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The Economic Crisis of 1619 to 1623 Author(s): Charles P. Kindleberger Source: The Journal of Economic History, Vol. 51, No. 1 (Mar., 1991), pp. 149-175 Published by: on behalf of the Cambridge University Press Economic History Association Stable URL: http://www.jstor.org/stable/2123055 Accessed: 26-08-2015 17:00 UTC

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The Economic Crisis of 1619 to 1623 CHARLES P. KINDLEBERGER

Various states in the Holy Roman Empire prepared for the Thirty Years' War by creating new mints and debasing the subsidiary coinage. The process spread through Gresham's Law: bad money was taken by debasing states to their neighbors and exchanged for good. The neighbor typically defended itself by debasing its own coin. The resulting hyperinflation was terminated early in the war by an agreement to return to the Imperial Augsburg Ordinance of 1559. The Kipper- und Wipperzeit, as the period is called, illuminates the geographic spread of financial crises, German hyperinflations of this century, and current proposals for "free banking."

INTRODUCTION

The first quarter of the seventeenth century, up to and through the beginnings of the Thirty Years' War with the defenestration at

Prague in 1618, has been widely described as a period of crisis. The crisis was particularly acute between 1619 and 1623; sometimes and in particular localities it was described as a "commercial crisis," some- times as a "joint crisis in commerce and industry," but usually as a "currency crisis" and in one instance as a ''monetary crisis and panic" and even "a monetary corner."' Moreover, it was set within a deeper structural crisis covering 100 to 150 years of transition from medieval to modern times. The period has been variously described as a movement from feudalism to capitalism; from a feudal to a nation-state society; from the political and economic ascendency of the South (Italy and Spain) to that of the North (the United Provinces of Holland and England); from a "natural economy" based on the self-sufficient household and barter to the use of markets and money; from separate deals to continuous trade on bourses; and from the polynuclear system

The author is Professor of Economics, Emeritus, Massachusetts Institute of Technology, Cambridge, MA 02139.

Several scholars have been helpful in referring me to and sending me copies of papers not readily accessible in Cambridge. Thanks are due to Rondo Cameron, Wolfram Fischer, Christopher Friedrichs, Geoffrey Parker, and Mark Steele. Professors Fischer and Friedrichs also commented on an early draft, as did the members of the Washington Area Economic History seminar. I have also benefited from the revision suggestions of two anonymous referees and Peter Lindert.

A bewildering number of coins of varying worth is mentioned in this article, but in general the subsidiary coins of the Holy Roman Empire comprised the silver gulden (or florin) of 60 kreuzer, the groschen of 3 kreuzer, and various other duodecimal denominations such as the 6, 12, and 24 kreuzer, the batzen of 4 kreuzer, and the penny, four to a batzen. The 1559 standard for higher denominations included the silver Reichstaler (in Dutch the rixdaler) of 1 florin, 4 kreutzer, and the gold ducat of 3 florins.

' Supple, "Thomas Mun"; Supple, Commercial Crisis; Spooner, Monetary Movements in France, p. 32; Romano, "Italy," p. 193; and Shaw, History of Currency, p. 102.

149

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150 Kindleberger

of European cities to a mononuclear one with its core in Amsterdam.2 Other disruptive factors were the Eighty Years' War from 1582 to 1652, between Spain and the Netherlands, and the Thirty Years' War from 1618 to 1648. Many accounts assign a major role to the falling off of silver imports to Europe from Spanish America after about 1600 or 1620, inadequately compensated for by the gradual rise of credit-but the data on which this judgment is based have lately been questioned.3 Jan de Vries indicated that, while no single event between 1600 and 1750 ushered in the new phase in European economic history, a good candidate for such a role would have been the trade crisis of 1619 to 1622.4

My interest in that crisis does not concern its potential role as a catalyst of modern economies, but rather its function in the mechanism for the spread of primarily financial crisis from one part of Europe to another. This is an interest I have explored elsewhere under very different institutional conditions in the crises of 1720, 1873, 1890, and 1929.5 My focus here is on the Holy Roman Empire (largely Germany) and Poland and the period of gradual debasement of the currency between 1600 and 1618, followed by a rapid phase from 1619 or 1620 to 1622 and 1623, when the currency was more or less stabilized. I propose to discuss the idiosyncratic phrase by which the episode is known, the Kipper- und Wipperzeit, relate it to the particular monetary conditions of the period, and suggest one or two broad comparisons with the inflations in Germany in 1923 and 1947. Finally I draw some conclusions relevant to the concept of unregulated banking advocated today in a number of economists' quarters in Europe and the United States.

