The Great Monetary Crisis of 13th C Europe


Introduction:

Medieval history is often taught as a power struggle between nobles fighting for control of their inherited lands via a series of military campaigns, often ending in a decisive battle that has been portrayed within a 19th century ‘nationalist’ mindset.
My own education, from what I can remember of primary school and the old Intermediate (now Junior) Certificate history curriculum, comprised the old Irish myths, early Christian Ireland, the Viking invasions and 700 years of ‘us versus them’ through to independence. Sadly, the Irish curriculum does not have a very strong European medieval content.
  • Few historians mention a common thread that runs right through 13th C Europe
    • a chronic shortage of money
    • exhausted silver mines
    • new mining/smelting techniques to make old mines profitable (again)
    • effort to discover new sources (mines) of silver
    • and, in the interim, a series of creative monetary ploys that gave temporary respite but no long term solutions to the main problem, i.e. a lack of money!
These problems started in the mid-12th century and became very apparent to all Western European rulers at the turn of the 13th century, i.e. they all faced three major monetary supply problems:-
  • Firstly, there was a chronic shortage of coins in circulation
    • this made paying an increasing population difficult
    • in turn, this inhibited the expanding economies
  • Secondly, they all paid for their ‘imported goods’ with silver coin
    • this aggravated the pre-existing silver shortage in their home economies
    • in effect, this was a trade deficit that could only be corrected by discovering and exploiting new supplies of raw silver that could be converted into coinage, or colonising new lands and exploiting their natural resources and exporting – Ireland fell into both these options
  • Finally, the kings and princes were often frustrated in their efforts to introduce monetary reforms by:
    • pre-existing ‘minting’ rights which prevented centralised royal control
    • a proliferation of clippers throughout Europe which debased the coinage
    • a proliferation of counterfeiters which undermined the public trust in money
Let us deal with each problem in turn but, before we do so, it is worth noting that the Normans in Ireland had discovered new silver mines and they had been busy exploiting this since the reign of Prince John, as Lord of Ireland in the late 12th century.
It is also interesting to note that they exported most of it in the form of coins, i.e. Prince John was the first ruler of Ireland to re-introduce silver coinage since the demise of the Hiberno-Norse coinages of the Late 10th / Early 11th centuries.
  • English kings insisted on tax payments being made in silver coin
    • the king also made money when silver was converted into coins
    • in all, the Normans removed over 400 tons of silver coinage from Ireland
      • this paid their armies, paid for the building of castles in Wales and town walls in England but very little remained in Ireland to pay Norman colonists for their work or supplies
      • this affected the development of their economy and it began to contract, thus igniting a Gaelic Revival and consequent military threat
      • ironically, the Normans in Ireland didn’t have enough coin left over to pay for mercenaries to supplement their own troops which, in turn, led to a shrinking of the Norman colony due to native Irish incursions.

Coin Shortages in 13th C Europe

The Italians were the first to introduce a remedy for the coin shortage, i.e. in order to make their silver supplies go further, they reduced the amount of silver in each coin. This was OK in the short term for their internal economies but it made their imports increase in price because foreign merchants quickly discovered the lower silver content of their coins and increased their product prices accordingly. Very soon, the Italians suffered rapid price inflation.
  • Large amounts of coins were required to pay for small purchases
  • The Italian kingdoms responded by introducing larger coins – grossii (groats)
    • In 1172, Genoa issued a silver coin worth 4 pennies
      • it proved to be too small and traders rejected it
    • In 1202, Venice issued its version of the grosso, the matapan
      • It was valued at 24 pennies
    • Verona (1203) and Florence (1237) also issued a grosso
      • This coin was valued at 12 pennies
  • It is interesting to note that there were Italian bankers in Ireland during the reigns of King John and his successor, Henry III. These bankers were, in fact, merchants that traded internationally and required a way to avoid carrying large amounts of money all over Europe. They devised a way of doing this and make extra money on the side, i.e. they became tax collectors for the king.
    • The Jews traded individually and fell foul of the usury laws when someone with a large enough debt used it as an excuse for not paying them
    • The Italians avoided usury laws by trading as a society, trading in much higher amounts and providing loans to kings and cities. They also collected taxes up front and were of much more use than small, sole traders.
    • The Norman settlers in Ireland were able to:
      • Introduce sheep farming on a large scale
      • Take advantage of the plentiful cheap labour in Ireland
      • Export wool and hides
      • Collected ‘tithes’ (a tenth of everyone’s income) for the Church
      • Because all trade went through them, the Italians were able to direct taxes to the king in England and the Norman settlers could not hide their income / avoid tax. The king could either take cash (silver coins), or a share of the sales price on the foreign wool and hide markets
        • These Italian merchants also took ‘a cut’ from taxes received
      • Between the Church tithes, the King’s taxes and the Italian bankers’ interest payments on loans, the Norman colony in Ireland suffered greatly and this may have been a contributory factor for its decline by the middle of the 14th century. Of course, the constant wars in France, the Bruce invasion and the black death didn’t help either !
        • The Italian merchant societies profited from everyone
        • They controlled the ports, so no transaction went unnoticed
        • They were also probably less corrupt than the Norman barons who previously collected taxes for the king

