Tuesday, May 28, 2024


An English penny minted by William the Conqueror, who brought monetagium to England. Source: History in Coins

The way that a modern mafia protection racket works is the mafia starts doing very bad things to regular folks, say you and your business. To stop the damage, you pay them a regular fee. Both sides come out ahead. The mafia earns a tidy stream of income. Your suffering comes to an end.

In feudal Europe, a monetary practice called "monetagium" worked along the same principles as a mafia protection racket. It began with the feudal lord threatening to do very bad things to the coinage. To prevent these very bad things from happening, the public would pay a fee called monetagium to the lord. Both sides came out ahead. The lord earned revenue. His vassals avoided a worsening of the coinage.

To better understand the intricacies of monetagium, or monetary blackmail, we need to explore how the monetary system worked back in the 11th and 12th centuries.
A feudal lord had a number of ways to earn revenue. These included gabelle, a tax on salt; heriot, a death duty that was paid to the lord upon the death of a tenant; merchet, fee paid on marriage, and the Saladin tithe, a tax paid by all those who did not go on Crusades. Another common revenues source was the prince's monopoly over the coinage. Anyone could bring their personal silver to the royal mints and have it be converted into coins, for a fee. This revenue source was known as seigniorage. The lord of the realm, or seigneur, often outsourced the running of their mints to professional third-parties, or moneyers, who collected the fee and remitted it to the seigneur after subtracting what was needed to pay their own costs and earn a profit.

Seigniorage provided a steady stream of revenue to the lord. But if he really wanted to turbocharge his revenues, a debasement of the coinage could be introduced.

A debasement means a reduction in the silver content of new coins. Post-debasement, a canny merchant could bring a chest full of old silver coins to the mint and get those converted into even more new ones. So for example, if he had 1,000 old coins on hand, and a 20% debasement had been introduced, a merchant would be able to have his 1,000 coins reminted into 1,200 new coins. He might have to pay 50 of those to the lord, leaving 1,150 coins. The extra 150 coins now in his possession provided him with the opportunity to buy more goods & services than before (at least until prices adjusted) and settle more debts.

To take advantage of the opportunity provided by the debasement, a wave of customers would arrive at the mint to convert their silver into new coins, the result being a temporary boost to the seigneur's minting profits. If a single debasement provided a one-time boost to the lord's revenues, a series of such debasements could repetitively turbocharge those revenues. (Henry VIII notoriously used this technique to fund his expensive French wars.)

Debasements may have boosted feudal revenues, but they were generally unpopular with the public, a fact that many writers from that period have commented on. And you can understand why. Debasing the coinage caused inflation, or a rise in the price level, and in no age has inflation ever been popular. Furthermore, the penny was the unit of account, or the means by which people reckoned and computed their financial lives. As the penny was mutated, its ability to serve as a measuring tool was compromised.

By the 11th century, Normandy's dukes had been resorting to regular debasements as a revenue device for some time. But they soon had an epiphany. They realized that they needn't enact an actual debasement to earn a profit. Instead, they could just threaten to enact one, and then extort the public for a ransom to prevent it from going through.

This tax was known as monetagium. By the late 11th century, monetagium was being levied on Norman citizens every three years in return for the Duke's promise not to reduce the silver content of the coinage. The tax worked out to 12 pennies per household, or hearth, which according to historian Thomas Bisson amounted to the wages of "a day's field work per year." Knights and the clergy were exempt. In scope, monetagium was an "important but unspectacular financial resource," says Bisson, raising a fraction of the much larger land tax on farms.

In other parts of France, including Orléans and Paris, the monetagium was known as the "tallage on bread and wine," writes Bisson. Calculated based on the amount of provisions that subjects had on hand, including measures of winter wheat and spring oats, the bread and wine tax was justified to the population as the king's generous substitute for debasement.

From the perspective of the king or feudal lord, monetagium must have been a superior tax policy to debasing the coinage. Gone was the need to force the population to trudge each few years with their silver coins to the mint for recoinage every three years. And the coinage at least stayed constant, removing the difficulties and uncertainties imposed by inflation on the feudal economy. But while monetagium was less capricious, it was still abusive  in the same way that the mafia's protection payments are abusive. This was especially apparent to the inhabitants of England.

