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MONETARY THEORY AND CAMERALIST ECONOMIC

MANAGEMENT, C. 1500-1900 A.D.

BY

PHILIPP RÖSSNER*

Abstract

More than England and other states the German principalities were, in the preindustrial period, hampered by silver outflow and persistent pressures on the which led to idiosyncratic models and strategies of economic development usually but not entirely helpfully called “”. It is less well understood how Cameralism as a policy of order and development and monetary theory went together. The present paper will attempt a sketch of these working mechanisms as well as provide a few angles for new perspectives and future research. A first section after the brief introduction studies general issues of development in relation to balance of payment constraints (II), followed by the discourses on whether the domestic ought to remain stable in terms of intrinsic (silver) (III), or whether it may be debased so as to raise domestic exports and competitiveness (IV). Both options were considered, at times and by varying actors, as valid strategies of promoting economic development, especially export-led growth, although most contemporaries viewed coin debasement as harmful to the . A fifth section discusses an alternative to the aforementioned strategies, by raising effective monetary mass through increasing velocity. Since the middle ages and into the nineteenth century the German economic tradition had a clear understanding of how velocity could be managed and the common weal stimulated by an increase in “vivacity” of circulation (V). Upon hindsight it appears that we find here a powerful programme towards promoting economic development and Europe’s rise towards . A conclusion will offer some thoughts for further research (VI)

*University of Manchester, Manchester, England. Email: [email protected].

I would like to thank Lars Magnusson and Carl Wennerlind for commenting upon earlier drafts and aspetcs of the paper presented at various conferences and workshops, as well as the two anonymous referees for the JHET. The usual disclaimer applies.

This “preprint” is the peer-reviewed and accepted typescript of an article that is forthcoming in revised form, after minor editorial changes, in the Journal of the History of Economic Thought (ISSN: 1053-8372), volume 40 (2018), issue TBA. Copyright to the journal’s articles is held by the History of Society (HES), whose exclusive licensee and publisher for the journal is Cambridge University Press (https://www.cambridge.org/core/journals/journal-of-the-history-of-economic- thought ). This preprint may be used only for private research and study and is not to be distributed further.

The preprint may be cited as follows:

1 Rössner, Philipp. “ Monetary Theory and Cameralist Economic Management, c. 1500-1900 A.D.” Journal of the History of Economic Thought 40 (forthcoming). Preprint at SocArXiv, osf.io/preprints/socarxiv

2 I. INTRODUCTION: MONETARY MANAGEMENT AND STATE INTERVENTION AS

POSSIBILITIES FOR DEVELOPMENT IN PRE-INDUSTRIAL EUROPE

Recent research has stressed the fallacy of the “” paradigm. Even the perfect markets of today’s capitalist are tightly regulated (Harcourt 2011; Stanziani 2012; Rössner, ed. 2015c). What historians of economic thought have often tended to forget is that this idea, almost a truism, has had a long intellectual history as well as tradition as applied policy. Historical evidence shows that since the last half-millennium or earlier (see Reinert 1999), Europe’s rise towards capitalism and modern took place under the fetters of order, regulation and state interventionism. Without a sense of order and state intervention, the mere concept of economic freedom would sound counter-intuitive (Sombart 1921; Braudel 1982-4, vol. 3; Vries 2002; Vries 2015; Reinert 1999; Reinert 2007; Epstein 2000). Neither did the world become more liberal, nor did the state withdraw from the economy in any way after c.1800 (Stanziani 2012; Magnusson 2009).

But whilst means and theories of state interventionism post-1800 are increasingly well understood by historians and (summaries in Reinert 1999, Reinert 2007, Vries 2006), the pre-1800 period, which in many ways laid the pre-conditions for later economic growth (van Zanden 2009), still remains understudied. In an age when neither modern states nor modern economies existed, state intervention in the economy came across in shapes and forms profoundly different from what we have learnt to view as “economic policy” nowadays. And as late as the nineteenth century, state interventionism looked very different from twentieth-century economic governance (Hall 1986). Even the more powerful fiscal military states of the Ancien Règime (Bonney 1999; Yun-Casallila and O’Brien 2012) had a fairly limited strategic menu of economic policy choices available at their disposal (Magnusson 2009, chs. 1 and 2). These usually extended to basic means of regulatory policy, especially market regulation, including price caps (usually at times of harvest crises), prohibitions of usury and forestalling; quality controls, or regulation of access and market hours.1 England was an exception, with a somewhat deeper history of . Industrial and economic development had been state-promoted since the middle ages, in particular by the stimulus which the woollen manufactures received by the policy of bounties and export prohibitions on raw wool since the later fifteenth century

1 We still lack a systematic account of government policies regarding the economy (state interventionism, so to speak) in the pre-modern age. But useful remarks are to be found in Magnusson 2009, ch. 2, Vries 2015 (with a focus on early modern England and China), as well as Reinert 1999, with a focus on the theory and history of economic thought relating to the state and the economy pre- and beyond 1800. 3 (Reinert 2007, ch. 3). But similar prohibitions are known from the German Imperial Diets of the 1530s (e.g. Blaich 1970) and many other European regions; there is still scope for large- scale comparative surveys. New research has found proactive interventionist states at work in the eighteenth-century Habsburg Netherlands (Flanders) as well as Scotland, which worked according to the modern Infant Industry promotion scheme (ISI) (Coenen 2016; Rössner 2015a).2 To what extent such measures were effective, still remains a matter of mystery; comparative long-term studies on European economic policy and economic growth are still wanting.3

One major branch of economic policy and state intervention that has evaded the radar of historians so far, was and monetary management. Indeed, it is in the realm of monetary policy as a “policy of order” – which the German language still has as Ordnungspolitik (Eucken 1950; Woll 1999, pp. 8-17) – where we find a rich economic discourse, mainly in continental Europe but in particular the German lands since the fourteenth century. We find competing paradigms on how the well-being of the common wealth – the emerging “states”, nations and national economies in early modern Europe, which did not yet quite exist in their commonly-recognized post-1800 shapes yet were in the making – could be raised by a well-designed monetary paradigm, policy and management. This discourse has remained underexplored, both in regards to its possibilities of actively interfering with the economy and thus the promotion of the common weal, as well as in terms of its general contributions to modern economic reasoning.4 It is these underexplored lines of the continental economic discourses, sometimes called “Cameralism” (on the virtues and pitfalls of this nomenclature see Rössner 2015b, 2016), that provide a new vision not only of the rise of the modern state but ultimately also the rise of modern capitalism. These lines of thought will be explored in the present paper, with specific regards to Cameralist monetary theory; Cameralist economic practices have been dealt with elsewhere (e.g. Rössner 2012).

Similar to its step-brother “Cameralism” represents in many ways a misnomer. It implies a degree of epistemic stringency it may have never had. Apart from the

2 As the present paper is mainly concerned with ideas and not practice of state interventionism in the economy, the reader is referred, for policy implementations and “real” trajectories since the middle ages, to the following works: e.g. North, Wallis, and Weingast 2009; Epstein 2000; on Germany in the , see, e.g., Blaich 1970, Blaich 1973, and Blaich 1992. An interesting case study for Württemberg around 1500 is Weidner 1931. For early modern Britain, see Parthasarathi 2011, and Ashworth 2003; further Hoppit 2011a, Hoppit 2011b; Sickinger 2000; Gambles 2000. For global comparison, see Vries 2015 and Vries 2002. 3 The present author is currently completing such a comparative long-term survey for the European economy since the Renaissance. 4 An excellent sketch, however, that goes into this direction is Reinert 1999. 4 fact that not even the modern economic sciences have ever been fully paradigmatic or “closed” theories (such as Keynesianism/Post-, , etc.), eighteenth-century Cameralism was at least sufficiently codified and “canonised” to a degree to classify as a visible and peculiar economic theory. Since the 1720s Cameralism was a fully accredited course of study at German, Swedish, Italian and Portuguese universities, with fairly specified range of textbooks used in class, implying a degree of epistemological coherence which other streams of thought, such as “mercantilism” lacked (Rössner 2015, Magnusson 2016, Reinert & Carpenter 2016; Rössner 2015; Reinert & Rössner 2016, Backhaus 2009, Priddat 2008; Bowler 2002, Wakefield 2009).

“Cameralist” – the mainstream economic reasoning in continental Europe between the later sixteenth and the nineteenth centuries (Reinert 2007; E. Reinert & Carpenter 2016, Rössner 2016a) – emphasised how through the ordering and structuring of the market by monetary policy and monetary management the common weal and domestic competitiveness could be raised. Prima facie this seemed to involve little more than some basic market regulation, using ordinances that dealt with the types of coin to be accepted in the market, and the fixing or setting of spot exchange rates for the hundreds of different types of and currency denominations that circulated in the German and other market economies on the continent (gold florin, silver thaler, cruzado, gulden, down to shillings, stuivers, groats/groschen, batzen, then pennies, kreutzers, hellers, farthings and mites and so on). It was about getting the parameters right, mainly through setting the “right” price of currency, usually denoted as the gold-silver ratio, or spot exchange rates for all circulating coins in the realm – domestic (old vs. new) as well as foreign ones, as well as specifying the amount of coin received in return for deliveries of bullion to the mint. This entailed keeping a healthy supply of in circulation, preventing actors from exporting or demonetising a particular type of money or coin, on the grounds that gold or silver were under- or overvalued. It included the prevention of individuals engaging in arbitrage and , which would have led to an outflow of coin for speculative gains to foreign financial markets and thus jeopardized the “Common Good”. Currency speculation and coin arbitrage were frequently identified (and sometimes persecuted) malpractices in early modern Europe. They were seen as negatively affecting the well-being of the Common Weal (Rössner 2012, ch. IV). This was, in practice, a fairly laissez-faire approach to the , as medieval and early modern economists entertained no illusion of being in 5 control over the actual amount of money in circulation: government could never control, let alone determine, the amount of money put in circulation. It could only offer the “right” monetary parameters to the public (see also Sargent / Velde 2003). But the story did not end there. Clever and well-designed monetary management could significantly raise the well- being of the common weal and achieve positive impacts upon this common weal’s economic expansion, often effecting economic growth. The following sections will work out the central aspects of this in more detail.

Cameralist theory was contingent upon idiosyncratic conditions of time and space, especially the peculiar political and economic geography of the early modern or “Germany” (Backhaus 1993, p. 329; Backhaus 2016). A near persistent undersupply of domestic silver – the main monetary material (Rössner 2012, ch. III; Rössner 2014a) – generated, in continental European political economy discourse before 1800, a quite peculiar line and approach towards promoting domestic welfare through monetary policies addressed at “ordering” the market through measures of monetary policy directed at coping with and overcoming such silver (monetary) . This entailed strategies to close the liquidity gap triggered by persistently negative trade balances and the absence of native silver supplies in the case of most German and other continental economies of the age (Rössner 2016c).

