1. Metallic money and inflation February 11
Seignorage in France around 1420
Historical context
Seignorage method
Data
A simple model
Inflation in Spain in the 16th century
Introduction to Habsburg Spain

2. Seignorage at the time of Joan of Arc
Around 1422 (before J. o. A: 1428)
National emergency:
Invasion right and left
No tax base
Seignorage
Inflation

3. Similar case: Austria, 1920

4. Austria Tax base shrunk Large administration concentrated in Austria
Expenditures through money creation
inflation reached 140 percent between 1922 and 1923

5. Monetary system in the Middle Age
As in the roman empire, bimetallic system (gold, silver)
one livre (pound) = 20 sols (shillings)
Each sol = 12 deniers (pence/(denarius))
Some additional complications
Livre tournois (from city of Tours, on the Loire, SW of Paris)
Livre parisis (from Paris), worth 25 percent more, but less used.

6. Technology Simple technology easy decentralization but: small shop
biggest equipement furnace
easy decentralization
but:
variation from mint to mint
imitations

7. Mints
24 mints
private activity which is regulated
profits turned to the king
direct control of the king (no legislation)
each mint buys the silver (gold) on the market and pays with the coins it produces
makes the coins according to specifications

8. Seignorage with coins
The mint has instructions to make coins (mix of silver and copper),
Coins are defined by two numbers
Degree of fineness F : fraction of silver in the mix
Number of coins N per pound (or unit-weight) of mix.
The face value of the coins (written on its face) f
Operation of the mint
Buy the silver on the market, at the price P
Mix with copper using the degree of fineness F
Divide each pound (or unit-weight) of silver in N coins.
Take one pound of silver
The weight of the mix is 1/F
The number of the coins is N/F
The total face value of these coins is L=f.N/F : the par value of the coin

9. Profits P market price of silver (for a unit weight of one marc)
L - P = gross profit (per marc [ pound ] of silver)
Net profit is
L - Q - brassage cost (i.e. production cost other than silver)

10. When does a coin circulate ? (used for exchanges
When its intrinsic value is smaller than its face value
Suppose the price of silver is P livres
Intrinsinc value of the coin: v = F.P / N
The coin circulates only if v < f
Condition equivalent to P < f.N / F

12. Example % 1 livre = 240 deniers f = 1/12
Market price
of silver P %
Mint par L
1 livre = 240 deniers
f = 1/12
Intrinsic value of the coin in 1418 :
v = F.P / N = 0.444x9/80 = 1/20 < 1/12 the coin circulate
Verify L > P
Profit (gross)
Profit (net)
Intrinsic value of the same coin in 1422 :
Price of silver
Intrinsic value v = 1/2
Does the coin circulate?