There is evidence that the Normans exported the practice of monetagium to England after William the Conqueror's successful invasion of the island in 1066. The English version of monetagium appears to have operated on slightly different principles than the Norman one, however.

Whereas Normandy had a long history of debasement, England's coinage up till 1066 had remained relatively consistent in weight and purity, a tradition that the Norman invaders were expected to (and did) uphold. Unable to use the threat of a debasement to extract monetagium, England's new Norman lords came up with another excuse.

For almost a century prior to the Norman invasion, the English coinage had been regularly renewed each three years. That is, a new version of the penny was regularly issued, the imagery being updated but the silver content staying the same. So this was not debasement. The older versions of the penny were generally allowed to stay in circulation, although from time-to-time the most dated coins would be declared void, says W.J. Andrew, a numismatist. Once they ceased to be legal tender, citizens were required to bring in these discontinued coins to be reminted into new ones, for a fee. The fees earned from demonetization were one of the ways the English kings earned income.

According to Andrew, the English tradition of recurring triennial renovatio monetae gave the Norman kings the missing hook they needed to extract monetagium from the English population. By declaring all coin types to be void each three years (instead of just some of the oldest ones), as was his right, England's new Norman kings could place a costly burden on the population. English-folk would have to regularly haul all their coins to the local mint for costly conversion. To avoid this burden they were proffered an alternative: pay the monetagium every three years instead, and in return the king would let old pennies remain as legal tender.
This was not a popular practice with the English. When Henry I came to power in 1100 he would officially end it, proclaiming the following: "The common monetagium... which was collected through the cities and through the counties, which did not exist in Kind Edward's time, this I utterly abolish from now on."

The phenomenon of monetagium also pops up in Denmark in the 13th century in the form of a "plough tax," as recounted by historian Sture Bolin. Like many parts of Europe, Denmark's coinage was subject to renovatio monetae whereby it was routinely recalled and cancelled. The conversion rate was costly; for every three demonetized coins submitted, a Dane might receive only two in return. The policy of renovatio monetae was brought to an end in 1234 by King Valdemar II. In its place, a new tax was levied such that for every plough owned, Danes had to pay one öre in coin. Valdemar justified the plough tax to his Danish subjects as the price they had to pay to enjoy permanent coinage.

Notably, the coins that Valdemar issued in 1234 have the distinction of being the first European coins in the Christian era to have a date stamped on them. In the image below, they are dated MCCXXXIIII, although I must confess that I can't quite make it out. (This source may help you pick out the numerals.)

A penny from Roskilde, Denmark dated 1234 holds the honor of being the earliest Anno Domini dated coin in the history of European coinage Source: Reddit

Bolin suggests that the novelty of coin dating was intended to commemorate both the permanent nature of Danish coinage and the simultaneous introduction of the plough tax.


So what are we to make of all this today? Modern democracies are not feudal mafioso, yet they often face the similar dilemma of what mix of revenue sources to rely on, one of those sources being monetary debasement. A literal debasement of the coinage is no longer a policy that can be pursued  our currencies are no longer metallic. The modern equivalent would be for a democratic government to lean on the central bank to fund government spending, too much of this resulting in inflation.

In general, democracies have not resorted to modern version of debasement as a revenue source due to the unpopularity of rising prices. Instead, contemporary policymakers tend to rely on income taxes, consumption taxes, and property taxes. I suppose we can think of these obligations as our modern version of monetagium. They are the "better taxes," akin to the Danish plough tax or the Parisian grain and wine tax, that we subject ourselves to instead of the not-so-good taxes that get levied via the monetary system.

Wednesday, May 8, 2024

Renovatio monetae

This silver pfennig from the Archbishopric of Magdeburg (1152-1192) was subject to a policy of renovatio monetae. Twice a year whoever held it had to bring it in to be changed for new coins at a rate of four old coins to three new coins. That suggests an annualized tax rate on coinage of 44%. Image source: British Museum

This is another post in a series that explores how European monarchs harnessed the minting of coins to earn revenues for their coffers. 

