Monetagium – monetary extortion in feudal Europe(jpkoning.blogspot.com) |
Monetagium – monetary extortion in feudal Europe(jpkoning.blogspot.com) |
Debasement occurs any time the government runs out of money and can force people to take the debased money. The previous ~150 years of the same government minted tetradrachms that were all silver, probably because their main use of the silver was paying foreign mercenaries.
> By the early fourth century the denarius that used to have 50% silver
This is already a heavily debased coin. Nobody starts by adulterating their coins down to 50% monetary content.
> It took Constantine's Solidus (basically solid gold coin - that will stay stable for almost a thousand years) to stabilize the currency.
This isn't plausible; gold coins barely transact (gold is too rare). Minting coins that nobody uses won't affect the currency that people do use.
Wikipedia notes that, on issuance, Constantine's solidus was worth 275,000 denarii. The denarius was debased, but it was also a coin that people carried around and used to buy things. Think about the number of transactions that might plausibly have involved one or more solidi. If we underestimate the 4th-century denarius as being roughly as valuable as a US penny... how much use would you have for a $2,750 coin?
Why? Of course it wasn't accessible or particularly useful for the majority of people but it was central to the Byzantine economy/financial-system functioned. Soldiers were paid in gold (every 6 or 12 months so that simplified things) and taxes were also collected in gold whenever feasible.
Relying on gold as your primary currnecy of course wasn't ideal since the outcome was a partially demonetisation of the wider economy.
However while it was was basically entirely unavailable in Western Europe and there were almost no gold coins in circulation until the 13th or so it was much more widespread in the Eastern Mediterranean.
1. Not enough mines to mine silver, exhausted based on their technology
2. China sold silk and other stuff and accumulating silver
https://cassandralegacy.blogspot.com/2014/03/peak-civilizati...
So, suppose the ruler begins a debasement. You have a lot of coins. You take them into the mint and exchange them for debased coins but more coins than you had minus a cut to the king, go buy some asset that can't be debased like salt, wait and then sell it on the market after price inflation occurs. You benefit from the cantillion effect because you got the fresh minted money before prices rose to compensate.
Now with the extortion scheme, you lose that. The revenue goes straight to the king in the form of the tax, the king might make do with the same revenue as before, thus significantly reducing the inflation that occurs, or maybe raises his revenue to the match the cost to the economy before but now the aristocracy get nothing. To compensate, he had to exempt them or they would overthrow him, and now they get benefit in that regular people get directly fleeced, price deflation occurs but regular people don't gain purchasing power because it was their money taken from them out of circulation, but the rich people don't have that problem so their purchasing power increases.
The USA got rid of silver in its coins in 1964 and I believe copper in its pennies recently.
The modern version of debasement is in the feds balance sheet, they've gotten so efficient there's no need to affect the physical substance.
The average citizen prefers paying income taxes, payroll tax and sales tax and VAT to the government and paying the land tax aka rent to land holders and the money tax aka interest to money holders to maximize the dead weight loss. Then they complain that the government is bankrupt and is doing inflation.
The average citizen is incorrigible.
The example I’m familiar with is from Finland in 1946, when the most popular and largest circulating bills were required to be physically cut in half and lost 50% of their upfront value.
The Wikipedia article seems to be only in Finnish: https://fi.wikipedia.org/wiki/Setelinvaihto
The idea was that the left half of the bill remained valid cash (although not for long — you needed to exchange it for a new type of bill within a few months). The right half of the bill became effectively a treasury note with three-year maturation: in 1949 you could present it to a bank and get your money back from the government, but no sooner.
The operation was expected to reduce inflation, but apparently it didn’t work out that way. It did provide the Finnish government with about half of the funds loaned that year, but it was very unpopular among voters and never repeated.
> According to economists, one of the causes of inflation in Brazil was the inertial inflation phenomenon. Prices were adjusted on a daily basis according to changes in price indexes and to the exchange rate of the local currency to the U.S. dollar. Plano Real then created a non-monetary currency, the Unidade Real de Valor ("URV"), whose value was set to approximately 1 US dollar. All prices were quoted in these two currencies, cruzeiro real and URV, but payments had to be made exclusively in cruzeiros reais. Prices quoted in URV did not change over time, while their equivalent in cruzeiros reals increased nominally every day.