THE KIPPER- UND WIPPERZEIT

The term Kipper und Wipper was seventeenth-century slang. The economic historian Friedrich-Wilhelm Henning identified the Kipper part with "clipping," easily perpetrated on coins before the introduc- tion of milled edges in Britain later in the century; the practice was discussed at length by Thomas Macaulay in his History of England. Geoffrey Parker, leaning heavily on the word Wippe, offered "seesaw" for the second half.6

Fritz Redlich explained the combination as deriving from the actions of money exchangers who kept their scales moving to befuddle the

2 Hobsbawm, "Crisis"; Trevor-Roper, "General Crisis"; Rapp, Industry and Economic Decline; Heckscher, Economic History of Sweden, chap. 4; Parker, "Emergence of Modern Finance"; and van der Wee, "Industrial Dynamics."

3Attman, American Bullion. 4 de Vries, Age of Crisis, p. 115. 5 Kindleberger, Manias; Kindleberger, "International Propagation"; and Kindleberger, "Panic

of 1873." 6 Henning, Das vorindustrielle Deutschland; Macauley, History of England, vol. 4, pp. 181-201;

and Parker, Thirty Years' War, p. 90.

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The Economic Crisis of 1619 to 1623 151

innocent onlookers whose good money was being exchanged for bad.7 Kippen is "to tilt," and while Wippe is in fact a seesaw, wippen, the verb, is "to wag." Kipper- und Wipperzeit was analogous to Cockney rhyming slang such as hurley-burley. The words even generated off- spring in such expressions as Kipperei (the act of debasement), Kip- pergeld (Geld meaning money), and Kippermunze (Munze being coins and also mints). Auswippen meant to select out good coins to hoard or export. Redlich explains that Kippergeld was not clipped so much as debased by altering its denomination, weight, metal, or fineness. Most of the trouble arose not from "crying up" existing coins with higher denominations but from hoarding and reminting good coins and minting new ones of lighter weight, baser metal, or both.

SUPPLIES OF PRECIOUS METALS

Even without the extended wars and the malversation of mint masters and their higher authorities, getting the currency right in this period posed difficulties because of rapidly changing relative supplies of gold, silver, and copper and the opportunities this gave to exercise Gresham's Law. It would have been impossible to have a monometallic money. Gold was needed for large international transactions, after clearing as many payments as possible through bills of exchange. Silver was used for purchases in the Baltic, the Far and Middle East, and for large payments in domestic trade. There was virtually no problem with the larger gold and silver coins at this time. The trouble lay in the subsidiary coinage, starting out as silver-gulden, groschen, kreuzer, batzen, and even pennies-and ending up as vellon or billon, silver with varying amounts of copper up to 99 percent, and pure copper, sometimes weakly whitened. Germany has been said to have been on a de facto copper standard from about 1621 to 1623.8

Supplies of these precious and semiprecious metals varied. Upon the discovery of the New World in 1492, there was an initial flow of looted gold. In about 1540 the silver mountain Potosi in Peru was discovered; it was rendered highly productive after about 1570. Much, perhaps most, of the silver arriving in Spain left Europe afterward-some to the Baltic and through Russia and Poland farther east, some to the eastern Mediterranean, but most to India and China directly around the Cape of Good Hope.9 In 1613, King Gustav Adolphus began to increase pro- duction of and export copper from the Stora Kopperberg in Sweden to ransom the fortress at Alvsborg from Denmark. The Swedes raised the ransom by borrowing in Amsterdam against the collateral of copper, marketing new supplies through Hamburg and Amsterdam rather than

