Debasements and Small Coins: An Untold Story of Commodity Money

Jin, Gu and Zhu, Tao (2019): Debasements and Small Coins: An Untold Story of Commodity Money.

Abstract

This paper draws quantitative implications for some historical coinage issues from an existing formulation of a theory that explains the society's demand for multiple denominations. The model is parameterized to match some key monetary characteristics in late medieval England. Inconvenience for an agent due to a shortage of a type of coin is measured by the difference between his welfare given the shortage and his welfare in a hypothetical scenario that the mint suddenly eliminates the shortage. A small coin has a more prominent role than small change. Because of this role, a shortage of small coins is highly inconvenient for poor people and, the inconvenience may extend to all people when commerce advances. A debasement may effectively supply substitutes to small coins in shortage. Large increase in the minting volume, cocirculation of old and new coins, and circulation by weight, critical facts constituting the debasement puzzle, emerge in the equilibrium path that follows the debasement.

• Item Type: MPRA Paper
• Language: English
• Keywords: The debasement puzzle; Gresham's Law; Medieval coinage; Commodity money; Coinage; Shortages of small coins
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N13 - Europe: Pre-1913

References

Camera, Gabriel and Dean Corbae, Money and Price Dispersion, International Economic Review 40 (1999), 985-1008.

Cipolla, Carlo M., Money, Prices, and Civilization in the Mediterranean World, Fifth to Seventeenth Century, New York: Gordian Press, 1956.

Farmer, David, Prices and Wages, 1350-1500, in Edward Miller ed. The Agrarian History of England and Wales Vol. III: 1348-1500, Cambridge University Press, 1991.

Fetter, Whitson, Some Neglected Aspects of Gresham's Law, Quarterly Journal of Economics 46 (1932), 480-495.

Kim, Young Sik and Manjong Lee, Return on Commodity Money, Small Change Problems, and Fiat Money, Journal of Money, Credit and Banking 44 (2012), 533-539.

Kimball, Miles, Farmers' Cooperatives as Behavior toward Risk, American Economics Review 78 (1988), 224-232.

Lee, Manjong, Neil Wallace, Optimal Divisibility of Money when Money is Costly to Produce, Review of Economic Dynamics 9 (2006), 541.

Lee, Manjong, Neil Wallace, and Tao Zhu, Modeling Denomination Structures, Econometrica 73 (2005), 949.

Li, Yiting, Government Transaction Policy and Gresham's Law, Journal of Monetary Economics 49 (2002) 435.

Lucas, Robert, and Nancy Stokey, Money and Interest in a Cash-in-Advance Economy, Econometrica 55 (1987), 491-513.

Patterson, C. C., Silver Stocks and Losses in Ancient and Medieval Times, Economic History Review 25 (1972) 205.

Redish, Angela, Bimetallism: An Economic and Historical Analysis, Cambridge: Cambridge University Press, 2000.

Redish, Angela and Warren Weber, Coin Sizes and Payments in Commodity Money Systems, Macroeconomic Dynamics 15 (2011), 62--82.

Redish, Angela and Warren Weber, A Model of Commodity Money with Minting and Melting, Staff Report 460 (2011), Federal Reserve Bank of Minneapolis.

Rolnick, Arthur and Warren Weber, Gresham's Law or Gresham's Fallacy?, Journal of Political Economy 94 (1986), 185-199.

Rolnick, Arthur, François Velde, and Warren Weber, The Debasement Puzzle: An Essay on Medieval Monetary History, Journal of Economic History 56 (1996), 789-808.

Ruding, R. Annals of the Coinage of Great Britain and Its Dependencies, Vol. I, 3rd ed. Printedfor J. Hearne, London, 1840.

Sargent, Thomas and Bruce Smith, Coinage, Debasements, and Gresham's laws, Economic Theory 10 (1997), pages 197-226.

Sargent, Thomas and François Velde, The Big Problem of Small Change, Princeton University Press, 2002.

Sargent, Thomas and Neil Wallace, A Model of Commodity Money, Journal of Monetary Economics 12 (1983), 163.

Shi, Shouyong, Money and Prices: A Model of Search and Bargaining, Journal of Economic Theory, 67 (1995), 467-498.

Trejos, Alberto and Randall Wright, Search, Bargaining, Money and Prices, Journal of Political Economy, 103 (1995), 118-141.

Velde, Francois, Gresham's Law, in Steven N. Durlauf and Lawrence E. Blume ed. The New Palgrave Dictionary of Economics, Second Edition, Macmillan Publishers, 2008.

Velde, Francois and Warren Weber, A Model of Bimetallism, Journal of Political Economy 108 (2000), 1210-1234.

Velde, François, Warren Weber, and Randall Wright, A Model of Commodity Money, with Application to Gresham's Law and the Debasement Puzzle, Review of Economic Dynamics 2 (1999), 291.

Wallace, Neil, Modeling Small Change: A Review Article, Journal of Monetary Economics 50 (2003), 1391.

Wallace, Neil and Ruilin Zhou, A Model of a Currency Shortage, Journal of Monetary Economics 40 (1997), 555.

Zhu, Tao, Existence of a monetary steady state in a matching model: Indivisible money, Journal of Economic Theory 112 (2003), 307--324.