The longer term problem of silver mining output not being able to keep up with demand for good coinage soon came back and, by 1250, the grossii had been debased to the point hereby they were no longer acceptable for international payments.

The Italians then introduced and developed a system of credit (Italian banking) and the introduction of gold coins from Byzantine and Islamic empires to the east temporarily eased the problems of money supply.

Once again, the Genoese led the way:-

  • In 1257, Genoa issued its first gold coin – the genovino
  • Later in 1257, Florence followed by issuing its gold florin (worth 20 groats / 240 deniers)
  • In 1287, Venice issued a gold ducat – similar in weight and value to the above.
    • However, kings and princes had to pay for their gold.
      • They paid in silver
      • This made silver coins even scarcer !

This is a good point to cut back to the Irish experience from the 13th to 15th C’s and think about the massive transfer of wealth via silver coins during the reigns of John, Henry III and Edward I from Ireland to England. No coins were minted in Ireland from Edward II to Henry V and this must have affected commerce, i.e. no one had silver to pay for transactions. By the time Henry VI came to the English throne in 1422, there was a problem with large scale, organised counterfeiting in Ireland, i.e. the O’Reilly Money !

  • The O’Reilly Money (contemporary counterfeits)
    • It was also known as ‘le money del Oraylly’ or ‘Argent irrois appelle Raillyes’

It is easy to think that the Italian bankers simply left Ireland when they had all the cash but it wasn’t quite that simple. We must remember they came as merchants – not only did they export wool and hides from a cashless society, they also imported wine, salt, spices, silks and jeweled objets d’art, so it was in their best interests to make money from imports as well.

It is also worth remembering that they imported goods for both Norman and Gael alike, so they were welcome by both – provided there was a way to pay – via cash (silver coins), barter (traded goods) or loans, mortgages and lease-backs.

  • Life was good – provided wool prices remained high and silver coins remained available to pay for the labour involved and their micro economic needs.

Getting back to monetary matters in 13th C Europe, towards the end of the 12th C, the Islamic world had only issued gold coins. By the middle of the 13th C, there was so much silver in Islamic coffers, they began to issue silver coins in order to get rid of it, i.e. there comes a point where it costs a lot of money to protect money (stores of value) and the more money someone has, the more someone else thinks about stealing it.

  • Thus, the European rulers then paid for their silver in gold !
  • And, from the beginning of the 13th C, southern European rulers turned their attention to counterfeiting Islamic silver coins … to pay for their gold !
  • It was a vicious circle that had to come to an end

Before long, Europe was experiencing a severe silver shortage.

  • the debased silver counterfeits were melted down
  • the illicit trade was a closely guarded secret, so no official figures exist
    • one scholastic source estimates it at 3 billion counterfeit coins
      • c. 4000 metric tons

It wasn’t long before rulers in Northern Europe began to experience similar problems as their own silver ‘migrated’ southwards – never to return. And, as Italian bankers migrated northwards and westwards in their quest for new business, northern rulers used the same short-term solutions and fell into the same traps as the Italians before them.

  • No gold coins were issued by the Anglo-Normans in Ireland but, in 1257, Henry III of England issued a gold penny = 24 silver pennies (similar to a ducat or florin) but these coins disappeared so after they were issued.
    • It was undervalued compared to silver, so bullion dealers found it more profitable to melt them, i.e. it created an arbitrage market

His rival in France had the same problem:

  • In 1266, Louis of France issued the gros tournoi (groat) but he was undermined by the many counts, monasteries and bishops who still retained their medieval rights to issue coinage.
    • Louis go around this by decreeing that their coins could only be used for payment within their own lands, whereas the king’s coinage was permissible throughout the kingdom. Thus future French kings gained more centralised monetary control, allowing them to debase their coinage as they saw fit.
      • Similar to the Italians, the French silver also found its way across he Mediterranean … leading to severe silver shortages.