Cash debasement and inflation are the same thing.
It's an interesting hack where the value of a coin and the cost of a coin (the amount of silver in it) were decoupled, and they pretended that the amount of silver in it is what mattered (hence they kept the same total amount of silver) but actually the value of the coin mattered (because they created value out of thin air by giving you 20 extra coins that were each still worth one pound (or whatever) each).
I don't understand why they didn't just mint a bunch of silver coins of the lower content and spent them themselves, effectively buying coins for 20% less than they were worth. Maybe they didn't have enough silver, or didn't want to create two kinds of the same coin with different silver content each.
Because the opposite of "debasement" has been happening for some time now.
In extreme cases it does start to look like a protection racket, especially when important services like broadband Internet are involved.
(Surveillance is a different thing, and no, advertising isn't the main driver for surveillance. State actors are, and ad tech is just piggybacking on what state actors want to do anyways.)
But yes, I hated adverts with passion as a child too. I didn't complain about the industry as a whole, I just hated their existence.
This means that ad companies also had to be wildly creative to make people WANT to watch them.
While taxes and inflation are generally unpopular they are also vital to the functioning of society and the economy. BTC and many other token schemes implicitly or explicitly stand in the way of that.
Breaking a system you don't like doesn't automatically get you a system that's better.
They always used taxes primarily whenever they could. Significant debasement was almost exclusively an outcome of extreme desperation when you had no other options left. If anything expanding the monetary supply is much easier now than when specie money was used. Debasement of course never worked longterm anyway but it was really only feasibly useful when you had the monopoly on issuing currency (e.g. the Roman Empire). In medieval Europe you’d just stop accepting the coins issued by the the city/lord/king who did that, which would be pretty easy when they put both their stamp and the year of issue on it.
There is a reason war bonds aren't sold any more to fund them.
At this point the US debt is growing by 1 trillion every... 100 days. The system is breaking by itself, not because of Bitcoin.
> While taxes and inflation are generally unpopular they are also vital to the functioning of society and the economy.
Some taxes and some inflation. We're way past these.
More generally, Bitcoin solves the wrong problem, because Austrian economics got the history of money wrong. Money wasn't invented to track scarce resources, money was invented to track who had paid taxes to the correct military invaders. The traditional / pre-money form of economic system (in the sense of it being a system to track the usage of scarce goods) is the gift economy. This is the system humans are built to work in. But gift economies are backed by strong promises of identity in close-knit groups. A bunch of rapacious murderers extracting food out of the fifth town they've sacked this week aren't going to be able to tell the difference between John, son of John, John, son of the brother of John, and John, son of the cousin of John.
What money does is separate a person's identity from their ability to access scarce resources. This 'paraidentity' of money is rendered in the most extreme in crypto. Your identity means nothing, just the size of your wallet, to the point where even voting in cryptocurrency is proudly for sale. The thing is, separating access to resources from personal identity also centralizes control of those resources. Printing money to fund war is not a bug, it is a feature.
In fact, it's not even something Bitcoin fixes. The primary source of liquidity in the Bitcoin ecosystem is businesses buying it to pay data ransoms. Bitcoin, in the name of opposing statism, invented a new kind of state whose military consists of hackers penetrating and encrypting systems to force you to buy Bitcoin to decrypt them.
The way you debase Bitcoin is by inventing new kinds of Bitcoin. Because, remember, the scarcity isn't the thing bringing liquidity into the system. If the ransomware people decide they're only taking Ethereum this week, then people are buying Ethereum, not Bitcoin. All money exists to pay taxes, and if the tax collector wants a different kind of money, then they've successfully debased the old money.
> Bitcoin has debasement, it's called altcoins and hard forks.
> The way you debase Bitcoin is by inventing new kinds of Bitcoin
Please read https://vitalik.eth.limo/general/2021/03/23/legitimacy.html
Well, maybe you can explain then why most of the crypto liquidity is not in crypto itself, but in derivative products (mostly perpetual swaps and ETFs), which have no use to pay on-chain ransoms?