But how did this translate into positive economic development? The following sections will offer a sketch of suggestions. A focus will be on the history of economic thought accompanying this process during the early modern/pre-industrial period, where we find important pre-texts and pre-conditions that were laid for later (post-1800) processes of modern economic growth and transformation (van Zanden 2009; Malanima 2009; Sombart 1921/1928). The discussion commences with general issues of development in relation to silver scarcity or balance-of-payment-constraints (II), followed by the question of whether currency ought to remain stable in terms of its intrinsic or silver value (III); or whether it may be debased in some cases. Both strategies were considered, by varying authors and during various times, as permissible strategies in terms of promoting economic stability and development. But the mainstream inclined towards the former: currency debasement was frowned upon by most writers. It was against God’s chosen order. It violated distributional justice. The well-governed Christian community would be tainted by debased coins that did not contain the “just” amount of silver and gold. Since the Renaissance and through to the

6 modern age, currency debasement as a means of effecting currency devaluation remained a profoundly heterodox stance. Strikingly enough it was repeatedly applied in practice by European states, leading to a sort of intellectual schizophrenia or cognitive distortion: voices such as the Saxon “Ernestine” (1530) at least were being honest by arguing in favour of something that had been, and would be, practiced for centuries yet was, and had always been, condemned in the political economy writings as frivolous and utterly sacrosanct (IV). Strategies directed at increasing money’s velocity of circulation represented an alternative strategy of improving the effective monetary mass (M.V) as an expedient for currency manipulations, enhancing monetary supply without resorting to currency debasement. They represent an interesting development in continental monetary theory which exhibits wider implications with regard to economic growth and development. These will be discussed as well (V), before a conclusion offers some further thoughts (VI). In this way the paper opens up new perspectives for research in the history of pre-classical economic thought and Europe’s rise towards capitalism.

II. “LAISSEZ-FAIRE WITH THE NONSENSE TAKEN OUT”. SILVER, AND THE

CAMERALIST VISION OF A FREE MARKET ECONOMY AS SEEN THROUGH THE MONETARY

LENSE

Since the days of (Book IV, ch. 1, Wealth of Nations 1776) the mercantilists and Cameralists had been ridiculed for their silver fetishism. Some modern historians (e.g. Mokyr 2009, ch. IV) and economists have endorsed this claim (e.g. Ekelund & Hébert 2014, pp. 48- 50, 72ff.), albeit it can be easily proven unfounded: no self-respecting early modern mercantilist would have been as naïve to conflate gold or silver with real wealth (Stern & Wennerlind 2014, introduction). Gold and silver were merely seen as representative of such real wealth, which lay in production, agricultural as well as manufacturing (ibid.). But the mercantilists and Cameralists had a point. Given the prevailing geographic and economic circumstances of early modern continental European states, silver shortages created problems of economic and social disequilibrium (Rössner 2012, Rössner 2014b, Keynes 1936, ch. 23). This was a result of the peculiar of monetary policy, monetary management and early modern theories of money (Redish 2006; Sargent & Velde 2003; Schremmer & Streb 1999; Rössner 2014b).

7 When sixteenth century English writers used the term Common wealth or common weale – German sources used the linguistic equivalent der gemeine Nutzen or das gemeine Wohl – they had in mind a functional, thriving, and harmonious society at large. Economics and the market economy were only one subfield within a larger field, representing a more holistic conception that combined individual with societal welfare maximization (Roberts 2014, 135-138). In this model of economy (or oeconomy), social, economic and political features were inseparably tied together, covering even religious well-being. The very same ruler who had to look after a well-governed spiritual Christian community, had, with the same degree of emphasis and enthusiasm, to keep an eye on domestic manufacturing competitiveness, productivity increases, economic growth and development in the same way as church services on Sunday and the upkeep of a good Christian spirit and faith amongst the community. It is only our modern macroeconomic models and conceptions that have given up on the “spiritual” elements of societal wellbeing focusing almost exclusively on the “economy”, and measures for its well-being are often limited to GDP per capita, total factor productivity and the like; indicators developed when national income accounting schedules were derived to cope with crisis in manufacturing during the age of Keynesian ascendancy in the 1920s and 1930s (Schmelzer 2016; Philipsen 2015).5

From Martin Luther’s On Commerce and Usury (1524) to John Hales’ A Discourse of the Common Weal of this Realm of England (1549), not to speak of later macroeconomic visions by Veit Ludwig von Seckendorff (Teutscher Fürstenstaat, 1655) or Philipp Wilhelm von Hörnigk’s Oesterreich über alles wann es nur will / Austria Supreme if only it so wills (1684) (Rössner 2017) economists began to address questions of productivity and economic growth that were, in generic terms as well as purpose, not radically different from modern conceptions (see essays in Rössner ed. 2016).6 Perhaps the best way to elucidate this point is to return to the mid-fourteenth century polymath Nicolaus Oresme, Latin Oresmius, who has

5 See the April issue of The (2016) and the special feature on GDP, and the new books by Schmelzer (2016) and Philipsen (2015). I am indebted to one of the anonymous readers of the paper who raised this important aspect in their report. On later conceptions of the well-governed Christian common weal, see, e.g. “Godfather of Cameralism’s” (Small) Veit Ludwig von Seckendorff’s Teutscher Fürstenstaat (1655), or the same author’s Christenstaat (Leipzig: Glebitsch, 1685), in which he battled the growing fashion of “ruthless” (ruchlos) “atheism” that prevailed during his days (Christenstaat, 1685: preface, p. 2). 6 On the methodological vices and virtues of what constitutes modern economic thinking, and how modern economic reasoning has evolved, there is still much debate amongst economists and historians of economic thought. Some, including Blaug 1985, Sandmo 2011, or Mokyr 2009, tended or still tend to believe in linear progress in the science of economics from worse, to bad, to good – “improvement” in economic knowledge. Others are more sceptical, see e.g. Pierenkemper 2012 or Roncaglia 2005. Magnusson 2016, p. 68 goes as far as stating that there is no good or bad economics (and thus no progress in economic analysis), but only more or less effective strategies of addressing economic reality, especially with the aim of reducing scarcity and finding optimal solutions to given problems of resource allocation. 8 been hailed, in a recent contribution, as an origin figure for modern political economy and modern conceptions of the state (Nederman 2009, pp. 235-247).7 And indeed lliterally all later monetary visions under the mercantilist and Cameralist paradigm would draw, between 1500 and 1900, upon “Scholastic” views of money and the economy; views that had been presented in condensed form in Oresmius’ Tractatus de origine, natura,jure et mutationibus monetarum, written sometime between 1350 and 1358. Although a direct link between Oresmius and post-1600 “German” economic texts is difficult to prove (neither medieval nor early modern authors before 1700 bothered much to use footnotes and other references to indicate their sources), we know that Oresmius’ treatise was widely read across Europe until the end of the middle ages. Gabriel Biel (c.1415-1495), one of Germany’s most important “scholastic” theologians, was heavily influenced by Oresmius in his remarks on monetary theory and policy. He was principal of the newly-founded University of Tübingen, acted as advisor to the Duke Eberhard of Württemberg and became actively involved in south-west German monetary policy. His fame and reputation extended as far as the Spanish “”; at Salamanca and Coimbra university chairs were instituted explicitly for the exegesis of Biel’s works. Biel was probably the first voice in the German lands to promulgate, Oresmius’ message that the currency – and thus monetary management – was not in the property of the King (Prince) but belonged to the entire political nation or common weal (Mäkeler 2003, 58-60, 81f.; Iserloh 1955, 225f.; Detloff 1980, 489-91; Kötz 2016 for a most recent summary). Oresmius’ claim was made against the background of the absurdly- high rates of coin debasement used by the French King to raise money for war in the 1350s (Spufford 1998; Sussman 1993). It nevertheless made for an important intellectual refinement in medieval and early modern conceptions of “the state” and “economy”, their boundaries as well as fields of interaction (see also Nederman 2009). Gabriel Biel in turn proved highly influential to other sixteenth-century German writers, including Martin Luther. Germany’s most eminent nineteenth-century economist Wilhelm Roscher was convinced that Oresmius stood the of (Roscher 1863, p. 306, after Schefold, ed. Caspari 2004, p. 79).

Nederman has called Oresme’s treatise “a work recognizably in the vein of political economy,” stressing that in this treatise Oresmius accidently laid the scientific foundations of

7 Oresme also seems to have had a fairly laissez-faire attitude towards and commerce, which many contemporary theologians would not (yet) share. See Nederman 2009, pp. 239, and pp. 222-235 on John of Paris, conceptions and economic/market in medieval (Scholastic) economic thought around 1300. 9 modern aggregate economic analysis: “By acknowledging and exploring the necessity of a symbiotic relationship between good government and the common wealth, Oresme maps out the rudiments of a route that would be travelled time and again in European political and social thought.” (Nederman 2009, p. 245; 247). By negating the Prince’s (or King’s) prerogative to alter a currency’s precious metal value at will, stressing that this prerogative belonged in the hands of the communitas regni (community of the realm) instead, and that to promote the common weal should have the highest priority for any ruler (Schefold ed. Caspari 2004, p. 98), Oresmius captured the pillars of Renaissance and early modern social and economic theory, as visible in the medieval Fürstenspiegeln (Princes’ Mirrors) literature and Giovanni Botero’s Ragion di Stato (1589), upon which the mercantilist-Cameralist conception of manufacturing promotion and division of labour as main sources of a nation’s wealth seems to have rested (see contributions in Rössner ed. 2016; especially E. Reinert & Carpenter 2016, pp. 29-39). Since the fifteenth century excerpts of Oresmius’ treatise began to appear in print, 1484 in Cologne, 1511 in Paris (Schefold ed. Caspari 2004, p. 84). We can be confident that to early modern writers on monetary matters knew and drew on Oresmius’ treatise (Schefold, ed. Caspari 2004, p. 98; Dittrich 1974). In the case of the German- speaking authors of the post-1500 period, Biel’s treatise would have been known, too; with Biel acting as an important transmitter between Oresmius and Cameralism, with early Cameralist texts going back to the sixteenth century (Dittrich 1974; Schefold, ed. 2009, introduction; Zielenziger 1914). Thus Oresmius’ tractatus, although not usually or specifically acknowledged as a source of inspiration by contemporary Mercantilist and Cameralist authors, provided the benchmark of continental monetary theory until the mid- nineteenth century. Statements to be found in (Heckscher 1932, Vol. 2, pp. 197-216) or more recently (Föste 2015, p. 14f.) that the mercantilists and Cameralists never made a meaningful contribution to European monetary theory, thus need reconsideration. They reflect a somewhat skewed view on the emergence of modern theory. Whilst the Cameralists and most English and French mercantilists did borrow heavily from medieval conceptions, they nevertheless devised important new departures in monetary theory and monetary management (and in as well as growth and development theory, see Reinert 1999) that deserve closer examination.

