pushed the intrinsic value of the silver coinage above
its legal tender value and led to its being melted down. Congress wished to
remedy the situation without forsaking bimetallism. The result was an Act of
1853 (10 Statutes at Large, 160) which modiﬁed the coinage of 5/, 10/, 25/
c
c
c
and 50/ pieces, making them 6.9% light with respect to the $1 coin and legal
c
tender for private debts for up to $5. They ceased to be freely minted, and
the quantities minted were to be regulated by the Secretary of the Treasury.
They were sold at par by the mint in exchange for gold coins or silver dollars.
Congress, however, made explicit its intention to maintain bimetallism, and
clear its rejection of the English model proposed by some. The measures were
considered temporary, the diminution in weight was minimal, and there was
no mechanism for redemption. Carothers (1930, 126–7) cites concerns about
the possibility of private duplication of government-issued underweight coins,
78

See Carothers (1930).

misunderstanding of and opposition to the principle of token coinage (“There
was an almost universal belief that a coin legally rated at a value above its
bullion value was a debased coin of doubtful honesty”) and fears of over-issue
and resulting depreciation.
In 1873, coins of 1/, 3/ and 5/ in copper and nickel were created, with
c c
c
legal tender limited to 25/. Only by an act of 1879 (21 Statutes at Large 7)
c
was it provided that “the holder of any of the silver coins of the United States
of smaller denominations than one dollar, may, on presentation of the same in
sums of twenty dollars, or any multiple thereof, at the oﬃce of the Treasurer or
any assistant Treasurer of the United States, receive therefor lawful money of
the United States” (the legal tender limit was also raised to $10).
France’s law of Germinal XI (April 1803) had reestablished the bimetallic
standard that prevailed before the Revolution. Silver coins were full-bodied,
from 0.25F to 5F, and a few bronze coins were occasionally minted at cost
(0.05F and 0.10F). In the early 1850s, the gold discoveries of California led
to a disappearance of silver in circulation, and the ﬁrst proposals for token
subsidiary coinage were made, and adopted in 1864 for the smallest silver coins
(the 0.20F and 0.50F pieces were made 7.2% light). The following year, The
1865 convention creating the Latin Monetary Union between France, Belgium,
Switzerland and Italy (and enlarged to Greece in 1868) extended this provision
to the 1F and 2F piece, but the 5F silver piece remained full-bodied. The coins
were legal tender up to 50F between private parties, up to 100F in payments to
any member government, and exchanged by any member government into 5F
full-bodied silver pieces or gold pieces in sums greater than 100F. The convention
also imposed a per-capita limit on each state’s cumulative issue.79 The 5F piece,
however, remained freely minted until the drastic fall of the price of silver in the
1870s led the various member countries to suspend free coinage of silver. France
did so by a law of March ??, 1876, whose preamble stated: “The theory of the
double standard, on which our monetary law of the year XI reposes, has been
79

The convention apparently adopted the belt-and-suspenders approach: the coins were
close to full-bodied, convertible on demand, limited legal tender, and limited in quantity.

called into question ever since its origin. It is, to our conception, less a theory
than the result of the primitive inability of the legislators to combine together
the two precvious metals otherwise than by way of an unlimited concurrence—
metals, both of which are destined to enter into the montary system, but which
recent legislators have learned to co-ordinate by leaving the unlimited function
to gold alone and reducing silver to the rˆle of divisional money.”
o

Conclusion
Having been discovered by the processes we have described, and being ﬁrmly in
place by the mid 19th century, two theoretical elements—the quantity theory
and the need to to restrain the creators of token money—were in the 20th
century to underlie proposals to abandon gold for all denominations, large and
small, and to replace it with a well managed ﬁat money system. In the ﬁrst
half of the 20th century, proposals to install a well managed ﬁat money were
endorsed by leading monetary economists, ranging from Irving Fisher and John
Maynard Keynes to Milton Friedman. They called gold a ‘barbarous’ relic, and
argued that armed with the quantity theory and good intentions, a ﬁat money
could be managed to deliver a more stable price level than had been achieved
under than under gold. The monetary history of the second half of the twentieth
century has witnessed the experiment that these theorists recommended, with
remarkable results involving what stands as another (and ongoing) chapter in
our tale of social learning. It has taken time and experience for managers of ﬁat
currencies to learn how to deliver the performance that Irving Fisher and the
others promised us. Mainly, they have had to learn how to combat the two great
enemies of price stability in a ﬁat money system: the pressure to supply to the
Treasury revenues from an ‘inﬂation tax’; and belief in some form of exploitable
Phillips curve. In the last two decades, inﬂation has fallen dramatically in one
country after another as authorities have learned how to manage the system.
The picture of ‘social learning’ that emerges from our story mixes technological change, imperfect theorizing about data, and intermittent new ‘exper65

iments’ delivered by decision makers who were more or less inﬂuenced by preeminent existing theories, followed by more theorizing to make sense of those experiments. This process partly resembles vision of David Kreps, who views time
series data as emerging recursively from an adaptive joint estimation-decision
making process, where parameter values of a statistical model to be used for
decision making are recurrently updated as new data appears. The history of
token coins reveals something that is hard to capture in Kreps’s type of model,
namely the leaps of intuition or ‘paradigm shifts’ that punctuate the learning
process. The discovery of the quantity theory and the growing understanding
of alternative mechanisms for restraining creators of money exhibit features of
insight and foresight that are hard to instill into the adaptive agents in Kreps’s
models.
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