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The Debasement Puzzle: an Essay on Medieval Monetary History (1997) [pdf] (minneapolisfed.org)
20 points by jpelecanos 3 months ago | hide | past | web | favorite | 7 comments



The debtor explanation seems like it would be fine to me because it seems like lenders would not be likely to want to renogotiate their loans every time the money is debased, nor would most debtors have the leverage to demand it. Seems like it would be much easier to just get new coins.


> The debtor explanation seems like it would be fine to me because it seems like lenders would not be likely to want to renogotiate their loans every time the money is debased,

The paper doesn't explain this in the clearest way, but they do have a strong incentive to negotiate: they can capture some of the money that the debtor would spend on seignorage.

Suppose Dave owes Carol 5 francs, and that old franc coins contain 4 oz of gold, while new francs contain 2 oz gold. So Dave can take 3 old francs (= 12 oz gold), convert them into 5 new francs (= 10 oz gold, with the mint taking 2 oz gold in gross seignorage) and pay off his debt that way. But if Dave and Carol renegotiated, Dave could pay only 11 oz of gold, and they'd both be 1 oz of gold better off than if Dave had paid his debt in new francs.


Many years ago, I went to credit counseling because I was just stupid with credit card debt in my early 20s. The credit card companies instead of negotiating with me, raised my payments. I declared bankruptcy and they got nothing, instead.

I don't think that debtors in lenders were any better at negotiating in the middle ages than they are today. When you're a debtor, and you know you can get 'free money' by going to the mint, why would you bother negotiating with someone (a lender) who has an incredible amount of power over you.


Why wouldn't the creditor offer to accept 11 oz of gold rather than waiting for the debtor to come to them with 10 oz that they have to accept?


"[..] come to a counter at the mint and deliver their metal[..], and they would be paid back, within a few weeks, in newly minted coins of the same metal they brought in. They always received back less fine metal than they brought in."

If the quantity of metal was the origin of the value and they weighted the coin when using it, why they need the mint in the first place? why not to use the metal directly?


I'm really guessing, but perhaps the quality of actual metal is difficult to assess, but a minted coin with the right markings carries a promise of correctness. Counterfeits are still possible, of course, but less likely.


> In our opinion, the facts we have presented suggest that existing models of commodity money, which assume well-informed agents, are not capable of successfully confronting the facts we present. A potentially fruitful line of research may be to weaken the full-information assumption

So, the solution to the puzzle is just that humans aren't actually all rational and well-informed?




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