Well into the days and age of Johann Heinrich Gottlob von Justi (1717–1771) or James Steuart (1712–1790) most contemporaries seem to have shared essentially similar convictions as to what money should look like. These conceptions extended mainly to the 10 axiomatic that its purchasing power should rest upon intrinsic content. The amount of gold or silver each coin contained should equal the market value of these metals, with only a small allowance for deduction, usually in the area of two per cent, for brassage (cost of minting) and seigniorage (at that time the regal monopoly charge). There is little here that distinguished earlier voices during the fourteenth, fifteenth and sixteenth century from the post-1650 Cameralist and mercantilist “mainstream” voices, from Bacon, Malynes, Potter and Locke down to their continental counterparts of the likes of Wilhelm von Schröder, Philipp Wilhelm von Hörnigk, or Johann Heinrich Gottlob Justi towards the later eighteenth century, even into the nineteenth century (an age into which the metallic or commodity standard and theory of money survived, see Redish 2003 and Sargent/Velde 2003). This “medieval” framework of analysis carried an important set of implications. Bullionist reasoning – bullionism denoting a sort of crude or primitive medieval mercantilism with a generally rather undifferentiated emphasis on a positive balance of payment without considering wider implications, such as particular trade balances which may be negative as long as the aggregate trade balance remained positive – ran across the epistemological boundaries of what could be called Scholastic or Neo-Aristotelian vs. Mercantilist economics and later pre-classical schools (Pribram 1992; on the medieval period, see Wood 2002).8 It can be found in European economic thought since the mid-fourteenth century at latest; it has even continued to re-appear until very recently. Scholars have studied this hunger for bullion or “fear of ” (E. Heckscher) from various angle points; often with a critical stance. Keynes, in his General Theory, was among the few influential non-Germanic modern economists who was outspokenly positive, arguing that a -inflow of money would have kept rates, and thus the costs of borrowing money low, which should have helped stimulate incomes, and employment. In this way, he saw the medieval Usury Laws as an early form of economic management, stimulating the common weal by keeping the marginal profitability of high so as to sustain a good level of or gross domestic capital formation (Keynes 1936; Böhle 1940; Röpke 1971). In the present context it is important to see how those theoretical considerations (discourses) and practical requirements (policy) went beyond providing good property rights and the frame of a healthy and well-governed early modern Christian market economy. They touched upon the age-old question of economic growth.

8 On the twentieth century the chapters in Magnusson, ed. 1993. 11 On the continent monetary policy always was a policy of order in the market. And the market theory, which the Cameralist authors entertained, from the days of Johann Joachim Becher (1635–1682) and Veit Ludwig von Seckendorff (1626–1692) up to Johann Heinrich Gottlob Justi (1717–1771), was quite close to our modern notion of the free market (Harcourt 2001; Eichengreen 2007 on post-1945 coordinated capitalism). In this model free markets were defined as markets that were free of rent seeking, monopoly, ruinous (“Polipoly” in the words of J. J. Becher), speculation, arbitrage and other forms of usurious exchange, or what Martin Luther in the 1520s and Cyriakus Spangenberg in the 1590s called vngleiche hendel: asymmetrical transactions involving money as a means of payment, in which one person lost out because of imperfect market knowledge, lack of good money, i.e. reliable full-bodied coin with which to settle obligations, or lack of stamina and standing to withstand the other person’s usurious desires of getting an unfair advantage, by asking for more than the official coin or spot rate of exchange, fixed by the government, would command. This was, in contemporary early modern sources, often called agio or premium on the exchange, contemporary German Aufwexl or Aufwechsel.9 In this way the German Cameralists had a strong notion of economic order as a means to raise overall welfare. But the idea did not stop there, as many accounts fixated on the Cameralist notion of economic order would imply (e.g. Tribe 1995). Cameralist theory drew its empirical insights from the realities of the feudal economies of the early modern age, where exploitation of peasants and serfs and rent seeking possibilities were endemic (Backhaus 2016; Magnusson 2016). In the German context “cooperation with no-one in charge” (Seabright 2004), the archetypically neoliberal vision of the modern market economy (Harvey 2007) as a means to maximize societal welfare, would have been out of order. Free markets had to be created by design; they had to be organized: homo was, as yet, not but still profoundly imperfectabilis (Priddat 2008; Bowler 2002). There were too many competing freedoms in the market, such as feudal and other privileges, as well as possibilities for rent seeking, including monopolies enjoyed by craft guilds (Epstein 2000; Epstein and Prak, eds., 2008).

9 Modern civic law codes as well as often speak of “non-economic” advantages when it comes to a definition of “usurious” behaviour as a criminal offence or an element of market failure. However, it is unclear to what extent such advantages, including rent seeking, can be meaningfully categorized as “non- economic”: throughout recorded history the biggest and most successful , and entrepreneurs often attempted to utilize monopolistic positions in the market and usually engaged in some form of rent seeking (e.g. all the venerable East India of early modern Europe, big merchant firms such as the sixteenth-century Fugger family of Augsburg etc.), and to successfully be able to corner the market seems one of the paramount qualities any successful entrepreneur will have to throw into their business. See Spangenberg 1592, p. 240. Full analysis of the social and economic consequences of coin debasement in Rössner 2012, ch. IV. 12 Political economists facing these sociological and distributive distortions called for an enlightened despot, an abstract discursive figure or model, a stance that has far too often been taken literally. This more abstract ruler could be impersonated by a monarch or parliament or any other body politic that was effectively in charge and that would destroy or crush existing market asymmetries, monopolies and rent seeking, thus creating the free market from scratch and by design. Subsequent research has accordingly mistranslated the basic idea of “The Statesman” and “policing” the economy – something to be found especially powerfully in James Steuart’s Principles of Political Œconomy (1767: chs. 1, 2), where the economy “began” with the ruler or prince. By taking the German word of Policey-Staat literally and in its modern meaning (a modern translation wrongly suggests “ state”) – from which the Cameralist model of free market was essentially derived, many historians of economic thought have taken the Cameralist vision to advocate a form of dictatorial or “police state”. But this could not be further from what the Cameralists really desired. “Policey” in the eighteenth century meant “policy” not “police”; Policey thus simply translates as “good economic policy”. The Cameralists had thus put on its feet long before it emerged (Harcourt 2011) or, in Schumpeter’s timeless words, advocated our modern notion of “laissez-faire with the nonsense taken out” (Schumpeter 1954, pp. 170-173). Good economic policy in the Cameralist vision meant a free market marked by transparency, equal access, little regulation and the absence of rent seeking, monopoly and usury – the market that corresponds to (most) modern models of modern capitalism. But it could not be achieved without rules, laws and strong governance (see also Harcourt 2011).10

Many contributors to the early modern economic discourse (Cameralism, mercantilism), especially the seventeenth and eighteenth century Cameralists, also expressed a fear of deflation.11 Low prices reflected shortfalls of over supply, often caused by a lack of silver money in the economy that could, if worst came to worst, lead the market economy into depression (Dreissig 1939, pp. 31-40). Given the times and age there was usually a lot of common sense to it. Around 1500 Germany exported about 16 tons of pure silver per year via Lisbon, Venice and Antwerp into the Baltic, Levant, Africa, India and China (Rössner 2012, ch. II). Very often this equalled the entire yearly output of the German mines (ibid.; drawing on tables and discussions in Munro 2003). Throughout most of the

10 For the early modern Netherlands an impressive description of such a modern capitalist market economy has been produced by de Vries & van der Woude 1997. 11 This was not limited to any specific set of prices, say grain or bread prices; but most works spoke of rising or falling prices in generic terms, referring to what we may call the “”. 13 early modern period most German principalities remained net-exporters of silver, which is borne out not least by the numerous legislations, both on the territorial as well as imperial level, directed against “mercantilist” measures, such as promoting domestic manufacture and industry, which we find in the imperial policy ordinances of the 1530s and again in the “Imperial Mercantilist” (Reichsmerkantilismus) legislations of the post-1660 period (Bog 1959). Prior to the influx of American silver after the mid-sixteenth century Germany was the world’s largest exporter of silver, not least because of the German native silver mines. Global price differentials in the gold-silver ratio offered the merchants arbitrage opportunities, as silver fetched an increasing price the further east it went. Silver was extensively used in financing the spice trades (Flynn and Giráldez 1995a, 1995b, 2004, p. 83). This could have manifest impacts on economic performance, conjunctures, trade and business cycles, even though the pre-modern market economy worked, in many ways, different from our modern one (Boldizzoni 2011). Between 1470 and 1530 population increased, whilst silver supplies per capita decreased, leading to deflation in the general price level, and arguably a depression in terms of wages, living standards and economic activity in the German lands (Rössner 2012, 166–250; Schremmer & Streb 1999). Similar mechanisms were discussed in Cameralist textbooks as late as Johann Heinrich Justi’s Staatswirthschaft (2 vols., 1755; see section IV below): Germany’s economic fortunes obviously rose and fell with the per capita silver stocks in the economy. Accordingly, German political economy and economic theory evolved around these lines, c. 1500-1900.

Silver represented the general means of payment. The Rhenish florin, Rhinegulden or Goldgulden, i.e. a gold coin containing, around 1500 A.D., 2.5 grams of pure gold, had by 1500 all but vanished from monetary circulation; it remained a money-of-account. It had been substituted since the 1480s by a large silver coin minted to the exact equivalent of one Florin or Rhinegulden, weighing in at 27.3 grams of silver in Saxony during the early 1500s. This was the Groschen so einen Gulden gilt, literally: “groat equalling one florin”, later on nicknamed Thaler (Dollar) after the Bohemian mining town of Joachimsthal, abbreviated “das Thal” in the 1500s (today Jàchymov in the Czech Republic), where large quantities of silver were discovered and minted into coin after 1516. From now on the anchor money would be expressed in terms of silver, rather than gold. Silver was finally adopted as the “imperial” standard (Sprenger 2002, ch. 7; North 1994, 71-86, North 2009). This means that after 1500 most coins, from the small change penny (Lat. denarius, d.) and heller (half- penny), to groats (Groschen) and batzen (middle monetary layer or segment), up to the large 14 full-bodied silver coins equivalent to the Rhenish florin contained at least some silver. But the price of currency on the financial market (exchange rate against other coins) and goods markets (in terms of the basket of consumables one particular coin would buy) was determined by each coin’s intrinsic value or silver content.12 Any shortage in the net balance of silver in any of the German states was bound therefore to turn into a general monetary shortage which carried an inherent risk of deflation and depression. And the economic discourse of the day repeatedly picked up on this problem.

Martin Luther, in his great economic treatise of 1524 Von Kauffshandlung vnd Wucher (On Commerce and Usury; see interpretation and translation in Rössner, ed. 2015c), found the emerging global trades of his day disturbing. He called them auslendische kauffs handel, literally “foreign trades”, which brought in, as he said, “from Calicut, India, and such places, wares such as costly silks, gold-work and spices, which minister only to luxury and serve no useful purpose, draining away the wealth of land and people.” (Rössner, ed. 2015c, p. 176). This concept of superfluous luxury was something Luther shared with the early Mercantilists, before later contributions developed a more relaxed stance, admitting that bilateral trade balances may be negative as long as the nation’s aggregate and payments remained positive, sustaining a net-influx of bullion (Pribram 1992). In a famous and oft-quoted passage Luther went on:

We have to throw our gold and silver into foreign lands and make the whole world rich while we ourselves remain beggars. England would have less gold if Germany let it keep its cloth, and the king of Portugal, too, would have less if we let him keep his spices. Calculate yourself how much gold is taken out of Germany, without need or reason, from a single Frankfurt fair, and you will wonder how it happens that there is a heller (the smallest denomination coin: a half-penny, PRR) left in German lands. Frankfurt is the gold and silver sink through which everything that springs and grows, is minted or coined here, flows out of Germany. If that hole were stopped up we should not now have to listen to the complaint that there are debts everywhere and no money; that all lands and cities are burdened with charges and ruined with interest payments (Rössner, ed. 2015, p. 176).