7 Redlich, Die deutsche Inflation, pp. 17-21. 8 Ibid., p. 11. 9 Kindleberger, "Spenders and Hoarders."

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Lubeck. Other copper came to Europe from Japan, and the price fell almost by one-half. In Germany, nevertheless, copper came to be in short supply as German mints used more and more: musical instru- ments, kettles, pipes, gutters, and even church bells and baptismal fonts, some of them stolen, were dumped into the melting pot.'0

These surges in the supply of first one metal then another changed their relative prices and, as mentioned, created severe Gresham's Law-type problems in Europe. The drying up of New World gold supplies and the spurt of silver imports ruined the silver mines in central Europe that had produced for mints such as that of the Slick family in Joachimstal (from whence came thaler, later transmogrified into "dol- lar"). The bulge in the supply of copper led Spain, exhausted financially by war and drained of silver, seriously to debase its currency. From 1599 to 1606, the Spanish monarchy coined 22 million ducats in vellon, a copper alloy. The bankruptcy of the Spanish treasury in 1607, which destroyed its credit and led to the failure of the Fuggers and a number of Genoan bankers, elicited a royal promise to the Cortes to coin no more copper-a promise kept for ten years. In 1617 to 1619, the monarchy obtained permission of the Cortes to resume and coined five million ducats in copper. Two years later another 14 million were added. Spain experienced financial crises at the level of the monarchy in 1557, 1575, 1596, 1607, 1627, and 1647-though not, on this showing, in 1619 to 1623. That it avoided the latter crisis may have been a benefit of the truce with Holland that lasted from 1607 to 1621, easing the strain on the budget. In the private sector, however, a continuous squeeze was felt. In the mid-sixteenth century there were 50 or 60 operators importing silver in ingots. By 1615, only eight were left, four of which went bankrupt shortly thereafter; by 1620, only three remained. Redlich mentions that the Spanish monarchy's crisis of 1627 was an echo of the Kipper- und Wipperzeit."

THE MONETARY POROSITY OF SMALL STATES

Metallic standards, of course, have an inherent potential for diver- gence between the nominal value of a coin and its actual value as metal. Moreover, coin passed readily over the borders of states and through the gates of cities despite attempts of kings, princes, dukes, counts, and the like to control it. The result was, in most jurisdictions, a mishmash of coins of varied origins. A century and a half after the time in question, in his digression on banks of deposit and especially the Bank of

10 Heckscher, Economic History of Sweden, pp. 79, 85, 105; Spooner, Monetary Movements in France, p. 46; and Langer, Kulturgeschichte, p. 30.

" Spooner, Monetary Movements in France, p. 38; Ehrenberg, Fuggers, p. 334; Parker, Thirty Years' War, p. 77; Vilar, Gold and Money, p. 141; and Redlich, Die deutsche Inflation, p. 12.

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The Economic Crisis of 1619 to 1623 153

Amsterdam, Adam Smith drew a distinction between large and small states.

The currency of a great state, such as France or England, generally consists almost entirely of its own coin. Should this currency therefore be at any time, worn, clipt or otherwise degraded below its standard value, the state by a reformation of its coin can effectively re-establish its currency. But the currency of a small state, such as Genoa or Hamburgh, can seldom consist altogether in its own coin, but must be made up, in great measure, of the coins of all the neighboring states with which its inhabitants have a continual intercourse. Such a state, therefore, by reforming its coin will not always be able to reform its currency. 12

