Home > Uncategorized > Links. Monetary history.

Links. Monetary history.

  1. Via Voxeu Jacques Melitz provides us with a more precise dating and geography of the origin of coins.  My take away: production of coins started around 630 BC, coins spread much slower than I thought (partly because denominations were large) and especially hubs of trade were late to adopt coins as they had other means of payment. It was very much a state led innovation used, among other things, to organize armies.
  2. Jan Lucassen tells us, for a much later period (Netherlands, 1200-1940), how the state (again) solved the large denominations problem by producing ‘small change’. These small coins facilitated petty trade as well as the labour market. As producing small coins was not profitable, producing them could not be left to the market. This ‘coinisation’ of petty trade is nowadays called ‘deep monetization’ – mind that in the latter part of this period most trade was petty trade. Interesting fact: the Dutch VOC exported a billion of such coins to ‘The East’. Also interesting: different kinds of trade used different kinds of money – at the end of the eighteenth century there may have been as many as 14 of such ‘spheres’, all with their own markets and institutions and the like.  Small change seems to have been much less of a problem in the Netherlands than in the UK.
  3. I’m working on the ‘loanable funds’ market in Friesland, 1537-1580. I’ve been reading a bit and, also using the data on Friesland which Paul Borghaerts unearthed and which Paul and I are starting to analyse, the next stylized patterns about pre-banking era rural lending and borrowing seem to emerge (at this moment: hypotheses!):

a) Since at least 1400 rural lending and borrowing was at least in some regions common and tied to the life cycle of households and families, which (though details show large regional variations) needed to borrow considerable amounts of money during some phases of their life cycle and lent money during other phases. Often, households borrowed to be able to buy a house and/or land.

b) After 1500 at the latest such credit markets can be found all over Europe: around Zürich, in the Black Forest, in the Vosges, in Flanders, Westphalia, the East of the Netherlands and many parts of England and France. For many areas we do not have any information but it turns out that once we look into this we discover extensive and lively credit markets everywhere.

c) Most lending and borrowing was local. Some of it (especially when people borrowed from family?) was however supra-local (i.e. lender and borrower lived further away from each other than can be travelled in one day)

d) As local ‘lending circles’ overlapped, while supra local lending and borrowing took place too, there were probably large areas, like the coastal zone of Groningen and Friesland in the north of the Netherlands, which were, as early as the first half of the sixteenth century, interconnected credit markets in the sense that there was a supra-local interest rate. Did this coastal credit market stretch all the way to Denmark?

e) A lot of lending and borrowing was based in the countryside. Towns sometimes played a decisive role but this was often the case when circumstances were special, i.e. in the case of new polders in the Netherlands (for instance around 1600) or the abolishment of seigniorial dues in Germany (first half of the nineteenth century).

f) Banks were next to non existent in these areas, at least until the beginnnig of the nineteenth century. But there often were middlemen, often quite literate officials. Using the information available to them often made this position quite profitable.

g) There may have been two distinct borrowing/lending patterns, both based upon the household. One was prevalent in labour abundant areas, where people borrowed money to buy land when children became of working age or (in the case of Edam, a coastal town in the Netherlands) when a couple married and had to buy a ship. In old age, land or ships were sold again and the proceedings were lent, to serve as a kind of pension. The other one pattern was more patrimonial and prevalent in areas were circumstances or economies of scale, like the necessity to own a number of horses to be able to plough heavy clay soils, more or less prohibited the existence of small farms. In such areas lending and borrowing took place when somebody died and one of the heirs needed capital to keep the farm together.

h) Which, in a long run perspective, of course leaves us with the question why people stopped lending to each other and started to leave lending to the banks.

Some literature:

Béaur, Gérard (2009), ‘Credit and land in eighteenth century France’ in: Schofield and Lambrecht, Credit and the rural economy pp. 153-168.

Cruyningen, Piet van (2009), ‘Credit and agriculture in the Netherlands, eighteenth – nineteenth centuries’ in: Schofield and Lambrecht, Credit and the rural economy pp.99-108.

Dehing, Pit (2012), Geld in Amsterdam. Wisselbank en wisselkoersen, 1650-1725. Hilversum: Verloren.

Fertig, Christine (2009), ‘Urban capital and agrarian reforms: rural credit markets in nineteenth-century Westphalia’ in: Schofield and Lambrecht, Credit and the rural economy pp. 169-196.

Knibbe, Merijn (2006). Lokkich Fryslan. Landpacht, arbeidsloon en landbouwproductiviteit in het Friese kleigebied, 1505-1830. Groningen: NAHI.

Knibbe, Merijn (2007), ‘Geen lezers maar Schrijvers. Uitingen van verschriftelijking van de cultuur in Hennaarderadeel rond 1560’, Fryslan 13-4 pp. 10-13.

Kuiken, Kees (2013), Het Bildt is geen eiland. Capita cultuurgeschiedenis van een vroegmoderne polder. Groningen: s.n.