Luther seems to hint here at a situation of monetary contraction and economic depression, which would explain, given his observations were correct, why interest rates were high in the

12 An extended discussion of monetary policy and minting in the German lands around 1500 can be found in Rössner 2012, ch. III. 15 first two decades of the sixteenth century (full discussion in editor’s introduction, Rössner, ed. 2015, chs. 2-4). He made equivalent remarks in his Address to the Christian Nobility of the German Nation (An den Christlichen Adel Deutscher Nation, 1520). Many other works such as his Table Talk bear out the classically Mercantilist “fear of goods”. In the same year as his Kauffshandlung appeared a small book was published by a popular preacher Eberlin von Günzburg entitled “I wonder why there is so little money in Germany” (Günzburg 1524). Ulrich van Hutten and the Imperial Knights, highly educated but impoverished robber barons who played an important role in the early Reformation public discourse, struck the same chord. In his Vadiscus dialogue (1519/20) of the “Romans” (meaning the Curia / Papal Court) von Hutten reported how Rome devised new means of “taking away” money from the Germans day after day. It was three things in particular, von Hutten wrote, that anyone returning from Rome would bring: “bad conscience, an upset stomach, an empty purse.” There were three things everyone at Rome desired: “short Mass, good coins, having a good time.” (Bentzinger, ed. 1983, pp. 46, 52, 72–74). Here von Hutten hinted at what has become colloquially known amongst monetary historians and numismatists as “Gresham’s Law” or spontaneous debasement (Sargent & Velde 2003). If coins of differing precious metal contents circulated alongside each other at the same denomination level and face value, rational actors would cull out the good money, substituting it with bad money in domestic circulation.

The debates on the Imperial Diet in Nuremberg 1522 picked up on the export of good money and silver, as did the complaints of the Imperial Knights (Reichsritterschaft) in 1523 (Schmoller 1860, pp. 635–8). The German Reichspolizeyordnung of 1548 (Imperial Policy Ordinance) contained a general export ban on raw wool, as well as the admonition to “wear only domestically manufactured cloth”. The Imperial Resolution of 1555 sounded similar (Schmoller 1860, p. 650f.; Blaich 1967, pp. 17–37; Blaich 1970, pp. 135–153). We find early traces here of the strategy later on labelled “import substitution” and “infant industry protectionism”. Later Cameralists, especially Philipp Wilhelm von Hörnigk (Oesterreich über alles wann es nur will, 1684, ed. Rössner 2016) or Johann Heinrich Gottlob Justi (1717– 1771), up to the economists of the nineteenth-century from (1789–1846) to Gustav Schmoller (1838–1917) and Wilhelm Roscher (1817–1894), developed a full theory about catch-up development by infant industry protection following the lines laid in the economic discourse of the sixteenth century (Reinert 2007, ch. 3; Chang 2003). They need no reiteration here. But we should remember three interesting policy stances derived from these 16 late medieval and early modern discourses in the monetary field, which have been understudied. They amount to partly conflicting scenarios, whilst principally serving the same goal – promoting economic stability as well as growth: first, keeping money stable; second playing around with its external exchange value by coin debasement and third, increasing money’s velocity.

III. ADVOCATES OF STABLE MONEY – THE CASE FOR SOCIAL AND ECONOMIC STABILITY

As seen above, Oresmius had argued that coins as the chief means of exchange must not be tampered with.13 They may only be manipulated by altering, most commonly reducing, their intrinsic value, i.e. silver content, if the market price of silver and gold changed, so as to prevent demonetization. Otherwise coins would be taken out of circulation and smelted, as their precious metal value would be higher than their purchasing power or nominal value. The only other permissible scenario for “legal” or justified debasement was when society and the Common Good were in acute danger, for instance by an imminent foreign invasion. Then the prince would be entitled to collecting “ tax” by temporarily increasing seigniorage beyond the acceptable or usual measure (Spufford 1998; Sussman 1993; Rössner 2014a). Generally, coin debasement harmed society and economy, Oresme said, because (1) it increased economic instability, especially when negotiations over a coin’s exchange value made contracts harder to enforce. (2) Coin debasement was considered an unjust transfer of assets (effectively a tax) from the subjects to the king or whoever had the sovereign right to mint coins (Regalian right). (3) Progressive or sustained currency debasement would cause an outflow of good or full-bodied coin; only “bad” or underweight coin would remain within the country (Gresham’s Law). (4) An excess of bad over good money would depress imports, because no one would want to sell goods to a country where payments were made in bad coin. (5) Domestic circulation and exchange would be hampered by bad coin. (6) Rents and all other types of income that were fixed and specified in terms of a certain currency would devalue, too, once this particular currency became debased, as people would adjust their appreciation and thus value of the debased coins downwards once they had discovered the true nature of this debasement. Money would thus loose its function as a means of storing value. (7) People who used differential coin types, making a out of substituting bad

13 I am following the text given in Burckhardt, ed. 1999. 17 money for good, or vice versa, depending upon nature and motif for the transaction, would gain an undue profit. Currency arbitrage was deemed usurious by Canon Law, and it did cause widespread economic and social problems as well as unrest in the Germanies around 1500.14

Later Germanic texts on monetary theory completely built upon Oresmius. The Tübingen theologian Gabriel Biel (d.1495), one of the most prolific German scholastic authors, embedded his monetary theory within an overall treatise on theology (Collectorium circa quattuor libros Sententiarium).15 Coin debasement was bad for economy and society; especially when false or underweight foreign coins entered domestic circulation, in a form and shape deceptively similar to the commonly-accepted old money of good value (the usual case). The common people would not normally be able to distinguish new coins from old, or debased from full-bodied, and would, effectively, be betrayed (Biel, Collectorium). Coins must contain precious metal roughly equalling their purchasing power, Biel maintained. Only a small deduction was allowed for covering the expenses of minting (seigniorage and brassage). This remained standard monetary theory, not necessarily practice, into the twentieth century. But if coins were manipulated so as to extract a profit, e.g. by reducing their silver content below the allowance for seigniorage and brassage, this would bring ruin to the country, Biel reiterated, echoing Oresmius. Only when the silver price changed on the financial market so as to price existing coins out of the market, would such manipulations be permissible. The bottom line was: “Don’t touch the coins”.

Nikolaus Koppernigk or Copernicus (1473–1543), Prussian churchman, theologian and astronomer, produced three memoranda on Prussian currency matters between 1517 and c. 1526 (Sommerfeld, Erich, ed. [1978] 2003; see also Volckart 1996, Volckart 1997). In the first memorandum dating from 1517 (Copernicus, Denkschrift A, printed in Sommerfeld [1978] 2003), he maintained that the coinage was a measure of value fixed by the “community”. An unstable or devalued currency would harm the common good. Copernicus differentiated between two sources of a coin’s particular value: (1) intrinsic value (roughly

14 See Rössner 2012, ch. IV for detailed examples and full empirical discussion of the social consequences of debased currency. 15 I am following the Latin text as printed in Steiger et al. eds. 1977. The original passage reads: Prima est falsitas introducta, ut si aliquis extraneus prinzeps aut falsarius malitiose effigiaret vel contrafaceret formularia seu modulos, per quos introducere niteretur monetam sophisticam minoris valoris quam sit moneta vetus, cuius tamen differentia a vera moneta cognosci a populo non posset et alio modo convenienti moneta falsa exterminari non posset, expediret mutare formam monetae verae, servato tamen iusto valore, ut sic discerni posset ab introducta falsa.

18 equalling its market value), derived from the physical amount of precious metal embodied within each coin, and (2) the coin’s official exchange rate set by the government. The coins in a sense “belonged” to the polity or common weal, because they represented the basic way of numbering things and expressing value (qva precia emptibilium vendibiliumqve rerum numerantur, secundum cuiusuis reipublice institutum vel gvbernantis ipsam. Est igitur mensura qvedam estimationum). The polity or community needed a firm and stable measure of value and order in exchange so that the public may carry out their business and transactions without fraud and uncertainty (Oportet avtem mensuram firmum semper ac statum servare modum; alioqvi necesse est confundi ordinacionem reipublice). Such a reliable measure and standard of value could only be achieved through a stable, read: unadulterated, currency of good standard of weight, which everybody can determine and, accordingly, trust (Hanc ergo mensuram estimacionem pvto ipsius monete; qve etsi in bonitate materie fundetur oportet tamen valorem ab estimacione discernere; Copernicus, ed. Sommerfeld 2003, p. 24 Latin; p. 25 German translation).

Coins enjoyed a liquidity premium over un-coined silver bars or ingots. Individual probations of coins by the economic actors proved ineffective as this required considerable knowledge of metallurgy and financial markets (ibid.). Money changers, mint masters and merchants had this kind of knowledge; the general public did not. They would have to trust the circulating means of exchange bona fide, i.e. give and take coins by tale (Sargent & Velde 2003), or else – if they mistrusted the coins, try to accept them at their real value or silver equivalent (by weight), i.e. at a discount (when coins were undervalued or debased). Clearly the liquidity premium argument only worked if coins did contain sufficient precious metal, as over time people would devise ways and means to find out or else “spread the word” to those who could not find out themselves: then the public would rate down the coins in day to day or spot exchange, i.e. give and take such coins at a discount or disagio.16 Copernicus admitted that coins may contain less precious metal than their face value; this difference must not exceed the cost of minting (brassage plus seigniorage): then the value of the coin was considered “just” (Copernicus 1517, in Sommerfeld [1978] 2003, p. 24/25). As every scholastic author since Oresmius and many others still to come, Copernicus thought it a matter-of-course that devaluation of the currency by means of coin debasement was a no-go.

