Cover

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Title Page, Copyright

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Contents

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pp. vii-xi

List of Illustrations

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pp. xiii-xiv

List of Tables

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p. xv

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Preface

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pp. xvii-xix

This book describes our efforts to discover the origins of a principle that central banks now routinely use to manage a country’s supplies of coins and notes. Because that principle cured what had been widespread and enduring problems of monetary management, our...

Acknowledgments

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p. xxi

Part I: A Problem and Its Cure

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1. Introduction

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pp. 3-14

A century ago few would have foretold the kind of money we use today. In 1873, the U.S. Congress had passed a law, section 14 of which states: “the gold coins of the U.S. shall be a one-dollar piece, which, at the standard weight of 25.8 grains, shall be the...

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2. A Theory

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pp. 15-36

This chapter presents the main elements and outcomes of our model. The exposition here contains enough to reveal the features that we watched in history. A complete account of the model appears in part V...

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3. Our Philosophy of History

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pp. 37-42

Subsequent chapters contain selective histories of thoughts and events that pertain to managing the coinage. We present only a sample from a vast record of thoughts and events. Our model helped us select it, so our sample is biased. Because we are prejudiced observers...

Part II: Ideas and Technologies

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4. Technology

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pp. 45-68

Our model identifies economically significant features of the technology of coin production, including ones that govern the costs of entering the business of producing counterfeits. This chapter is about technologies for producing coins. We describe the constituent...

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5. Medieval Ideas about Coins and Money

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pp. 69-99

Implementing the standard formula required both a theory of convertible tokens and a technology for producing counterfeit-proof small denomination coins. Having described the history of the relevant technology, we now recount theoretical developments that...

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6. Monetary Theory in the Renaissance

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pp. 100-120

Renaissance writers dismantled Renaissance the medieval “communis opinio” that ideally coins should be valued according to their intrinsic metallic content. They discovered three important and enduring ideas in monetary theory that undermined the “communis opinio...

Part III: Endemic Shortages and “Natural Experiments”

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7. Clues

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pp. 123-130

In parts III and IV, we read history in the light of our model. Part III describes events before and part IV events after the technological and theoretical innovations of the Renaissance.
In part III, we document the recurrent shortages and debasements...

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8. Medieval Coin Shortages

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pp. 131-138

Complaints of coin shortages abound in the record since the Middle Ages.1 The complaints were sometimes general and vague. When they were specific enough, they often mentioned a lack of coins of small denomination. Other concurrent phenomena were sometimes...

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9. Medieval Florence

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pp. 139-159

This chapter describes the circumstances surrounding the early coins of pre-Renaissance Florence and other Tuscan towns. After they issued multiple denominations, Tuscan towns encountered flaws in the theoretically self-regulating commodity money system, with its...

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10. Medieval Venice

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pp. 160-185

Venice originally used one coin, the penny of Verona. Then starting around 1182, it minted its own penny or denaro, a silver coin about 25% fine.1 In 1201, so the story goes, Venice had exacted ten tons of silver from the leaders of the Fourth Crusade to ferry them to the...

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11. The Price Revolution in France

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pp. 186-215

The “Price Revolution” was a European-wide inflation during the sixteenth and early seventeenth centuries. A century of shortages and depreciations of small coins led the French authorities in 1577 to entertain issuing token small coins as a possible cure for shortages...

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12. Token and Siege Monies

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pp. 216-224

Medieval jurists’ preference for full-bodied coinage discouraged but did not entirely stop various forms of tokens or redeemable promises from circulating as currency. Occasionally, siege and other token coins were temporarily issued to relieve extraordinary shortages of...

Part IV: Cures and Side-effects

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13. The Age of Copper

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pp. 227-229

Chapter 4 described a substantial technological change that occurred around 1550, making coins more immune to counterfeiting. As the innovation diffused across Europe, governments sought to dissociate the metallic currency from its intrinsic content, a possibility already...

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14. Inflation in Spain

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pp. 230-253

The standard formula recommends that the government make over-valued tokens that it redeems for full-bodied coins. To create tokens, the government should terminate free minting of small denominations and thereby end the associated automatic mechanism governed...

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15. Copycat Inflations in Seventeenth-Century Europe

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pp. 254-260

This chapter describes how several European countries were tempted to replicate the Castilian experiment with token coins. Some resisted but others accepted the temptation and took the inflationary consequences...

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16. England Stumbles toward the Solution

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pp. 261-290

This chapter and the next describe the mixture of experience and theorizing that eventually led England to adopt the standard formula. Experience held the upper hand. During the seventeenth and eighteenth centuries, England used privately issued tokens and...

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17. Britain, the Gold Standard, and the Standard Formula

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pp. 291-305

With the Great Recoinage of 1696, Britain withdrew from its earlier experiments with token subsidiary coins and reaffirmed the medieval idea of a full-bodied commodity money throughout the denomination structure. It thereby arrested its earlier substantial progress...

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18. The Triumph of the Standard Formula

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pp. 306-319

This chapter describes how the standard formula spread beyond Britain in the course of the nineteenth century. While Britain adopted the standard formula along with the gold standard, in 1838 the German Monetary Union implemented the standard formula...

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19. Ideas, Policies, and Outcomes

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pp. 320-332

James Laurence Laughlin (1931, 87) concluded his textbook exposition of the standard formula as follows:
It might seem at first blush that, as subsidiary moneys play only a secondary part, the principles governing them are not of first...

Part V: A Formal Theory

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20. A Theory of Full-Bodied Small Change

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pp. 335-336

We present a model of supply and demand for large and small metal coins designed to simulate the medieval and early modern monetary system, and to show how its supply mechanism lay vulnerable to alternating shortages and surpluses of small coins.1 We extend Sargent...

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21. The Model

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pp. 337-349

In a small country there lives an immortal representative household that gets utility from two nonstorable consumption goods. The household faces cash-in-advance constraints.1 “Cash” consists of a large and a small denomination coin, each produced by...

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22. Shortages: Causes and Symptoms

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pp. 350-365

This chapter computes some sample equilibria and uses them to highlight key operating characteristics of the model. We utilize the back-solving strategy employed by Sargent and Smith (1997) to describe possible equilibrium outcomes. Back-solving takes a...

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23. Arrangements to Eliminate Coin Shortages

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pp. 366-372

This chapter describes two money supply mechanisms that, within the context of our model, prevent shortages of small coins. We scrutinize these mechanisms in terms of how they incorporate some or all of the ingredients in Cipolla’s recipe, and study whether some...

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24. Our Model and Our History

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pp. 373-374

We designed our model to help us understand problems with the arrangements for minting more or less full-bodied coins that prevailed for centuries throughout western Europe. Our model ascribes rules for operating the mint that copy historical ones, and focuses on the...

Glossary

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pp. 375-376

References

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pp. 377-392

Legal Citations Index

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pp. 393-394

Author Index

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pp. 395-398

Subject Index

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pp. 399-406