A modern German historian of the Thirty Years' War made the same point, expressing the view that the Austrian hereditary lands and perhaps Bavaria and Brandenburg were "big and compact enough" to use independent minting for their own domestic purposes. Similarly, a nineteenth-century writer referred to small states at "monetarily patho- logical border states" (mfinzkranke Grenzlande). But if Smith's remark was meant to apply to the early seventeenth century, he was too optimistic about France's ability to make its own coin dominate its monetary circulation-and perhaps about Britain's as well. Spooner makes clear that France had no single monetary unit but was instead a series of economic zones, dominated in the west by silver reales from Spain and in Burgundy and Champagne by billon, another copper alloy, from Germany.'3 In England, a sharp distinction was made between foreign coin and coin of domestic minting. For example, it was recommended that the East India Company be allowed to export only foreign, not domestic coin (nor silver bullion). Foreign currencies had circulated freely in Sweden ever since money had come into general use. A century later there were as many as 50 different, mainly foreign, coins, 22 gold and 29 silver, circulating in Milan. Still later, in 1816, at least 70 coins-from Holland, France, Belgium, and various German states-circulated in the Rhineland, and Prussian coins were rarely seen despite the efforts of Prussian officials to enforce rules against the use of older and foreign coins.14

Transactions in various types of coin required a unit of account into which the various monies could be translated and compared. This was often an "imaginary money," in the sense that it need not be coined and circulated: the pound and shilling in England were long imaginary units of account, as were the livre tournois in France, and the livre or lira in Milan. Imaginary money that served as a unit of account was a public

12 Smith, Wealth of Nations, p. 446. '3 Schdttle, "Mfinz- und Geldgeschichte," p. 82; Opel, Deutsche Finanznoth, p. 216; and

Spooner, Monetary Movements in France, pp. 4, 9. 14 Thirsk and Cooper, Economic Documents, pp. 11, 211, 214; Einaudi, "Imaginary Money,"

pp. 242-43; and Tilly, Financial Institutions in the Rhineland, chap. 2, esp. pp. 20-21.

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154 Kindleberger

good: in Einaudi's words, "a splendid instrument for performing certain tasks of public policy." 15 While Reichstalers were widely coined in the "mosaic Germany" made up of many states, they were mostly hoarded during the period in question so that they became an imaginary money for calculating the debasement of the subsidiary coinage (in German, Scheidemunze).

The larger coins of gold and silver, used for international trade where bills of exchange had not yet penetrated or to settle balances where they had not cleared evenly, were frequently weighed and tested, though not always with complete honesty, as the word Wipper- "to wag (the scales)"-indicates. Subsidiary coins, used for retail trade and wages and by the ordinary person in payment of rents, dues, and taxes, more frequently were reckoned at their nominal value, whether from igno- rance or to save transactions costs. This lends some slight support to Georg Knapp's monetary theory, which said that the value of money was determined by the state. 16 Whenever there exist, side by side, coins of the same nominal worth but of different weight and fineness, profit is to be made by exchanging debased for good coin and melting down the latter or exporting the metal. Base money was imported and good money exported as early as the thirteenth century, well before the time of Sir Thomas Gresham, Queen Elizabeth l's exchanger. It has been suggested that Aristotle was aware of the tendency; it was clearly enunciated by Nicholas Oreme, Bishop of Lisieux, in his De Moneta of about 1360, and it was well known to Copernicus in 1525.17 The theory continues to be known as Gresham's Law, however, because it, like so many false historical terms, has proven impossible to change once adopted.

CONTROLLING GRESHAM'S LAW

None of the methods that have attempted to combat the workings and effects of Gresham's Law has met with great success. Forbidding the import of bad coin and/or the export of good has failed even when accompanied by dire penalties such as death by burning, mutilation, confiscation of all goods, and banishment. Smuggling coin through city gates in bundles of produce was virtually impossible to stop, especially on market days.'8

Another method has been to adjust the denominations of existing coins by "crying up" good coins, or raising their denomination to reduce the metal content of a stated value, or "crying down" the bad. This adjustment can be made by separate states or by a number of states

Is de Roover, Gresham, p. 32; Spooner, Monetary Movements in France, p. 20; and Einaudi, pp. 244, 260.

16 Ellis, German Monetary Theory. 17 Feaveryear, The Pound Sterling, p. 11; and Wolowski, La question monetaire, pp. 15, 90-91. 18 Schottle, "Die grosse deutsche Geldkrise," p. 50.