16 The relatively frequent repetition of coin debasements during the years of extreme debasement in fourteenth century suggests that after about a year at most even the less well-informed members of the public would have found out about the true nature and extent of debasement, which necessitated new rounds of debasement, if this policy (inflation tax) was supposed to work for the King’s finances. See Spufford 1998, Sussman 1994. 19 He said in his more detailed 1526 memorandum that there were four plagues of mankind: war, plague, hunger and coin debasement (monete vilitas; Copernicus 1526, in Sommerfeld [1978] 2003, p. 48/49). Contrary to the first three evils, which are obvious, coin debasement made for a slow corrosion of the common weal (quia non vno impetus simul, sed paulatim et occulta quadam ratione respublicas euertit (ibid.). Modern rationales, especially the post- World War Two Deutschmark monetary paradigm, from which the EURO was begotten towards the end of the 1999 during the Kohl supremacy, have made similar claims as to monetary stability and the well-being of the Common Weal. In Copernicus’ vision bad coins made purely or chiefly of copper, would cause (1) trade, especially exports, to decay. (2) Foreign merchants would disappear; no foreign merchant would sell for debased coin. Debased coin would purchase nothing in foreign lands, either (Copernicus 1526, in Sommerfeld [1978] 2003, p. 54/55). This would lead, Copernicus was convinced, to the utter ruin of the country (ingentem reipublice prussiane […] in dies magis et magis supine negligencia miserabiliter labi ac perire sinunt; ibid.). Gold- and silversmiths and expert metal traders – the financial market speculators of these days – would profit from debased money by sorting out and buying up the old coins, re-smelting them and selling the silver back to the mints (Gresham’s Law) (ibid.). Here we are reminded again, that monetary policy these days was dependent upon free minting, i.e. essentially a free-market game: the amount of money, as well as its composition (small change pennies; medium sized groats; full bodied thalers etc.) was determined by the public who brought silver and gold to the mint to have it coined or, in the case of foreign money, re-coined into domestic money (Sargent & Velde 2003). Governments had no control of the amount of money in circulation. The state simply set the “mint ratio”, i.e. the amount of coin in a specified denomination (florin, thaler, shillings, kreuzers, pennies, farthings, hellers, mites etc.) that the public received for bullion delivered to the mint.17 The state sometimes could, but to very limited extent, control the composition of domestic new supplies of coins by balancing the amount of small change vis- à-vis full-bodied money. Spontaneous debasement (Gresham’s Law) resulted in an over- supply of bad underweight coin in the economy. It would cause price inflation. Modern research on price level trends during the so-called Price Revolution (1470–1620) has confirmed Copernicus’ hypothesis. Prices quoted in pennies – the money of the Common Man – increased more than twice as fast as prices expressed in “good” money such as florins and Thalers over the 150 years or so of this inflationary cycle (Sprenger 1977). This was a

17 Sargent and Velde 2003; there were instances when princes actually limited mint output, for instance ordering the mint master to stop the mint, in an attempt to directly control monetary supply. 20 result of these coins’ higher velocity of circulation. They were heavily debased and of little use in the long run. People tried to get rid of them as fast as they could, as such coins were of no use for or storing value (Rössner 2014, p. 327–8). Copernicus was convinced that only those countries where good coins circulated would also do well economically and flourish. Countries with a weak currency would suffer from “inertia” (ignavia), idleness and stagnation (desidia), even “regression” (resupinatio) (Copernicus 1526, in Sommerfeld [1978] 2003, p. 56). Not everyone would share this view, as will be seen in section III.

The anonymous Albertine or “Catholic” (Old Church) voice in the Saxon currency debate (Münzstreit, 1530-1), which Roscher and Schmoller judged to be amongst the first pieces of modern economic analysis18, echoed Oresmius, Copernicus and the other medieval metallists. Receivers of fixed income streams, such as interest, rent and census payments, would suffer most from currency debasement (Aber die geringe Muentze berawbet von stundt den nehmer des zehinden pfennigs seins guths / vnd alles seins werths / vnd zuweylen mehr / das er zu auffgelde geben mus […]; Gemeyne stimmen von der Muntz [Dresden 1530] facsimile in Schefold, ed. 2000, p. 6). In a way, the anti-debasement voices of the day represented the of the capitalist “upper classes.” But it was not only the rich whose fortunes were harmed by bad money. The entire common weal suffered, as research on coin debasement and social unrest during the time of the medieval peasant wars and the early Reformation in Germany has shown (Rössner 2012, ch. IV.) Bad coins would keep the level of economic activity below full potential. Business and commerce flourished only where a reliable and stable currency prevailed, the “Albertine” maintained (ibid., p. 7). Bad coin drove up prices for imports (ibid., p. 11), as well as domestic goods traded within the domestic economy, as the seller would adjust her supply price to the precious metal content of the coins offered in return (assuming that coins circulated by weight, and not by number or tale). Bad money would cause inflation and thus harm to the people (ibid., p. 7). The negative welfare effect of an underweight currency that kept the economy below full potential was also highlighted by the Saxon jurist Melchior von Osse (1506–1557) (Osse 1556, ed. Hecker 1922; discussion in Dittrich 1974, pp. 40-42): where good money circulated, business and economy flourished, as did fiscal income.19

18 Facsimile in Schefold, ed. 2000a; discussion in Schefold 2000b, pp. 5-58. 19 Ibid., 382. Original: Dan wo gute montz ist, do ist viel handels; wo vil hendel und leut seind, do hat man den vortreib aller fruchte und war, und genissen des also nicht allein die hauswirte und hendeler sondern alle handwerksleute und kommen dordurch die land ingemein in besserung und aufnemen. 21 Georgius Agricola (1494–1555), a polymath who wrote a series of learned treatises on medicine, geology, mining and metallurgy (e.g. De re metallica, 1556), said in his De precio metallorum et monetis libri III (Three Books on Money and the Price of Metals, 1550), that money use was more efficient than barter exchange (Agricola 1550 ed. Prescher 1959, p. 352), because (1) coins make it easier for prices to form and adjust. This sounds familiar to anyone who has read W. Stanley Jevons (Jevons 1875): it is the argument. Money reduces transaction costs because it reduces complexity in exchange. (2) The costs of transporting money were lower than payment in goods or barter. (3) Coins were needed to settle debts with people who will not take our wares in return, Agricola said (Agricola 1550, transl. Prescher 1959, p. 352). He picked up on one of the most prominent debates and pressing issues of the day, i.e. whether coins should circulate full-bodied or debased (i.e. overvalued), giving both pros and cons (ibid., p. 358). The arguments in favour of a full-bodied coinage were, (a) that coins represent, as the document says, a “treasure” or “investment” – they are worth their value everywhere. Undervalued or debased coins have a higher value where they are struck, because in their native realm they contain a small fiat element, whilst in foreign nations they are likely to be given and taken below face value, at a discount reflecting their factual silver content or “real” value (ibid.). (b) Countries or regions where bad or debased money is struck will be less favoured by merchants than countries where good (full-bodied) coins are struck (ibid.). Customs and toll revenues will decline; and entrepreneurs will migrate to those states offering better currency (ibid.).

The seventeenth- and eighteenth-century Cameralists were in line with the “medieval” arguments sketched so far, extending from Oresmius to Osse. Veit Ludwig von Seckendorff, the “Godfather of Cameralism” (Small 1909) argued, in his Teutsche Fürstenstaat (The German Princely State, 1655 [1720])20 that coins represented a standardized means of exchange. They should therefore always retain their “just” weight. As all medieval and scholastic authors before him and most of them after him, Seckendorff avoided a specification of how much debasement or under-weight was “just” or “right”. He evoked the functionalist argument and origin myth of money, i.e. that money had been invented as societies became ever more complex and moved from barter to monetized exchange. Even Scripture confirmed, in Seckendorff’s view, that the use of money had been common in biblical times. Money made of precious metal fulfilled all qualities for this purpose: it was scarce; it was highly-estimated by the people, and it could be made to represent value and

20 See discussion in S. Reinert 2005. 22 thus facilitate the exchange of different products of different type, amount, quality etc. which would otherwise have to be bartered against each other using costly and time-consuming schedules of enquiry without the necessary guarantee that there was always a coincidence of wants (Denn man zu dem tausch nicht allerley so weit bringen, noch an jedem ort so wohl, als an dem andern, verhandeln oder angenehm machen koennen, Seckendorff [1656] 1720, pp. 406–7). Whilst Jevons, as well as virtually all modern textbooks on monetary theory have copied this stance, most of them surely unwittingly; classical archaeologists, cultural anthropologists and some monetary historians are in disagreement with this origin story of money, suggesting a state-driven process of money’s origin instead (e.g. Graeber 2011, Reden 2011; Peacock 2013). Precious metal had been transformed by the princes (monetary authorities), Seckendorff said, into coins of varying design, shape, size and purchasing power. And due to the fact that this regal privilege had been transmitted to the hundreds of political authorities within the Empire, a considerable level of confusion od currencies had ensued (Seckendorff 1720 [1655], pp. 410–11). Coins should not be tampered with or altered at will (daß eine jede müntze in gold, silber und kupffer, ihr verordnetes, richtiges gewichte habe; ibid., p. 412f.), as this would reduce people’s trust in them. Transaction costs would rise. Seckendorff acknowledged, however, that princes and other monetary authorities should have the right of striking slightly underweight coins, but only for re-compensation of expenses incurred in the process of minting (brassage); perhaps this also included an allowance for seigniorage. He alluded to a famous principle in the of running a mint (mints were usually leased to wealthy merchants): the cost of minting coins was inversely related with a coin’s nominal value. As labour and capital costs of minting were the same for each coin regardless the weight or denomination (value) of a particular coin, the costs of minting small denomination coins would be proportionally larger for small- change coins compared to high value/full-bodied coins (Munro 1993). Small change coins must be slightly debased, the logical conclusion went, lest their production became, over all, unprofitable. Seen in the reverse, this explains the temptation of early modern mint masters and rulers to issue heavily debased small changed pennies and bad groats. It is important to note that the practice of introducing a fiat element into the small change segment of the currency must not be confused with deliberate or outright debasement, i.e. coins whose precious metal content was reduced significantly below face value so as to increase the mint master’s profit or the gain of the fisc (inflation tax). Seckendorff considered debased coins “abominable”, “fraudulent” and harmful to the people (schaendlich, gemischten,

23 betrieglichen, unwuerdigen sorten by which viel leute in schaden und armuth erbaermlich gesetzet warden (Seckendorff 1720 [1655], p. 416).

The later Cameralist authors followed suit. Suffice it to quote Johann Heinrich Gottlob von Justi (1717–1771), who, with his classic treatises on principles of economics (Staatswirthschaft 1755; Grundsätze der Policey-Wissenschaft, 2 vols. 1756) arguably produced the finest models of Cameralist economics (Schumpeter 1954, pp. 170–173). Like most of his predecessors Justi stressed that underweight coins would reduce people’s trust in them and depress future expectations in the performance of the well-run common weal or economy, thus doing harm to economy and society. Bad money, he argued, increased transaction costs (Justi, [1756] 1782, I, p. 198).21

Coin debasement had been one of the biggest socio-economic problems and causes of popular unrest in the age of the Reformation (Rössner 2012, ch. IV). It continued to be endemic in the continental economies between the fifteenth and nineteenth centuries. But not every writer on would have concurred that debasing coins was a bad thing per se. In fact, there were quite interesting variations upon the standard monetary theory of the “middle ages” which was not so monolithic as it appears after all.