A king or queen generally resorted to two different strategies for profiting from the mints. The first was to mint long-lived coinage. The second involved issuing short-lived coinage subject to a policy of renovatio monetae, which is the topic of this post. These aren't mutually exclusive buckets. It's possible for elements of both policies to be blended together.

Almost everything I've written about medieval coinage on this blog has been about the long-lived sort, because that was the dominant pattern in Europe. Under a long-lived coinage system, once a coin had been minted it remained in permanent legal circulation. For example, England's long-lived coinage policy meant that an English penny produced in 1600 would have been just as valid a hundred years later, in 1700, as a penny produced in 1699.

The monarch earned a one-time fee from the original minting of the coin. More specifically, a citizen who brought raw silver to the royal mint left with that same amount of silver now transformed into coin form, less a small part going to the crown. This profit was known as seigniorage. In England, the seigniorage rate on silver typically hovered around 5%, my source for this number being The Debasement Puzzle by economists Rolnick, Velde, and Weber. Once a particular coin was produced, however, the king or queen no longer earned revenue from it.

As society grew and more coins were needed, raw silver was constantly brought to the royal mints by the public in order to be coined, the monarch earning a steady stream of income. This was known as free coinage, since everyone had the right to access the royal mints.

Short-lived coinage subject to a policy of renovatio monetae was an entirely different manner. Under this model, coins didn't circulate permanently. When a king or queen announced what was known as a renovatio monetae, or a renewal of the coinage, all existing coins had to be brought back to the mint to be recoined into new coins. The monarch collected a fee upon each renovatio monetae. 

To help reinforce the monarch's ability to collect a profit, only the most recent coin was allowed to be used within the monarch's domain. Older local coins and coins from other realms were illegal. To distinguish the new version from the outgoing version, the new type was stamped with a different pattern. The penalties for not obeying the rules of renovatio could be harsh. According to Philip Grierson, a numismatist, anyone caught using expired coinage could face imprisonment, a fine, or have their face branded with the old pattern of coin.

Source: Svensson

The period of time between one renovatio monetae and the next varied widely. In England, the monarch initially adopted an interval of nine years, beginning in 973 AD with Edgar. Later on, this was shortened to just three years. In many parts of Germany and Poland, renovatio monetae occurred yearly, as recounted by economist Roger Svensson in his wide-ranging book on the topic. In the Archbishopric of Magdeburg it was carried out twice a year, coinciding with important market days in the spring and autumn. The Teutonic order in Prussia used a much slower ten-year cycle, according to Svensson. 

The date for the switch was often chosen to occur just prior to annual tax payment day or, as in the case of Magdeburg, ahead of a regularly occurring market or festival (see figure above). Requiring that all tax payments or market transactions be conducted with new coins reinforced the necessity of  bringing in old coinage to be melted down into new coinage, thus guaranteeing a boost to the monarch's revenues.

The coinage that prevailed in Poland and Germany from the 12th century almost seems to have been designed with a short lifespan in mind, since it is leaf-thin and fragile. Coins minted in this style are known as bracteates, one of which can be seen below. Svensson speculates that the bracteate format was better suited for the purposes of renovatio monetae than standard coins since the costs of periodically reforming silver into thin and pliable coin would have been lower than heavier coins. 

Leaf-thin bracteates from Frankenhausen. Source: Svensson

How much profit did the monarch collect from renovatio monetae? 

For many years the Teutonic order in Prussia used a conversion rate of seven old coins to six new ones, says Svensson. Combined with the fact that renovatio only occurred every ten years, the effective tax rate was relatively light. According to Christine Desan, a law professor, English royal profits amounted to 25% of the metal minted (she cites Spufford), but recall that this tax was levied only every three years so that works out to a yearly tax of around 8%. (Some people may notice the similarity of renovatio monetae to ideas promulgated by Silvio Gesell, who came up with the idea of stamped scrip—money that depreciates.)

In some cases, though, the conversion rate bordered on exploitative. Svensson says that a common exchange rate in Germany was four old bracteates for three new ones. Given two renovatio per year in places like Magdeburg, that works out to a yearly tax rate on coinage of 44%! If a citizen of Magdeburg started the year with 16 bracteates in their stash, and they complied with both renovatio, by year-end target would only have nine bracteates.