Lambrecht, Thijs (2009), ‘Rural credit and the market for annuities in eighteenth century Flanders’ in: Schofield and Lambrecht, Credit and the rural economy pp.75-94.

Limberger, Michael (2009), ‘Credit, the land market and the connection between the rural and urban economy. The use of perpetual annuities in Aartselaar (Brabant) from the fourteenth to the sixteenth century’ in: Schofield and Lambrecht, Credit and the rural economy pp. 63-74.

Moor, Tine de; Jan Luijten van Zanden and Jaco Zuijderduijn, ‘Small is beautiful. On the efficiency of capital markets in late medieval Holland’, CGEH working paper series no. 11. Utrecht: University of Utrecht.

Moor, Tine de and Jaco Zuijderduijn (2013), ‘Preferences of the poor: market participation and asset management of poor households in sixteenth-century Holland’, European Review of Economic History 17 pp. 239-255

Nijboer, Harm (2007). De fatsoenering van het bestaan. Consumptie in Leeuwarden tijdens de Gouden eeuw. Groningen: Rijksuniversiteit Groningen

Ogilvie, Sheilagh, Markus Küpker and Janine Maegraith (2012), ‘Household Debt in Early Modern Germany: Evidence from Personal Inventories’, The journal of economic history 72-1 pp. 134-152.

Paping, Richard (1995). Voor een handvol stuivers. Werken, verdienen en besteden± de levensstandaard van boeren, arbeiders en middenstanders op de Groninger klei, 1770-1860. Groningen: NAHI.

Pfister, Ulrich (2007), ‘rural land and credit markets. The permanent income hypothesis and proto-industry: evidence from early modern Zurich’, Continuity and change 22-3 pp. 489-518.

Postma, O. (1962), ‘Slechte betalers in de gouden eeuw’, De Vrije Fries 45 pp. 155-160.

Ronsijn, W. (2014), Commerce and the countryside. The rural population’s involvement in the commodity market in flanders, 1750-1910. Gent: Academia Press.

Schofield, Philipp R. and Thijs Lambrecht, Credit and the rural economy in North-western Europe, c. 1200-c.1850. Corn publication series comparative rural history of the North Sea area 12.Turnhout: Brepols

Thoen, Erik and Tim Soens (2009), ‘Credit in rural Flanders c. 1250-c.1600: its variety and significance’ in: Schofield and Lambrecht, Credit and the rural economy pp. 19-38.

Vermoesen, Reinoud (2010), ‘Paardenboeren in V laanderen’, Tijdschrift voor sociale en economische geschiedenis 7-1, pp. 3-37

Vermoesen, Reinoud (2011), Markttoegang en commerciële netwerken van rurale huishoudens. De regio Aalst 1650-1800. Gent: Academia Press.

Zuijderduijn, Jaco (2009), ‘Village indebtedness in Holland in the fifteenth and sixteenth centuries’ in: Schofield and Lambrecht, Credit and the rural economy pp. 39-62

 

  1. antireifier
    November 21, 2015 at 4:39 pm

    “Which, in a long run perspective, of course leaves us with the question why people stopped lending to each other and started to leave lending to the banks.” The answer seems to be in the fractional reserve system of banking. Friends and neighbours are only able to lend money they have whereas banks lend money they create.

  2. November 22, 2015 at 3:07 am

    A touch of spice,. My understanding is that Genghis Kahn understood paper money must be a store of value across borders and through time or it was worthless paper.

    I appreciate what you write and hope we are talking about the same thing.

    • merijnknibbe
      November 22, 2015 at 8:46 am

      I’m not too familiar with the mongol monetary system – but as I see it we are talking about the same thing.

  3. November 22, 2015 at 5:14 am

    In other words banks lead money they don’t have. In the case of electronic money it is clearly possible to lend money you don’t have. All you need is some computer programming skills. But how do banks lend paper money they don’t have? I know the Federal Reserve controls US currency. But it doesn’t print it. Does it?

    • merijnknibbe
      November 22, 2015 at 8:45 am

      They don’t print it. But they also do not have to. The state guarantees a 1:1 exchange rate between electronic bank money and paper government money. When you take paper money out of an ATP you are in fact buying paper government money with your electronic bank money (though the bank indeed had to buy this government money from the central bank (Eurpean situation) first, using reserve-money (which they can borrow from the central bank). In Cyprus, the state reneged on this 1:1 promise, in Greece also, albeit less competely.

  4. November 22, 2015 at 1:15 pm

    Merijn, like Garrett I appreciate what you are saying – especially this:

    ” Also interesting: different kinds of trade used different kinds of money – at the end of the eighteenth century there may have been as many as 14 of such ‘spheres’, all with their own markets and institutions and the like”.

    Developing my own “crossed diamond” flow model (figuratively, dad and mum feeding the kids with the elders inventing tools and storing summer surplus in barns for over-wintering, c.f. producers and distributers supplying consumers, with developers turning the barn into a bank), the Structured Systems Analysis and Design Method uses Ted Codd’s relational algebra to decompose “many-to-many” relationships (like those between a shop’s suppliers and its consumers) into “one-to-many” relationships linked by cross-indexes (the shop’s accounts). So in this model there is not one [type of] market but six, and more as one takes into account money marketing and the shadow economy.