Fiat currency solves a _lot_ of problems while also having limitations broadly railed against by digital currency advocates.
Since early 2022, the US central bank has been "unprinting" money. Their balance sheet is shrinking and the money supply is falling.
https://fred.stlouisfed.org/graph/fredgraph.png?g=1rdgN
You don't need Bitcoin to save you from the inevitable war that's caused by an inflating money supply and printing money out of thin air because the opposite of this is happening!
The money printer has been replaced by a money shredder!
The end of war is a pretty big deal, how will you celebrate?
If due to some episode of mass psychosis everyone collectively decided to make bitcoin the default global currency it would result in the biggest economic/financial catastrophe in human history..
Extreme deflation, unlimited price volatility etc. but most importantly it destroys any reason for investing your money into anything potentially productive.
Why take any risk when you can just become richer and richer by hoarding cash?
Literally freeloading with zero effort whatsoever because you get a cut from anything that anyone does that might result in any economic growth (i.e. productivity increases -> prices constantly get lower -> if you’re an early “adopter” you just stay permanently rich with zero risk or effort). It’s basically if we just took some of the biggest flaws in our current economic/financial system and multiplied them by 10-100x for some insane reason).
Of course that whole problem is mostly hypothetical since there would be no real growth anymore and we’d just be permanently stuck in a severe economic depression…
It’s even much worse than gold/silver that was a compromise because no trustworthy and stable governments could exist in the premodern world and because economies were mostly static over multi-decade periods (of course there was still a huge amount or volatility year to year)
Not many. The more typical case is that you're in a war, and you want to spend more money than you have, so you make some up.
Still, it's worth remembering that a fixed supply currency will inevitably fail just as the metallic standards (which were semi fixed supply) did, and for the same reasons: politics. Metal backed currencies fell because the political will required to coordinate the system fell apart. Newly-enfranchised workers didn't find the message "suck it up, the gold standard requires it" very appealing politically, so they voted for other things that entailed fiscal and monetary policy. Central Banks, seeing the writing on the wall, abandoned gold en masse, with the US retaining it only for other central banks.
Bitcoin would have the same problem. It would be inevitably deflationary - halvenings, for example, are tied to computational power. Presumably, more demand for Bitcoin means more computational power, so its supply decreases just as demand increases.
Deflation is even worse than inflation for working people. Investment dries up, because why would somebody take a gamble on a business if they can keep their cash in their closet and make money, risk free? Employment therefore drops, while people decrease spending - why spend $100 on something today, if you can buy it for $85 in a year? Additionally, loans get more expensive in real terms, wages decline, and a whole host of other bad things happen.
That's why central banks target +2% inflation, in part. Inflation is preferable because it encourages investment, discourages nominal (and only nominal) wage decreases, decreases the real value of loans to the benefit of the debtor class, and other benefits. Central Banks also have a pretty successful record dealing with runaway inflation - hike rates, cause a recession, wait - whereas they lack tools to deal with deflation. At its simplest, the solution to deflation is for everyone to get a check from the government, but this whole field is considered weirdo experimental land and has only barely been tested.
All that is to say: Bitcoin is fundamentally ignorant of history and is incapable of becoming anything other than digital gold. It has a floor value which it cannot sink beneath: online gambling, illegal things, and privacy advocates (in that order) guarantee it will never truly hit $0.00. But it would be an absolute catastrophe for any country to adopt as its actual currency.
Now that I think of it, Bitcoin is perhaps one of the earliest examples of technophiles assuming society should work according to computer code, thereby "cleaning" these imperfect human systems by replacing them with the inevitable future: A philosophically-driven (rather than pragmatically or empirically, for example) system, with clear and inviolable rules, limited to no exceptions, and a happy ignorance of why existing systems came to be. After all, why study the past when we're creating the inevitable future?
Imagine if everything suddenly was infected with the Osborn Effect.