IV. ADVOCATI DIABOLI – PLAYING AROUND WITH THE EXCHANGE RATE

Six years after Luther’s Von Kauffshandlung vnd Wucher appeared in 1524 (On Commerce and Usury, ed. Rössner 2015), the anonymous “Ernestine” or heterodox (1530) voice in the Saxon currency dispute (see above)22, a Protestant and clearly someone belonging to the Saxon merchant community, made an important departure from the prevailing mainstream. He said “the same kingdoms, countries and islands (referring to the Low Countries/Holland, England and France, PRR) have orientated their business, commerce, order of things, economic policy and practical economic activity thus that they export their and other countries’ goods predominantly to us Germans, as well as Hungarians and Bohemians, thereby bringing our money into their country, which enriches them and makes their wealth increase.” And: “Our domestic industry is geared towards accumulating and exporting money

21 On Justi, see Reinert 2009, and Adam 2006. 22 Text (facsimile) in Schefold 2000a, and discussion in Schefold, ed. 2000b; one of the best analyses still is Roscher 1874, pp. 102–106. See also Stadermann 1999. 24 and wealth (silver being Saxony’s main export commodity, PRR.) and take manufactured imports in return. This enriches about a hundred people, whilst driving princes and the common man, numbering more than one hundred thousand, to ruins.” (Die Muentz Belangende Antwort vnd bericht [1530] 2000, p. 41).23 The Ernestine had a point. Saxon silver at his time may well have contributed up to fifty per cent of European silver output (Munro 2003, Tables). Theoretically the Saxon rulers would have been able to produce what should have been by far the finest currency of their age (Rössner 2012, ch. III; Rössner, 2013).24 As silver was cheaper in Saxony than elsewhere, coins should have contained more silver, reflecting the inverse relationship between goods prices in the economy and the price of silver money in Saxony compared to the lands that had no domestic silver resources and relied upon foreign trade and payments to replenish domestic silver stocks. But it followed that Saxon goods paid in full-bodied heavy money would have been less competitive on markets outside Saxony, where goods were paid with lighter money, i.e. coins that contained proportionally less silver than the “good” and “hard” Saxon currency did. The Ernestine specifically identified the over-valued currency as the prime cause for Saxony’s lack of competitiveness in the international economy (den wirdigen / vberigen wert der Muentz / Vnd was ferner dem anhengig erfolgt) because, as he maintained, an overvalued “strong” currency drove up prices for consumables as well as servants’ wages (so doch die kauff wahr / das gesinde lon / vñ alle gemeine zerung vnd ausgaben / bey der wirdigen Muentz erhoehet vnd gestiegen). The recipe which the Ernestine suggested in consequence, however, sounds somewhat surprising, as this is the least what one would expect from a late Scholastic or Mercantilist author. He straightforwardly suggested that the Saxon currency be debased, by raising the amount of coins struck out a silver mark (around 250 grams) from 8 ¼ florins Rhenish to 10 florins Rhenish. This debasement in the order of 21 per cent would have led to an effective devaluation of the Saxon currency, because the public would give and take coins by weight, not tale, according to the market value of the precious metal contained in them. As Europe’s monetary history shows, people quickly adjusted their appreciation of devalued coins downwards. Within weeks or months after each new mint run, or as soon as the common man received reliable information regarding the new coins’ factual intrinsic value, market or spot exchange rates for debased small change coins would diverge from their “fixed” or official coin exchange rate stipulated in the government edicts (Sussman 1993; Sargent and Velde 2003; Rössner 2012, chs. III, IV; Rössner 2014a). They would usually

23 My translation based on the facsimile in Schefold 2000a. Original not paginated. 24 Rössner 2012, ch. III. 25 adjust downwards, turning debasement into effective devaluation of the new currency. This would cause inflation – for prices of those goods that were paid in small-change coin (mainly consumables and everyday items) – and thus result in a downward adjustment of the domestic currency in terms of foreign coins. This quick fix should, as the Ernestine expected, have solved Saxony’s economic problem of the day. It would have boosted Saxony’s competitiveness by making Saxon domestic exports cheaper. It would also have reduced the demand for imports, which would become more expensive. And more importantly: the money would remain in the country (damit das gelt souil mehr ynn landen blieben).

Modern policies of devaluation have sometimes worked according to the logic presented in the 1530 “Ernestine” voice in the 1530-31 Saxon currency dispute (Schefold 2000b). This assessment, however, flew in the face of what medieval monetary theorists, drawing upon the Scholastic argument of “just” or good currency, cherished as the cornerstone of the prevailing monetary paradigm: currencies needed to be sound. Only a stable currency would reflect, and safeguard, an ordered, fair and well-governed Christian Common Weal! To most contemporaries suggestions as the Ernestine must have sounded perverse (Rössner 2012, ch. IV). It is only one and a half-century later that we hear such an unorthodox voice again. Johann Joachim Becher (1635–1682) was one of seventeenth- century Germany’s most-celebrated economists, polymath, alchemist, project-maker and close associate of the London-based Royal Society. He travelled widely in England and Scotland during the 1660s after a spell in the Netherlands, attained proverbial fame as a “project-maker”, propagating the creation of an East India for the rather insignificant Duchy of Hanau. He became acquainted with Prince Rupert of Palatine, cavalier, daredevil and Lord High Admiral of the Royalist Navy during the English Civil Wars (Roscher 1864, p. 40). He was hailed by Schumpeter as the inventor of “Becher’s Law”, commonly known nowadays as Say’s Law (Schumpeter 1954, p. 283).25 In his 1668 work on Politischer Discurs: Von den eigentlichen Ursachen deß Auf- und Ablebens der Städt, Länder und Republicken (“Political Discourse on the Rise of Cities, States and Republics”), Becher made remarks similar to Seckendorff (see above) on the general nature of money as a means of reducing , in comparison with the counterfactual (and counterintuitive) system of pure barter exchange (on Becher, see Roscher 1864, pp. 38-59; Hassinger 1951; Schumpeter 1954; also Rössner 2014b). Money was the nervus rerum (Nerv uñ Seel) of things, Becher wrote. There ought to be a uniform currency in each country. A

25 This law says that “One man’s income is another man’s expenditure”. 26 good quality standard was to be kept for the coins in circulation (Becher 1688 [1668], pp. 269–270). But then Becher made a departure from mainstream dogma, suggesting upfront that domestic currency may be minted five per cent below the intrinsic value of foreign moneys, so as to prevent spontaneous debasement (Gresham’s Law). None of the previous authors had dared to quantify such a digression from the “pure” standard; albeit it seems as though a five per cent debasement was a humble suggestion. It certainly was low by comparison with the “Ernestine” devaluation of 21 per cent (see above) and possibly in line with medieval Scholastic stability commands which had propagated maximum interest rates of five per cent per annum. By issuing underweight coins, Becher said, the desire to export money was reduced and a somewhat healthier amount of money would be retained for domestic circulation (Becher 1688 [1668], p. 272). Domestically the money would circulate at face value with foreign coins. But everyone who took it abroad would incur a loss on the exchange rate in the order of five per cent, as the foreign money markets would rate, following the common notion of giving and taking coins by weight, the domestic coins based on their precious metal content. Becher called this a “tax” on the export of money (billige und rechtmaessige impost und zoll, ibid.). Foreign exchange transactions should be monitored and cleared through an exchange bank (Wechsel=Banck) financed using the profits yielded by the (mildly) debased coins (Becher 1688 [1668], pp. 272-274). Blueprints for such an exchange bank can be found in Amsterdam (Wisselbank, est. 1609) or Nuremberg (Banco Publico, est. 1621; see Denzel 2012). They were modelled on earlier Italian public and city banks known since the Middle Ages (Spufford 2006).

Becher had realized one important thing. People need a certain amount of money to make society and economy run smoothly, quite regardless of each coins’ intrinsic value: money is an important economic resource in the process of growth and development. This leads us to the final point – the promotion of velocity as a means of economic policy.

V. VELOCITY, OR THE MANAGEMENT OF MONETARY MASS

In his masterpiece on the History of Economic Reasoning26, Karl Pribram once hypothesized that the discovery of velocity was made by mid-seventeenth century English economists (Pribram 1992). William Potter’s The Key of Wealth, or A New Way for Improving Trade

26 I have used the German edition, Pribram 1992. 27 (Potter 1650) seems to have been the first work in English discussing it in a specific manner (Pribram 1992, Vol. 1, p. 147-8). Schumpeter, in his likewise monumental yet unfinished History of Economic Analysis (1954) concurred, claiming that velocity “did not acquire substance until the last decades of the seventeenth century. This was a purely English achievement.” (Schumpeter 1954, p. 316). These assessments are in need of revision. When placed into a wider context, we find the origin of “velocity” in sixteenth-century German economic texts.

As most of the later Cameralists, but strikingly also earlier voices such as Martin Luther, the Humanists and authors of the German Imperial Ordinances trying to ban the import of foreign cloth manufactures into the Germanies in the 1530s and 1540s (see above), Potter based his observations on a perceived situation of “decay of trade”, i.e. a slump or trade depression. It is difficult to come up with economic data suitable to prove or disprove this proposition, but that is not the matter. Important for the development in economic reasoning was that people believed they lived through an age of depression and that they, accordingly, devised increasingly refined models of dealing with such a depression. What Potter stated would be good, first and foremost, for business. Many of the mid-seventeenth century English mercantilists were successful merchants and businessmen after all. But successful strategies of overcoming a commercial depression could, with modifications, be turned into a theory useful for the entire common weal (Potter 1650, preface; not paginated). The German Cameralists had this as Umlauf, with Potter’s “revolution” and the Cameralists “Umlauf” coming close to what the modern monetary conception has as the left side of the Fisher Equation (M.V, or effective monetary mass, Boldizzoni 2008). Such a “quick current” (Potter 1650, Book I, section VII; Book II, section III) would be a sign of ample supply of commodities and low prices, i.e. a glut in the market. Contemporary German linguistic convention had this as “wohlfeile Markt”.27 Because, as Potter went on, “seeing for that we cannot increase money at pleasure to any quantity needfull; we have no feasible means whereby to quicken Trade, (as I said before) but by multiplying a firme and knowne credit amongst Tradesmen, fit to transmit from hand to hand.” (Potter 1650, p. 41).28

Modern economists may agree by saying that credit adds to velocity of money (V), not the amount of money as such (M), even though historians and economists have been in

27 Translating literally as “cheap market”, meaning a glut of commodities which kept product prices low. 28 Original in Italics. 28 debate about this conceptual problem (Schumpeter 1954, p. 318f).29 John Locke (1632-1704) was amongst the first to study the frequency and rhythms of payment and the duration of time people would withhold money from the market, thus pre-empting Keynes’ concept of to hold (Pribram 1992, Vol. I, p. 147). Potter stressed the importance of “quicknesse of trade” and “to quicken the revolution of money and credit”, so that “money, resting no where (sic) must needs occasion a quick current thereof” (Potter 1650, p. 72).30 The metaphor of blood circulation, used amongst others in Hobbes’ 1651 treatise, was popular during the seventeenth century; according to Heckscher, it had earlier precedents (16th century). Davenant highlighted the necessity for “A quick Stock running amongst the People”, and Petty (1661) stressed that the more hands a fixed sum of money passed throughout the year, the higher would be national income and employment (Heckscher 1932 vol. II, p. 198). , another important mid-seventeenth century English economist, wrote about “frequency of exchange” and “frequency of commutations”. Amongst others he drew attention to the fact that different classes of people would know different rhythms and thus frequency or turnover of payment. Artisans often gave short-term credit, and accounts were settled weekly whilst long-distance and wholesale trade was often running along long lines of credit extending several months if not years. Irving Fisher (1867-1947) acknowledged this differentiation in payment habits as an important way of “measuring” velocity (Morgan 2006, p. 14f.). According to Morgan and Finkelstein, Locke’s introduction of velocity into the economic discourse can be seen as an “innovation” (Finkelstein 2000, p. 112; Morgan 2006, p. 3). But if we look to the continent, adopting a broader and long-term view, this conception once again turns out to be anything but new.

