[A Selection From: "On the Coinage" by Juan de Mariana Translated by Hazzard Bagg for the Quarterly Journal of Austrian Economics 21, no. 2 (Summer 2018).]

In ancient times they used to exchange things without using money: a goat for a sheep, a cow for some grain. Then they figured out that it would be easier if merchandise and grain were exchanged for metals: gold, silver, and copper. Ultimately, so that it would not forever be necessary to weigh metals out for their dealings and transactions with one another (which is quite a pain), they decided that the various metals should be divided into units by public authority and that these units should be stamped according to the weight of each. This is the proper and natural way to use money that Aristotle tells us about in the first book of the Politics; those other ways of turning a trick to cheat the people were developed and discovered by men who could not care less about transparency and fairness. But even if the prince is not taxing the other commodities and is not laying claim to them, he often takes a cut of the currency; this does not mean that there is any less blame in doing this, nor is it any less of a subversion of, and stain upon, the laws of nature. But these mysterious, dolled-up schemes deceive most people with the result that the disease is felt less acutely.

“What harm is there,” they say, “if the prince takes a half or a quarter for himself, and if what is left over for individuals is spent at a value that is no less than the original one? Indeed, you buy clothing and food just like before. Where is the loss? For their money is used only to buy necessities.” So easily are the people tricked that they put up with the debasing of the coinage! Thus, the prince has more power over the coinage than he does over other commodities. The mints, mint officials, their operations, and the bureaucrats are completely in his power and control. Because of this, he is able to blend metals without anyone stopping him, he can introduce a new coinage in place of the old one stamped with a new mark, with no more honesty than if he were directing the other possessions of his citizens to himself with blatant force.

You might ask, what should be done when a confident enemy challenges in war? Add to that one who is aggressive because of a fresh victory and strong in troops and supplies, and when there is no money available with which a soldier might be recruited or a salary paid. Or will you suppose that he ought to surrender and that every type of misfortune should be endured so that the coinage can remain intact? I would think that every possible remedy should be tried before it should come to the extreme measure of debasing the currency. But if a major crisis is pressing and the safety of the people is in jeopardy and the affected citizens cannot be forced to enter into an agreement whereby the prince can commandeer the other possessions of his subjects to come to the aid of the country in its moment of need, only then will he be able to blend metals or snip off a portion of the weight, but with the proviso that the permission to debase should come to an end along with the war and that the blemish not be permanent, and then that the bad money that necessity forced upon them be straightaway turned in and retired, and that the proper old coinage be restored in place of that bad one for those who were holding it in good faith.

Frederick Augustus, the second of that name, was laying siege to Faenza in Flaminia during a very harsh winter. There was no money for soldiers’ pay, everywhere soldiers were slipping away, and units were being abandoned continuously. Lifting the siege was a disgraceful and serious thing, but continuing it was a difficult one. He marked money made of rawhide with the value of a gold coin, and with this conceit he got out of the tight spot. Once he had taken the city as victor, he exchanged the rawhide coins for as many gold ones as he had promised. The source is Collenutius in Book Four of his History of Naples. This example has been followed in similar crises certainly long ago but also in recent times, and coinage quite often made of hide but sometimes even out of paper has been marked without harm or rebuke. However, if a prince thinks that it is within his purview to debase the currency outside of one of these crises just to fill a deficit in his treasury, something that is more or less always a problem, I proclaim certain destruction—nor will the respite be long-lasting—as the following terrible afflictions demonstrate.

The first consequence will be the high cost of all commodities and food—doubtless not less than the amount that will have been subtracted from the quality of the currency. For people do not value a currency any more than the quality and amount of metal allows—not even if there are strict laws against doing this. Indeed, at that point the people will bemoan the fact that they have been tricked by an illusion, and they will sense that the new currency that has been substituted for the old one is not worth as much as the former currency when they need much greater resources than they used to in order to feed their families. Or are we serving up delusions rather than things that are plain to see from the accuracy of our chronicles? King Alfonso of Castile, known as “The Wise,” as soon as he gained control of the crown and possessions of the realm, substituted a bad currency, called the burgalesa, for the pepión, which was the coinage in use at the time. In order to relieve the high cost of things that immediately followed, he set the value of merchandise with a new law. This solution made matters worse since no one was willing to sell at the set price. And so, this scheme to set prices fell apart right from the start. The problem of high prices went on for a while. I conclude that damage to the coinage was the primary reason for the disaffection of the people and for his replacement by Sancho and his son before the end of his life. For since Alfonso was stubborn, in the seventh year of his reign he recalled the burgalesa and introduced a coinage that was called “black” because of the poor quality of the metal.

Alfonso XI, in no way chastened by the example of his great grandfather, also minted a coinage made from metal that was not of high quality that they called novenes and coronados. So that the prices of food and other items not increase, he took the sensible enough precaution that a mark—that is to say two-thirds of a pound—of silver not be worth more maravedís than it was worth previously (that is, 125). This ineffectual measure, however, turned out to be a useless precaution: inflation followed, the value of silver skyrocketed. Enrique the second, the son of this Alfonso, upon gaining the throne after the murder of his brother, King Pedro, had recourse to this solution in order to pay the salaries of his foreign provincial soldiers (to whom he owed his life and his throne) because his accounts were in a lot of trouble, since both the public and his personal treasuries had been exhausted. He struck two types of coinage, reales and cruzados, doubtless valued above the amount of metal in them. We have examined the reales of King Pedro and those of his brother Enrique; indeed, Pedro’s are of good silver of the kind that is struck in our own day in Castile; Enrique’s are blackish, evidently with a lot of copper added in. In order to alleviate the rise in the prices of things that followed (together with the dismay of people in the provinces), after a fresh appraisal, he was compelled to subtract two thirds from the value of both types of coinage. Thus, things that have been dreamed up so ingeniously to save us do frequently fall the other way. Oh, the short-sighted and blind minds of men!