Trade Deficits in 13th C Europe

As everyone knows, when you spend more money than you earn you run into a cashflow crisis. Scaled up, these amounts to a trade deficit between countries, or kingdoms. The problem is two-fold insofar as the buyers in one country cannot buy goods without money and the sellers (in another country) don’t have anyone to sell their goods to.
  • The result is bad for both countries in the longer term:
    • unless Kingdom A discovers new silver mines,
    • or Kingdom B discovers new markets for their goods (and these new markets pay them in good coin).
  • This probably explains to urge to discover new trading routes (Marco Polo) and discover new lands to exploit for raw materials (silver and gold) … but that is another story.

Clipping & Counterfeiting in 13th C Europe

The English tried to maintain their standard of coinage but they had suffered badly at the hands of the clippers since the times of Henry II. Between normal wear and clipping (the removal of slivers of metal at the edge of the coin) coins were no longer anywhere near the correct weight after 25-30 years in circulation. Consequently, English kings had to call in coinage 4 times per century and re-issue coins of full weight.
  • Henry II had a re-coinage in 1180, although he issued no coins in Ireland
  • John had a re-coinage in 1205
    • He had 3 coinages as Lord of Ireland + the REX coinage as king
  • Henry III had a re-coinage in 1247

Each time, it was accompanied by a design change intended to stop the clippers and counterfeiters:-

  • Henry III extended the cross to the edge of the coin, hoping to make clipping more easily detectable … and punishable !
  • The despotic but devious Edward I went even further – starting by ordering all merchant usurers to leave England in 20 days, or lose their lives and their goods.
    • Italian merchants were allowed to stay, upon payment of huge fines
    • Business must have been good – they paid up and stayed !
    • Edward I issued SIX different Irish coinages and made money off each
  • On 17th November 1278, all English Jews were arrested for coin-clipping, executed or, fined heavily and expelled – 280 were hanged in London alone.
    • He then arrested all goldsmiths suspected of buying their clippings
    • The goods and chattels of both Christian and Jew were seized
    • All mint officials were arrested and control of coin production seized by the crown
    • Finally, he also banned the export of silver plate, clipped coins or broken silver

These constant cycles of debasement, price inflation and coin shortages were never really fully resolved. There was a temporary respite when vast reserves of silver and gold were found in South America, and later Africa, but due to kings and popes hoarding it, clippers debasing what was left, and counterfeiters undermining public trust, the problem of how to ‘oil the cogs of an economy’ is still being pondered.

The moral of the story here is that:
  • People who store vast amounts of wealth take cash out of their economy
    • A reduction in ‘circulating money’ reduces economic activity
    • This, in turn, makes it difficult to do business
  • A finite supply of silver and gold also restricts an economy
    • For any economy to grow, it must have access to currency
    • A currency has to be ‘trusted’ in order to transact business
    • A currency has to be stable in order to promote certainty
    • The ideal currency is one that is not restricted by supply but is trusted by both parties involved in the transaction and doesn’t reduce in value
  • A consistent outflow of specie (gold and silver) from a medieval economy, without the ability to replace it, eventually causes an economic crash and stagnation.
    • This certainly happened to the Norman colony in Ireland
    • It wiped out much of their earlier gains
    • It almost caused them to fail

 


 

The problem silver (and gold) coinage shortages was not solved until James II minted a ‘fiat currency’ in 1689 with a promise to pay in silver (when he won the war in Ireland and re-gained his throne, which he didn’t). His suppliers (traders, merchants and farmers in Ireland) lost everything when William III declared gunmoney illegal and offered to exchange it at a rate as low as one-sixtieth of face value. Small wonder he is remembered as ‘Seamus an cathach’ which translates as James the Shit.

  • Between £1.1m and £1.4m (face value) of gunmoney was minted
  • This meant that even scrap metal became scarce and James had to make some coins smaller in order to make his scrap metal reserves go further. It was almost comical
    • sixpences were overstruck as small shillings
    • large shillings overstruck as small halfcrowns
  • When William won the war and James absconded to France, William offered the following exchange rates:
    • 1 gunmoney crown / large halfcrown = 1 penny
    • 1 small gunmoney halfcrown  =  3 farthing
    • 1 large gunmoney shilling = 1 halfpenny
    • 1 small gunmoney shilling / sixpence = 1 farthing
  • Although his ‘brass currency’ was derided at the time, less than a decade later, the Bank of England was formed and it began to issue ‘fiat’ paper notes.

The result of all these lessons learnt is that almost all countries on the world now use ‘fiat’ currencies but the twin problem of balance of payments + how to increase money supply (in circulation) remains.

 

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