Otoh, certain products like TVs do seem to get better and cheaper as time goes on, yet people don’t seem to delay purchases. It’ll be interesting to see if conventional wisdom about deflation holds, should it come to pass.
1. This is actually a politician’s job, to explain. If you don’t explain well you get kicked out and your electorate doesn’t buy your ideas. Don’t complain about the people being stupid, they are real and wishing they were different or demeaning the people is totally useless.
2. The idea of fostering savings in a time of inflation is really cool, and an original way getting people to buy in your policy. That it did not work sounds like a great topic for research, including experiments.
Well, for one thing, most people wouldn't be able to afford a single gold coin. You might collect taxes from a province in gold; you're not going to collect taxes from a person that way.
> the outcome was a partially demonetisation of the wider economy
This is also an odd claim; the number of denarii kept going up.
> it was central to [the way] the Byzantine economy/financial-system functioned.
Any time you have a system that doesn't involve something, that thing that isn't involved also isn't central to the functioning of the system. There is no way for such a rare coin to be central to the functioning of the system - if it disappeared entirely, the system would continue exactly as before, since almost nothing would have changed.
It wasn't even minted by the 300s. There were multiple attempts to replace it with a new stable silver coin but none were very successful.
> Well, for one thing, most people wouldn't be able to afford a single gold coin. You might collect taxes from a province in gold; you're not going to collect taxes from a person that way.
Well yes, that was a significant problem. Often there was no other choice than to collect taxes in-kind and then the tax collectors either had to find local uses for all that stuff or sell it for gold that could be sent to the central treasury in Constantinople.
By the 500s the Empire was mainly only minting gold and bronze coinage which of course was very problematic (as you said gold is much too expensive for most transactions while bronze has the opposite problem). There were no stable, widespread silvers coins that were continuously minted until the 800s or so (Miliaresion) and then its value collapsed again after a few centuries when they went back to debasing during a period of economic crisis.
> There is no way for such a rare coin to be central to the functioning of the system
Well.. I accept that this is your opinion. Regardless, that's simply not how the Roman/Byzantine Empire worked. Gold coinage (or using gold solidus as the primary unit of accounting) was absolutely integral to its functioning. (moreover it was also central to international trade)
Global inflation has very little to do with any one governments choice in economic policy. However it should be said that the current state of inflation would make the problems caused by the widespread adoption of a inflation "proof" currency significantly worse.
Tax rates and distribution are an incredibly subjective and political issue. Given any tax policy there will always be a healthy split of experts and laypersons who think it is woefully low and those who think it is grossly high.
Belief in magic is why the system will peacefully continue until it breaks. While it dollar enjoys the status of the least ugly girl in the room, it too will eventually follow the same pattern of all fiat.
> Soon after its introduction, the real unexpectedly gained value against the U.S. dollar, due to large capital inflows in late 1994 and 1995. During that period it attained its maximum dollar value ever, about US$1.20=R$1. Between 1996 and 1998 the exchange rate was tightly controlled by the Central Bank of Brazil, so that the real depreciated slowly and smoothly to the dollar, dropping from near US$1=R$1 to about US$1=R$1.2 by the end of 1998.
Given your username of "Beijinger", you should be familiar with the traditional Chinese currency: https://en.wikipedia.org/wiki/String_of_cash_coins_(currency...
> the weight of the Chinese money necessary for a journey of over three thousand miles was, as the Russian consul thought, one of the greatest of our almost insurmountable obstacles.
The extreme worthlessness of Chinese currency didn't play into any Chinese downfalls.
(Though it's not obvious to me why Sachtleben wanted to transport currency rather than bullion.)
The problem isn't just the osborne effect, it's that deflation rewards a non-productive investment (money hoarding) that crowds out productive investments, which makes the economy less efficient.
Buying a TV comes out of spending money rather than savings/investment, and is harder to evaluate because if TVs are getting better and cheaper in the future, they're getting better and cheaper now and so people have more reason to upgrade in the first place - which offsets the incentive to delay the upgrade for future benefits.
BTW, when China accumulated a majority of the world silver again and did not buy anything from the world, the British said, we have something you need! The reason for the opium wars....
