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‘The big problem of the petty coins’, and how it could be solved in the late Middle Ages

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  • Volckart, Oliver

Abstract

In this paper, the problem of why low-purchasing power silver coins depreciated relative to high-purchasing power gold coins is examined. The standard explanation by Sargent and Velde is refuted. It is argued that the relative stability of gold was due to the demand from consumers able to detect debasements and to choose other suppliers; the rulers’ fear of a loss of reputation therefore allowed them to commit to monetary stability. Consumers of silver were less able to detect changes in the standard and therefore willing to accept debased coins, which meant that rulers could not easily commit to preserving stable silver currencies. The problem could be solved by establishing an independent agency responsible for monetary policies. As infringements of these agencies’ autonomy would be obvious to a wider audience, rulers could then commit to respecting monetary stability. Data on the standards of urban and princely currencies supports the conclusion that this mechanism solved the problem of maintaining the stability of low-purchasing power silver coins.

Suggested Citation

  • Volckart, Oliver, 2008. "‘The big problem of the petty coins’, and how it could be solved in the late Middle Ages," Economic History Working Papers 22310, London School of Economics and Political Science, Department of Economic History.
  • Handle: RePEc:ehl:wpaper:22310
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    File URL: http://eprints.lse.ac.uk/22310/
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    References listed on IDEAS

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    4. Sargent, Thomas J & Velde, Francois R, 1999. "The Big Problem of Small Change," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 137-161, May.
    5. Gandal, Neil & Sussman, Nathan, 1997. "Asymmetric Information and Commodity Money: Tickling the Tolerance in Medieval France," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 440-457, November.
    6. Arthur J. Rolnick & Francois R. Velde & Warren E. Weber, 1997. "The debasement puzzle: an essay on medieval monetary history," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 8-20.
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    Cited by:

    1. Li, Ling-Fan, 2009. "After the Great Debasement, 1544-51: did Gresham’s Law apply?," Economic History Working Papers 27874, London School of Economics and Political Science, Department of Economic History.
    2. Badalian, Lucy & Krivorotov, Victor, 2010. "The amazing synchronicity of the Global Development (the 1300s-1450s). An institutional approach to the globalization of the late Middle Ages," Economic History Working Papers 27906, London School of Economics and Political Science, Department of Economic History.
    3. Chilosi, David & Volckart, Oliver, 2010. "Good or bad money?: debasement, society and the state in the late Middle Ages," Economic History Working Papers 27946, London School of Economics and Political Science, Department of Economic History.

    More about this item

    JEL classification:

    • N0 - Economic History - - General
    • B11 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Preclassical (Ancient, Medieval, Mercantilist, Physiocratic)

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