«The Fascination of Gold»

The Small Change Revolution: After French Revolution, Decimal System made saving without loss possible for Ordinary People - unfair Money no longer annihilated your Savings

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Did you ask yourself whether money is just or injust? 

Ursula Kampmann tells you more about it ...

 

 

Hello. My name is Ursula Kampmann, and I am a numismatist. Today, I would like to ask you a question: when is money fair?

 

I already hear the philosophers amongst you screaming: money is neither fair nor unfair! Fair or unfair is only what the people use it for. But that isn’t true. We have just become used to a currency being fair to such an extend that we don’t really take any notice of it anymore. In the past, people have actually revolted because unfair money annihilated their savings. But see for yourself.

 

Here I have 100 cent. If I go to a bank in order to exchange my one hundred 1 cent coins for a 1 euro coin, they will do it. The same happens when I use ten 1 euro coins. The bank gives me a 10 euro banknote for it in return. Of course, I can pay ten 1 euro coins into an account, after which the 10 euros will be credited to that account.

 

I am sure that your are thinking right now: oh, that’s not a big deal. This is how ANY currency works. But: it’s precisely NOT how any currency works. A currency with the possibility to exchange small change without loss into money that might be saved has been available since the French Revolution only, and that‘s about 200 years ago.

 

Prior to that, money worked in a very different mode. Technically speaking, two currencies existed at the same time. One currency was the change which was used at the market. Anyone who intended to buy or sell small quantities of goods at the market was obliged to use the money which the authorities in charge had specified.

 

You know how authorities are – almost every one took advantage of that legal position and skimmed off as much money as he could for the own treasure chest. So, change was produced with as high a seigniorage as possible. Seigniorage is the difference between the intrinsic value and the nominal value, hence between the metal content and the official value of a coin according to which a merchant had to accept it.

 

Apart from that change, there were of course all kinds of supra-regional currency – let’s call it saving money. You see, the gold coins and the heavy silver coins did not only circulate in every region but they also didn’t diminish in value thanks to their steady fineness.

 

This basically means that these coins were miniature ingots in gold and silver – they were, what we call today bullion. That money was used by the overseas tradesmen who sold and bought in great quantities. Those who were rich had thaler and gulden. The middle and under class calculated in pfennige and groschen. The rich were few in number but had much influence so it was better not to disgruntle them. As a result, the government balanced the budget rather with the aid of the middle classes and the ordinary people.

 

In order to demonstrate how that worked I will give you a concrete example. Therefore we need to travel back to 14th century Zurich. There, the council had high expenses in the 1330s. The aldermen were forced to give a loan to the emperor. It was clear from the very beginning that the emperor would never return it. Of course, the citizens of Zurich did not have this privilege. They had to pay back the money they borrowed up to the very last pfennig. To achieve that, the council made use of an indirect tax. It debased the coins circulating on the market.

 

That worked in Zurich, but on other markets the Zurich pfennige were forbidden immediately. And so the council decided after a while to get back to the old standard again. In 1335, new pfennige were produced. Anyone still possessing the old pfennige had to exchange them for the new ones. The ratio was: two old pfennige for a single new one. That meant in effect that all savings were suddenly cut in half.

 

The law didn’t affect the rich citizens at all. Their capital was invested in land, in gold and silver. It was a gross injustice the council of Zurich was going to regret. In 1336, the craftsmen stormed the town hall, expelled the old council and gave their community a new constitution.

 

This is just one example of many. A new scientific study of Philipp Robinson Rössner proves that the German Peasants’ War wasn’t so much precipitated by religious issues as by the injustice of the exchange rate of small change to stable money.

 

Since back then the emperor, in cooperation with the imperial diet, tried to implement a uniform imperial minting ordinance with a fixed thaler to kreuzer ratio. Unfortunately, scarcely anybody complied with it.

 

That changed with mercantilism when the governments realized how important a well-working economic system was. Peter the Great, Sovereign of Russia, was the first who introduced a currency based on the decimal system. Alas, there are no studies available examining the repercussions. I guess that the monetarization in Russia, hence money’s penetration of every-day life, was much too underdeveloped to make any noticeable impact at all.

 

It was left to the members of the French National Convention to introduce a true decimal system. In 1795, they enacted a law that equated 100 centime with one franc, stable and unalterable. That was a momentous idea: the French brought their money to the territories they had conquered. The citizens there realized quite soon that fair money issued by the state yielded many advantages. The ordinary people now could save their money to invest it at some point in the future. It was this new kind of money only that enabled the poor to save and that gave to some of them the chance to become an economic climber.

 

What about today? Today, 1 cent coins and 1 euro pieces hardly matter anymore in our every-day life. The questions of financial fairness have changed. Fairness, however, is still a great challenge.