Early Views on Monetary Policy: The Neapolitan Debate on the Theory of Exchange

As the monetary question in sixteenth- and seventeenth-century Europe, specie outflow dominated the most famous monetary debate prior to the bullionist controversy of the nineteenth century: the foreign exchange controversy that took place in early-seventeenth-century England between Thomas Mun, Edward Misselden, Gerard de Malynes, and all the so-called early mercantilists. This controversy “represents the first time in English history that a war of economic tracts exerted a traceable influence on government policy” (Blaug 1991, xi).

The disappearance of silver coins from circulation, however, was not unusual. Whether short-term or of a more structural character, the causes included balance of payments deficits, coinage reforms, and arbitrage between gold and silver, among others. Given that silver coins were the means of payments mostly used in internal trade (gold coins were too valuable for that purpose), a monetary drain had an immediate impact on spending and demand, drawing the attention of everyone—pamphleteers, merchants, royal advisers—concerned with national prosperity.

The foreign exchange controversy has been widely discussed in the literature and figures prominently in all the major histories of economic thought. ¹ However, little is known about similar events in other European countries. This oversight is unfortunate, because a broader perspective would reveal that the controversy was less dependent on particular circumstances and the interests of pressure groups and more rooted in the problems originating from a metallic money supply and from the rise of organized foreign exchange markets. ² This literature is topical insofar as monetary theory, as John Hicks says, “belongs to monetary history in a way that economic theory does not always belong to economic history” (1967, 156).

The aim of this article is to reconstruct the debate on the disappearance of silver coins from circulation early in the seventeenth century in the Kingdom of Naples. The debate involved many authors, including some from beyond the kingdom. ³ For the purposes of this article, however, I focus on two authors who well represent the opposing positions: Antonio Serra and Marc’Antonio De Santis.

Though little known, Antonio Serra ( fl. 1613) is highly praised by those familiar with his work. ⁴ Ferdinando Galiani, in his treatise Della moneta, calls Serra “the first and oldest writer in the science of political economy” ([1751] 1963, 340). Joseph Schumpeter (1954, 354) praises the quality of his real sector analysis. On very scant grounds and with some national pride, Italian scholars have credited Serra with the first formulation of the theory of diminishing returns in agriculture and of the concept of the velocity of circulation of money, as well as with the more certain accomplishment of the first correct listing of the components of the balance of payments (Benini 1892, 232; Arias 1923, 132; see also Groenewegen 1987).

Serra owes his reputation mainly to his remarkable analysis of the factors stimulating development in a country. He recognized the importance of social and political elements, especially the role of government in removing obstacles to growth, and pointed out the need to promote a national industry to accompany the production of raw materials. Yet his only surviving work, Breve trattato, ⁵ published in 1613, was not intended to deal with development problems but was conceived to explain the deplorable state of currency circulation in Naples. For some years, gold and silver coins had either disappeared or been clipped and considerably lightened of their metal contents. Although Serra’s analysis of how to promote economic growth is interesting, I focus on his contribution to the debate on the causes of gold and silver flows. ⁶

Breve trattato was written in answer to a 1605 treatise published by Marc’Antonio De Santis. ⁷ Unlike Serra, De Santis enjoyed success and respect in his lifetime, and his policy recommendations were followed—unfortunately, as we will see—by the viceroy. In spite of the differences in merit—Serra made a real contribution to development theory while there is nothing worth remembering in De Santis’s work—both authors misunderstood the relations between balance of payments and exchange rate, between microeconomic behavior and its macroeco...