This may have created a very weird effect whereby coins became "cheaper and cheaper" over the course of the year in anticipation of the inevitable withdrawal day, according to historian Sture Bolin. Since everyone would have known ahead of time that there was to be a 4:3 conversion on a fixed date, and no one wanted to be stuck holding coins and bearing the conversion tax, sellers would only accept coins at a discount to compensate them for conversion. That discount varied with time. As the final day approached, it would have got progressively wider.

In modern times we don't have to deal with the hassles of renovatio monetae. The coins and banknotes we use are long-lasting: a nickel from 1956 is just as valid as one from 2022. Or consider that while the $1 note is no longer printed in Canada, anyone can still bring them to a bank to be deposited for free. If a policy of renovatio monetae were to be announced by the Bank of Canada in 2025, and Canadians were required to bring our coins and banknotes in each year to be exchanged for new ones, there would probably be a revolt against the inconvenience of it, especially if the fee was high.

This combination of exploitation and inconvenience may explain why the English abandoned renovatio monetae in the middle of the 12th century in favor of permanent coinage. "The renovatio monetae witnessed to the extent of royal control and suggests that coining was routinely coercive," writes Desan. "This new system reduced the burdens placed on people required so frequently to remint their money at a cost."   

However, if renovatio monetae was inconvenient (and frequently exploitative), it also had a key benefit. As silver coins passed from hand to hand, they suffered from natural wear and tear. On top of that, bad actors regularly clipped off their edges, keeping the silver shavings for themselves. By renewing the coinage every year or two, the monarch ensured that the coinage was kept in relatively good condition.

Alas, the same can't be said for long-lived coinage systems, which were particularly prone to the wear and tear problem. After a decade or two of circulating, a typical coin would have lost a significant amount of its original silver content, at which point it would no longer be equal in weight to new coins. This meant that the realm's coins were no longer fungible, or interchangeable, with each other. The familiar problem of Gresham's law would now begin to plague the monetary system, whereby the "bad" coins, which meant the old underweight coins, drove out the "good" coins, the new full-weighted ones. With only shabby coins being used in trade, the money supply was more prone to counterfeiting and clipping, leading to an even shabbier coin supply, and more counterfeiting and clipping. 

Mind you, there were ways to defend against the inevitable downward spiral of long-lived coinage. By adopting a policy of defensive debasements, which I've written about before, the fungibility of coins could be restored.

Nor were long-lived coinage systems spared from being exploitative in nature. The method of abuse was different than that used to exploit short-lived coinage, involving a policy of repetitive debasements in the silver content of coinage.

As an example of this, I wrote a post last year exploring how Henry VIII financed his wars in France using debasement of his long-lived coinage. Do read it, but in short the trick was to increase the number of people visiting the royal mints to convert raw silver into new coins. This would in turn boost the monarch's profits. After all, he or she earned a 5% cut from each new coin produced.  The rush to the mint was linked to the fact that, post-debasement, the public could now get more silver pennies from the mint than before for a given quantity of silver, which in turn allowed them to buy more goods and services than they would have otherwise been able to purchase.

After a series of such debasements, Henry VIII was much richer, but the coinage was debauched. Going into 1542, for instance, the English penny contained 92.5% silver. Nine years later its purity stood at just 25% silver, the majority being base metal such as copper. 

To sum up, short-lived coinage issued under a policy of renovatio monetae was one of several ways to administer the monetary system. It had some advantages over other methods, but was also easily abused. This abuse was linked to the fact that coinage was simultaneously a crucial tool for day-to-day commerce, both as a medium of exchange and a unit of account, and also a way for the monarch to fund itself. Maximizing its latter role by relying on frequent and onerous renovatio may have done severe damage to money's capacity to perform the former role. 

This tension was not necessarily resolved with the move towards long-lived coinage, as Henry VIII demonstrates. And while we may think we have left these these medieval issues behind in the 21st century, I don't think that we can ever fully escape the tensions embodied in money's dual roles as crucial tool of commerce and source of government funding.