The above-sketched dimensions of velocity represented the epistemic base of the seventeenth and eighteenth-century English mercantilists. Continental authors, however, worked under a slightly different conceptual-epistemic framework, yet often came to surprisingly similar conclusions (see also Simon 2014 and Boldizzoni 2016). The Spanish Scholastics of the School of Salamanca had known the concept of velocity, but seem to have interpreted it as a constant (Grice-Hutchinson 1993). Later authors would take a very different opinion. In 1664 we find in France the voice of Jean de Lartigue, who stated:

The Prince’s affairs must be put in order, his debts paid, … his treasury filled … and employed immediately for outlays and the needs of state, in fear that it (money) will 29 Whenever elements or particular forms of credit paper become fully tradable, i.e. fungible, they may with some justification be booked to the amount of money (M) rather than velocity (V). 30 Italics in the original. 29 languish and fail; if we do not keep the existing (stock) of money in circulation it is put in reserve and produces nothing Instead, by passing from hand to hand it gives vigor to commerce of which it is the soul (quoted in Rothkrug 1965, p. 90).

Another Frenchman, Jean Eon, had maintained in 1646:

as several persons form a family, several families a bourg, several bourgs a town and several towns a kingdom, so …the good of the kingdom depends upon the well-being of the towns, that of the towns upon the happy condition of the bourgs, and (that) of the bourgs on the ease and facility of the individual persons. Thus by relating the first to the last we find the happiness and complete felicity of the state depend upon the prosperity and good fortune of individual people.” (Quoted in Rothkrug 1965, p. 92f.)

This sounds familiar to the analytical concept of Glückseligkeit (a holistic concept of societal welfare maximization schedule similar to modern-day Bhutans “Happiness ”) to be found in German economic discourse since the age of Veit Ludwig von Seckendorff’s Fürstenstaat (1660) (Priddat 2008). But it also shows awareness of the possibility of a functionally and well-differentiated market economy.

The German Cameralist picked up on a discourse that was about three hundred years old, by the time Cameralism condensed into encyclopaedic knowledge, laying the foundations for continental non-Anglosaxon economics, 1600-2000 A.D. (nowadays misleadingly classified as “heterodox” in the JEL keyword list). Georg Gottfried Strelin (Strelin 1788, entry “Geld”, p. 163) distinguished between “Umlauf” – perhaps the amount of money in circulation, perhaps monetary mass, perhaps the transactions volume – it is not always easy or straightforwardly sensible to transmit modernisms such as “M.V=P.T” to historical problems and times – and its “Lebhaftigkeit” (vivacity) as important variables for monetary circulation, alongside the coins’ intrinsic value as another manifest economic variable. A good “Umlauf” or revolution (in the sense of re-volution or circulation returning to its origin point and starting anew) of money was accompanied by low interest rates (niedrige Interessen), absence of “mistrust” and adverse relations or terms of trade between the number of goods on the one, and total amount of money in circulation on the other hand, i.e. inflation or deflation (ibid.). The more money in circulation, and thus the higher the Umlauf, the lower the Interessen. Low interest rates were indicative of a high supply of money relative to demand (ibid., p. 162). But how could the effective monetary mass (M.V) be stimulated? It could be enlarged through the creation of paper money (Papiere, ibid., p. 30 160) – the most obvious and increasingly popular answer during the later seventeenth century. This was an age of alchemists and project makers, amongst which land banks and other collateralized note issuing financial institutions were most popular (just consider ’s various financial adventures, Wennerlind 2011; Carey and Findlay, eds. 2011; also Bensen 1798, p. 302). Another means was to attract wealthy foreigners and producers of high-quality manufacturers, so as to increase foreign exports (Strelin 1788, p. 160). This was standard fare in contemporary economic theory, most clearly laid out in Austrian economist and state servant Philip Wilhelm von Hörnigk’s major economic treatise Oesterreich über alles wann es nur will (Austria Supreme if Only it So Wills), 1684 (ed. Rössner 2017). Cultural transfer would lead to knowledge transfer and emulation and the generation of useful knowledge (S. Reinert 2011, ch. 1). This was especially important in domestic manufacturing, and a strategy known widely in seventeenth and eighteenth century Europe, from Austria and to Scotland and in the north (Rössner 2015a).

The Umlauf of money – and goods – should be “vivacious”, as the texts went on. What the blood circulation was to the animal and human body, a good monetary and goods circulation was to the economy (Strellin 1788, entry “Geld”). Commodities and money would be “drawn to each other” like blood contracted to the human heart, only to be released back again into circulation thereafter, when the heart pulse expanded: to attract new purchases and goods over and over again, so that no “beggar” and no Kapitalist (as in the original German, i.e. someone hoarding money for speculative purposes) could possibly survive (“und es würde kein Kapitalist und kein Bettler seyn”, ibid.). Money hoarded in the vaults of the avaricious Kapitalist and lack of liquid funds in the hands of the producers would increase interest rates, leading to disequilibrium (“allein das Gleichgewicht hört auf”). The increased costs of borrowing (interest) would be reflected in higher prices charged by the producers of the goods. Only a good Umlauf and moderate interest rates would keep the organism at equilibrium.

Low interest rates in England, as Strellin went on, were indicative of England’s national productive wealth (Strellin 1788, p. 162). Modern research on the English fiscal- military state, the Glorious Revolution and the origins of Britain’s industrialization has confirmed this. Low interest rates on government borrowing were part and parcel of the fiscal-military state and the British economic miracle of the post-1688 early industrial period (Casallilla & O’Brien, eds. 2012; Stasavage 2011). Once again, this line of argumentation

31 sounds almost Keynesian to the modern ear, and we know that Keynes was so appreciative of the mercantilists that he devoted an entire chapter of his General Theory to them (Keynes 1936, ch. 23, although he never mentioned the Cameralists, who may have given him the better historical precedent). Vivacity of circulation could be stimulated through population growth, i.e. a rise in domestic demand induced independent of a possible increase in per capita income; the expansion of manufacturing as well as “auswärtige Kommerzien” (exports, mainly manufactures; Strelin 1788, p. 150). Later Cameralists, such as Eduard Baumstark, would stress, on top of population level and density, the level of division of labour, economic specialization and diversification within the economy (“Manchfaltigkeit von Gütern, Nutzungen und Leistungen”) as factors upon which level and vivacity of circulation were contingent (Baumstark 1835, p. 570). Banks – land banks, giro and deposit banks, extending credit and clearing bills of exchange –, as well as “foreign trading companies” were also seen as a generic and powerful means to stimulate monetary circulation (Justi [1756] 1782, pp. 201-213). The rather long entry on “Geld”, which appeared in the first edition 1779 (2nd ed. 1787) in vol. 17: Geld - Gesundheits=Versammlung of Krünitz’s great economic encyclopaedia – on which large parts of later works were based almost verbatim, including Strellin’s above-mentioned entry in his “Realwörterbuch”31, stressed that circulation would be stimulated mostly by “useful and necessary goods”, not luxury wares. This was standard mercantilist fare. Manufactured exports outside the luxury range – everyday textiles, ironware etc. – were better-suited to generate lasting income and employment effects within the domestic economy that produced such goods (E. Reinert 1999; E. Reinert 2007; E. Reinert & Rössner 2016).

Johann Heinrich Gottlob Justi, Germany’s most famous and most prolific economist of the early modern age (Wakefield 2009; E. Reinert 2009), wrote in his Grundsätze der Policeywissenschaft (Principles of Policey Science and Economics, 1756) that government should take care to keep a good amount of money in circulation (Umlauf): “Allein der Umlauf des Geldes ist eine so wichtige Sache für die Commercien und Gewerbe, daß eines ohne das andere unmöglich stattfinden kann.” (Justi 1759 ed., I, p. 161). He then went on to establish a functional relationship between Umlauf (i.e. M.V) and the price level (P). If there was less “circulation” vis-à-vis a constant number of produced, prices will decrease, as silver-based currencies will appreciate. Goods will become cheaper, but employment and incomes will also decrease, which is not good for the economy – classical

31 See above. 32 signs of a trade or even “macro-economic” depression. And with this slightly ambiguous phrase of “circulation” (Umlauf), which is more than merely the amount of money, Justi also had a grasp of velocity of money in circulation. Government should take care that enough money was circulating at a “healthy” velocity, as Justi maintained, so as to keep the economy running at capacity (ibid. pp. 194–204). Justi was more afraid of deflation than he was of inflation: he opined that a modest inflation may lead to a boom in economic activity, filling the order books, inducing people to spend more, somewhat spiralling the whole system upwards. Two hundred years later, in 1972, German Federal Chancellor Helmut Schmidt said exactly the same (Süddeutsche Zeitung, 28 July 1972, p. 8: Lieber fünf Prozent Inflation als fünf Prozent Arbeitslosigkeit). Obviously this could be achieved best by putting more money into circulation. But this was difficult, if silver reserves were scarce and currency debasement was to be ruled out as an option – the latter jeopardized social and economic equilibrium and created rifts and tensions within society.32 As has been seen above, the German lands – with often uncompetitive domestic manufacturing economies and no native silver resources (with the exception of those states where silver mines were located) – faced a structural downward pressure on their domestic balance-of-payment and were habitually short of money. One alternative to straight currency debasement, in order to stretch the available (M) was, Justi said, to play around with money’s velocity.

But the same strategies and recipes were available elsewhere and widely-shared. In the preface to his translation of Anders Berch’s Inledning til Almänna Hushålningen, innefattande Grunden til Politie, Oeconomie och Cameralwetenskaperna (Stockholm: Lars Salvius, 1747)33 from Swedish into German, Leipzig professor of Cameralist economics Daniel Gottfried Schreber highlighted how every Swedish university these days (Schreber’s translation was published in 1763) now had a chair in Cameral sciences, something which the German lands were still far from, and how this had already generated manifest economic advances within the Swedish economy (Berch [1747] Ger. trans. 1763, preface). Clever economic policy would entail avoiding standstill (Anhalten) of the monetary flow and the lying-idle of capital, i.e. a decline in velocity through the vicissitudes of hoarding, Berch wrote in his successful magnum opus (ibid., pp. 417-423, see E. Reinert & Carpenter 2016, pp. 36-39). Wilhelm Roscher, alongside Gustav (von) Schmoller (1828–1917) one of the towering figures of the German Historical School in economics, put forth the hypothesis that

32 For the Reformation and Peasants’ War (1525) see Rössner 2012. 33 Ger. Transl. Anleitung zur allgemeinen Haushaltung in sich fassend die Grundsätze der Policey-, Oeconomie-, und Cameralwissenschaften, transl. J. G. Schreber (Halle: Curts, 1763). 33 velocity was a variable rather than a constant but a somewhat culturally contingent. He hypothesized that in the process of development the amount of money would increase first, and then, when the populace had become accustomed to habitual money use and adjusted their demand for money accordingly, velocity would decrease (Roscher 1854, p. 213). The speed with which money changed hands was dependent upon factors such as political stability (war, peace), economic development, institutions, property rights security, and fluctuations in the (Roscher 1854, p. 209f.). It is obvious that this functional relationship or mechanism worked in both ways. But where did Roscher – and many others – get their knowledge of what velocity was and how it was culturally and societally contingent? One historical example may suffice; it means going back to Martin Luther’s (1483-1546) life and times.