That much the same thing befell Enrique’s son, King Juan, is evident from his laws. For, being out of money because of the wars that he waged, first against the Portuguese and then incessantly against the English, he struck a coinage that he called the blanca in order to send the money that he owed to the Duke of Lancaster, his rival for the throne, in accordance with the treaty that he had recently entered into with him. Presently the prices of food went up. To alleviate this problem, he soon reduced the value of the new currency by about a half. But the high prices did not let up, as he himself admitted at the Cortes at Burgos the following year in 1388. Why should I bring up the kings who followed? I find that the same collapse has developed from the same corrupt origin.

So much for high prices... Another problem flows from the first: Commercial activity that for the most part makes up both public and private wealth is slowed down by a debased coinage. The low quality of the currency clearly frightens shopkeepers and their customers; the high prices that follow on from this problem also frighten them. But if the prince were to set prices for things by fiat (as always seems to happen), instead of a cure, the problem will get much worse since there is no one who will agree to sell for that price, which is so clearly unfair and not squared with commonly recognized valuation. Once commercial activity has stopped, there is no category of problem which does not befall such a people. Certainly, the provincials will be of necessity stretched thin in two ways: first, due to the slowdown in buying and selling, the income from which the majority of the population lives will grind to a halt. These people are craftsmen for the most part and people whose hopes for a meal lie in their hands and in working every day—which is most people. Second, the prince will be forced either to completely withdraw the bad currency which is the cause of the problem or to issue a currency that is worse with its previous value reduced. So it happened that in the reign of King Enrique the second of Castile, in spite of this, he subtracted two thirds from the value of his new currency. Whoever found themselves holding that money suddenly discovered that, by the power of a word, what had been three hundred gold pieces had been reduced to no more than one hundred.

We seem to be kidding. Let us set aside the past. From the moment that he left the Church, Henry, the eighth king of England by that name, ran into many problems. Among these problems he debased the currency. For that which had an eleventh part of copper mixed in was gradually reduced to the point that it retained only a sixth part of silver. With a fresh decree he swept up the old money from the provincials and exchanged it for an equal number and weight of the new, debased currency. The people remained silent as long as they feared the savagery of that man, who thought of bleeding his citizens as a game. But after his death, his son Edward brought it about that the value of this coinage was decreased by half. Edward’s sister, Elizabeth, also subtracted another half from the remaining value once she gained the throne. So it was the case that those people who used to have four hundred gold pieces in that currency had it reduced to one hundred once three quarters of the value had been subtracted. And the damage did not stop there; that currency was thereupon taken out of circulation with no way to restore the loss, a scandalous mugging. Sanders, a scholar and at one time in the past a friend of mine, confirms this toward the end of Book One of his On the English Schism.

With commercial activity suspended and, as a consequence, with the provincials stretched thin, the pitiable disaster of royal taxes will come to the fore. The prince will be punished in proportion to how much he has enjoyed the profit from that currency. For it cannot be a good situation for a king to have a kingdom which is practically struggling physically; nor will the provincials be in a position to be stretched thin by paying taxes. Also, tax collectors will not bring in as much in royal taxes as they had before. I read that when King Alfonso XI of Castile was a child, royal officials were forced to submit to an audit; I have gleaned that all the royal taxes for the year came to 1,600,000 maravedíes. Those maravedíes were worth more than ours and each one was worth about as much as seventeen of ours, still an undeniably tiny and laughable amount. The writer of the history of that king describes how one of the two causes of this disastrous situation was the debasing of the coinage carried out by quite a few of the previous kings. Evidently, with commercial activity brought to a standstill, the subjects were reduced to a state of penury and were unable to bring into the treasury what they had typically brought in during normal times.

Who would not see that this is a tremendous handicap? Who would not admit this? Would you then prefer that there be a universal hatred on the part of the people that will inevitably overwhelm the prince? Is it not preferable to be loved than to be feared? In general, all public failures are blamed on the person in charge. Philip the Fair, King of France, confessed right before his death that he faced the hatred of the people for no reason other than that the coinage had been debased, and with his last words he commanded his son Louis “Hutin” to change it. The source is Robert Gaguin. I do not read anywhere about what Louis did, but it seems to be the case that the demonstrations and hatred on the part of the people did not settle down before Enguerrand de Marigny, the author of the foul scheme, was publicly executed, as the majority of the nobles urged during the proceedings and the entire population applauded. There is no need to mention the fact that the precedent set by this disaster did not discourage Hutin’s brother, Charles the Fair, nor their mutual cousin and successor, Philip of Valois, from treading on this same path of debasing the currency in France; nor need I mention the magnitude of the public reaction. Instead, let a limit be placed upon the discussion that has been begun here. I would like to give princes one last piece of advice: if you want your state to be a healthy one, do not touch the primary foundations of commerce—units of weight, measurement, and the coinage. A many-layered swindle lies hidden behind the appearance of a quick fix.

[The full article is available at the Quarterly Journal of Austrian Economics.]