    Following up your response to Ken on electronic banking, the point surely is that a bank note (an IOU) is simply informative. The same information can be represented in static or dynamic forms: written or spoken language, flows of digits or flowing waves, channels opened or denied. It can be rightly or wrongly interpreted or misinterpreted to suit one purpose to the exclusion of others, and facilitated or enforced by laws proclaimed by interested parties which, like money, have ultimately been produced “out of thin air”.

    I apologise to any haughty economists here who find this homely talk beneath their dignity, but since the laws they are proclaiming suit only their self-serving paymasters, this evil is not going to change until even the simplest of us can see the macro economy as easily as a child can see the world as a globe, and thus understand the distortions in micro-mapping.

  5. November 22, 2015 at 4:25 pm

    @DaveTaylor, “I apologise to any haughty economists here who find this homely talk beneath their dignity, but since the laws they are proclaiming suit only their self-serving paymasters, this evil is not going to change until even the simplest of us can see the macro economy as easily as a child can see the world as a globe, and thus understand the distortions in micro-mapping.”
    As Frederick Soddy said, “” So elaborately has the real nature of
    this ridiculous proceeding been surrounded with
    confusion by some of the cleverest and most
    skillful advocates the world has ever known, that
    it still is something of a mystery to ordinary
    people, who hold their heads and confess they
    are ” unable to understand finance “. It is not
    intended that they should.”

    Then, of course, he said, “… It is concerned less with the details of particular schemes of monetary reform that have been advocated than with the general principles to which, in the author’s opinion, every monetary system must at long last conform, if it is to fulfil its proper role as the distributive mechanism of society. To allow it to become a source of revenue to private issuers is to create, first, a secret and illicit arm of the
    government and, last, a rival power strong enough ultimately to overthrow all other forms of
    government. ”http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt
    THE
    ROLE OF MONEY
    WHAT IT SHOULD BE, CONTRASTED WITH WHAT IT HAS BECOME By
    FREDERICK SODDY (FREE DOWNLOAD)

  6. November 23, 2015 at 3:21 pm

    Lucky, you are no fool, having A N Whitehead’s type of wisdom: “getting hold of the big ideas and hanging on to them like grim death”. But I was trying to be simple.

    I agree with you: Soddy is a “big idea”, but he also understood the need for simplicity. Here’s a snippet our fellow bloggers ought to read and reflect on.

    Frederick Soddy on Endogenous Money & Debt-Deflation
    by Brett Fiebiger, Ph.D., February 20, 2013

    “Soddy distilled his eccentric vision into five policy prescriptions, each of which was taken at the time as evidence that his theories were unworkable: The first four were to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort. All of these are now conventional practice. Soddy’s fifth proposal, the only one that remains outside the bounds of conventional wisdom, was to stop banks from creating money (and debt) out of nothing.” – Eric Zencey, Mr. Soddy’s Ecological Economy, 11 April 2009.

    Some economists are new to endogenous money, though it is has long been recognised. Here is Frederick Soddy, Wealth, Virtual Wealth, and Debt, George Allen and Unwin, London, 1926, p. 147:

    THE PRIVATE ISSUE OF MONEY; A CHANCE RESULT OF THE BANK CHEQUE SYSTEM
    No doubt there are still many people, if not the majority, who will be frankly incredulous that money vastly exceeding in amount the total national money can be, and is created and destroyed by the moneylender with a stroke of the pen. How frequently does one still read in the Press that the banks can only loan their customers spare money! Most people still think of what money once was, “a public instrument owned and controlled by the State.”

    Alas, nearly ninety-years later, the mainstream economics profession has yet to realise basic facts of how the modern monetary system functions. There is much relevance in Soddy’s work to those who deride followers of the endogenous money approach as “money mystics” and also to those who adhere to State-centric theories of money.

    More from Frederick Soddy, The Role of Money, George Routledge and Sons, London 1934, pp. ix-x:

    “This book will show what money now is, what it does, and what it should do. From this it will emerge the recognition of what has always been the true rôle of money. The standpoint from which most books on modern money are written has been reversed. In this book it is not treated from the point of view of bankers—as those who create by far the greater proportion of money—but from that of the PUBLIC, who at present have to give up valuable goods and services to the bankers in return for the money that they have so cleverly created and create. This, surely, is what the public really wants to know about money.”

    And the bankers don’t want them to.

  7. November 24, 2015 at 12:32 am

    To Dave Taylor, Thank you for …
    ***** “Believe nothing merely because you have been told it…But whatsoever,
    after due examination and analysis,you find to be kind, conducive to the good,
    the benefit,the welfare of all beings – that doctrine believe and cling to,and
    take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC),

    WHAT COULD BE BETTER THAN A FREE BOOK?
    ONE WRITTEN FOR THE BETTERMENT OF MANKIND?
    http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt

    IF not for your own sake, then read for the betterment of your children.

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