As we have seen, the Cameralists seem to have devoted increasing attention to circulation, of goods (P.T) as well as money (M.V), i.e. the idea of a high velocity of money and a low demand for money to hold, which translated into the holding-back of money from the market by neither spending nor saving, that is investing it in return for interest. A low velocity and a high demand for money to hold may lead the economy into a cycle of deflation and depression. The interesting thing is that the eighteenth century Cameralists made almost exactly the same point as modern (twentieth-century) economists, Keynesians and many monetarists alike, by establishing a functional relationship between a high demand for money to hold (Keynesian hoarding of money) and a low velocity or “vivacity” of circulation. Think of the famous “Cambridge equation”, which interprets V to be the inverse of the demand for money to hold (k), thus V=1/k and k=1/V. Money that was put to rest idle harmed the economy, as it increased interest rates (Interessen), lowered disposable income and thus potential (aggregate) demand for goods. This was standard fare in early modern mercantilist and Cameralist economic thought, with a long pedigree dating back to the age of Martin Luther (1483-1546).

As is well known Martin Luther (1483–1546) was a great critic of religious donations, liturgical luxury and idolatry.34 Part of his new or reformed theology of 1517 evolved around this. His sermons of the early 1520s are full of references to indulgences, luxurious chalices, monstrances, church bells and altar pieces, i.e. money invested in economically as well as religiously unproductive ways (in Luther’s view!). Rather than giving the money to churches

34 See Rössner, ed. 2015c, introduction, pp. 1-160, for a short biographical sketch and extended discussion of Luther’s contribution to modern economic thought. 34 and priests for indulgences and other religious or devotional purposes, the money should be allocated to those in need, the poor, the hungry. Sometimes Luther picked up directly on the practice of hoarding or burying money (Rössner 2016d). In his Sendbrief vom Dolmetschen (On Translation, 1530), as well as many other occasions, Luther quoted scripture whilst strictly condemning the practice of burying money: “Thus is why the master in the gospel scolds the unfaithful servant as a slothful rogue for having buried and hidden his money in the ground [Matt. 25:25–26].” (Luther’s Works, 35, ed. Lehmann / Bachmann 1960, p. 81). Many contemporaries would, during the 1520s and 1530s, reiterate this stance. The abolition of payment for indulgences (one form of unproductive hoarding, as the money was sunk within churches and cloisters), coupled with vicious anti-hoarding debates in the early sixteenth-century, mark a pillar of “Reformation economics” (Rössner 2015, Rössner 2016d). Indirectly therefore Luther and the early sixteenth-century discourse on hoarding and spending during the early Reformation, had developed the idea that money was an economic resource. Money was more than its amount (M): velocity mattered, i.e. the number of times a particular stock of money would circulate within the economy (Rössner 2016d).

The discovery of velocity as a historical protagonist therefore happened much earlier than usually assumed by historians of economic thought. It may have originated in the German lands and may reflect a specifically German discourse and idiosyncratic response to silver scarcity and balance-of-payment constraints that were specific to post-1500 German states. Geld im kasten ist dem Lande ein schade (“money kept away in a chest will do the country much harm”), Wilhelm von Schröder, alongside Becher and Hörnigk the third of the seventeenth-century “Austrian mercantilists” summarized, in his major economics work Fürstliche Rentkammer (“Princely Treasure Chest”) (Schröder 1705 ed., p. 194). So one means of economizing on money as a scarce resource, especially when M was declining, would be to increase its velocity: by dis-hoarding of treasure, or decreasing the demand for money to hold, putting it back into circulation if need be at moderate rates of interest. The current scenario, with interest rates hovering around zero in the EURO-zone, even negative rates (as in 2016), shows that we have moved more than full circle, ever since the late medieval and early modern economists, up to Keynes who confirmed their “rationality”, had advocated a general ceiling at five per cent.35 And the difficulty of stimulating Japan’s ailing economy through monetary expansion since the 1990s have widely been

35 On the vagaries of the Usury laws, see Denzel 2015 and Geisst 2013. 35 acknowledged to be due to a failure of velocity to increase (or, rather, velocity to be increased by suitable economic policy).

VI. CONCLUSION – WHY DOES MONEY MATTER?

Why does all of this matter? The answers have been given already; mainly by the voices of the contemporary discourse, especially those on the pro-Stable Money side (section II) of the doctrinal divide. The majority of the pre-1800 period – bar the Advocati Diaboli (section III) – agreed that currency must remain stable, measured in terms of the intrinsic value of current coins as the main means of monetary circulation. In reality it never did, as the longue durée monetary history of Europe shows. The Scholastic stability command was almost constantly violated. Revaluations (upwards adjustment of currencies’ precious metal content) took place only during less than a handful of years within the five hundred years or so of almost continuous debasement, 1400 to 1900 A.D. (Sargent and Velde 2003; Cipolla 1956; Rössner 2014a). Between 1400 and 1900 German small change currencies, measured in terms of precious metal content of a sample of seven Southern German penny currencies, lost 90 per cent of their intrinsic value (Rössner 2014a). Whilst debasement had been the norm for ages, contemporaries had, for the same time, continuously reminded rulers and kings that it mustn’t. Why the rulers did not adhere to the call, and why medieval and early modern European monetary policy exhibited such seemingly schizophrenic traits of cognitive dissonance is another matter and beyond the present paper’s remit.36 With the exception of the Ernestine (1530) and Johann Joachim Becher, most Germano-phonic economic authors between 1500 and 1800 would have argued that coin debasement did more harm than good to society.

Later authors such as German Cameralist Johann Friedrich von Pfeiffer (1718-1787) formulated explicitly what rulers and merchants had implied for ages: only within the full- bodied currency segment, i.e. the upper spheres of exchange – florins/gulden, Thalers and good groats – should extrinsic and intrinsic value of the coins coincide (metallist theory) (Pfeiffer 1781, pp. 157-160). These coins were what German language has known for a long time as Handelsmünzen, i.e. coins that were used for settling large and long-distance trade balances. Small change coins on the other hand (Ger. Scheidemünzen) had a limited regional area of circulation and may in theory be minted purely as fiduciary money, i.e. be completely

36 Rössner, 2014a; a good model can also be found in Schremmer & Streb 1999. 36 made of copper in the extreme, following our modern concept of nominalist or chartalist money (Schumpeter 1954). This strategy has been dubbed by two economists as “getting the formula right” (Sargent & Velde 2003); by managing and sticking to the “correct”, meaning welfare-maximizing, relation between small change and full-bodied money in total coin supply. The problem was, of course that you couldn’t these days mix a fiduciary element (for the regionally circulating small change coins) with a commodity money standard (high or full-bodied coins), without the common people opting-out of this system by creating their own rules, effectively returning to a commodity money standard or payment by weight system for all coins of all denominations, regardless whether full-bodied or small-change (Rössner 2012, ch. IV). Because wherever the two theories of money coexisted side by side, they opened up possibilities of usury, arbitrage and rent seeking. Wherever different coins of similar denomination circulated, foreign and domestic, old and new alike, people with insider knowledge would take the opportunity and charge unjust spot exchange rates, i.e. demand more than some coins were officially worth; putting those who had no good money or only little means of attesting a coin’s factual value at a disadvantage. These manipulations fulfilled all contemporary criteria of usurious behaviour. And yet they represented an intrinsic feature of the contemporary monetary landscape, as complaints about such transactions were ubiquitous in early modern Europe until the 1870s (ibid.). Transaction costs increased due to the enhanced coin exchange rates and increased haggling, bargaining and re-negotiating of individual exchange rates between the different coins (ibid., chs. II and III for detailed empirical analysis).

So money was never neutral. It had its inner life. And there was much more to it. The pre-classical economists – from the neo-Aristotelian or late Scholastic authors and bullionists of the fourteenth and fifteenth century until the late Cameralists such as Justi and the German Historical School of the nineteenth century (Dreissig 1939, pp.7–9) – were aware of this. Money was an economic resource that could be potentially used to the benefit, if not gain, of the common weal. As monetary policy was one of the more obvious means of doing so, by getting the parameters right, stabilizing economic exchange and property rights, a positive silver balance was seen as a panacea not only for balanced economic development but also for a reliable and credible Ordnungs- und Stabilitätspolitik or policy of order: all subsequent principles of economic policy were derived from it. This policy seems to have worked well in post-World War Two Western German model of coordinated capitalism, the Soziale Marktwirtschaft, based on the stability paradigm of the Deutschmark; but this paradigm had, 37 as the present paper has shown, a prehistory of about six hundred years! If currency and monetary policy were managed well, this could lead to economic growth. None of the authors discussed in the present paper seem to have confused silver with wealth (“Midas fallacy”): Adam Smith and those who followed were simply wrong in this assessment of Mercantilism. Most of the “German” authors discussed above, from Biel and Copernicus to the Cameralists such as Seckendorff, Becher and Justi, knew quite well what money was and what it was not; what it could do and what it could not do, and which functions it was supposed to fulfil as an institution directed at lowering transaction costs, stabilizing property rights and effecting economic growth and development. They distinguished clearly between money and real wealth.

This is yet another answer to the famous question, why the medieval bullionists and early modern Mercantilists/Cameralists were so adamant about a positive balance of payment. It was not that they did get their Game Theory wrong or looked for rent seeking opportunities, as many later authors have suggested anachronistically (e.g. Mokyr 2011, ch. 4, or Ekelund & Hébert 2014). If one followed this line of reasoning, one may in the same way and with the same sense of reasoning sketch the history of cars by starting with the technique of stage-coach building since the 1500s and arrive, quite naturally, at the somewhat logical, yet probably meaningless conclusion that the sixteenth-century coach makers had not yet worked out the “correct” theory or way of building cars.

We should, therefore, bring back idiosyncrasy as an epistemological tool or “looking glass” into the history of economic analysis and also acknowledge that modern economic reasoning did not start with Adam Smith. It is only from a more modern vantage point – here: a monetary landscape that knows only fiduciary currencies – that Cameralist ideas as discussed at present seem a bit lost on us. This is because we have not learnt to understand the fabric of the canvas on which they were painted. And they may also act as a warning against all modern voices of reintroducing the Gold Standard – because returning to a precious metal-based or “metallist” monetary standard may open more cans of worms than it solves problems.

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