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The Economic Crisis of 1619 to 1623 155

via treaties. As early as March 1609, a mint treaty among Mecklenburg, Schleswig-Holstein, Hamburg, and Lubeck was concluded-in antici- pation, Shaw says, of approaching disorder.'9

Alternatively, the entire coinage may be called in and reminted at the old standard weight and fineness, thus imposing a loss on the sovereign, or at lower weights, reduced fineness, or higher prices, thus shifting the burden to the holders of money.

A more sophisticated method is to establish banks of deposit requir- ing wealthholders, and especially merchants, to deposit their holdings of currency above certain minimums in a bank where the coin would be assayed, weighed, and recorded on the books at its metal content. Merchants may then be required to deposit receipts in international trade above a certain minimum and make similar payments against those accounts. This last function, related to bills of exchange (wechsel in German, wissel in Dutch), stabilizes the metallic value of bills of exchange, which in turn reduces transactions costs. Adam Smith noted that the exchange rate on the Bank of Amsterdam generally stood at a premium of about 5 percent over the specie rate because of the greater certainty about the value of the money.20 Deliberations leading to the establishment of the Bank of Amsterdam started about 1606 in the early days of the Kipper- und Wipperzeit, before depreciation had gone far; the Bank was created in 1609. Its success in achieving its goal is reflected in the statement that "Ten years later, Hamburg led to a fixed exchange rate against the fluctuating money of other states."21 Similar banks were established in Middelburg (Holland) in 1616, in Hamburg and Venice in 1619, and in Delft and Nuremberg in 1621-these last at the height of the debasement. With the stabilization of 1623 began a falloff in the establishment of deposit banks, lasting until 1634. The Swabian Circle proposed the establishment of a bank of deposit in the fall of 1619, but the project was converted into a bank to buy silver for the local mint in such centers as Genoa, to overcome the shortage in southern Germany. It was quickly closed down.22

A further method of control is to decree and enforce minting standards by means of official coin-testing days and the administration of oaths to mint masters and selected assayers. As with most of the other methods, success in holding to standards over a wide territory was limited. In the sixteenth century, the Holy Roman Empire sought to standardize the coinage of the Empire in decrees issued in 1524, again in 1551, and at Augsburg in 1559. The rules were laid down with little comprehension of the difficulty of maintaining a fixed relationship between the stated values of gold, silver coins, and copper at a time of

'9 Shaw, History of Currency, p. 104. 20 Smith, Wealth of Nations, p. 451. 21 Kellenbenz, Sephardim an der Unteren Elbe, p. 254. 22 Schottle, "Munz- und Geldgeschichte," p. 85.

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156 Kindleberger

significant shifts in the supplies of these precious metals, or of the difficulty of providing an adequate supply of subsidiary coins, which, according to the Augsburg Ordinance, were to be of silver. The Empire administered oaths to all mint masters, and there was one proposal to extend them to mint workers. Redlich calls this 1615 proposal "sense- less," saying it should have been extended to the diemakers. Coin- testing trials, too, were hardly efficacious: one General Assayer Rentzsch, describing the debasement of the coinage in the Lower Saxon Circle and particularly in Pomerania, the Saxon dukedom, and the Harz dynasty, claimed that the mints kept a supply of good groschen on hand to show the General Assayer on his visits.23

The primary difficulty, however, was the absence of effective central authority. The Holy Roman Empire consisted of a variegated collection of Electoral states, principalities, duchies, other states, cities, bishop- rics, and the like, organized into circles (Kreise), one of the tasks of which was to implement decisions under the Imperial Mint Ordinances. Circles formed something of a crazy-quilt pattern, stretching obliquely from southwest to northeast in a number of cases, though many were called "Upper" and "Lower" or "Northern" and "Southern." The Swabian, Frankish, and Westphalian circles were formed along ancient tribal boundaries.24 Bohemia and Moravia lay within the Empire but were outside the system of circles, as were Savoy and most of Switzerland. The Empire, moreover, included parts of what are now France, Belgium, Italy, and of course Austria, as shown on the map in Figure 1.

Most German literature on the Kipper- und Wipperzeit deals with a single circle, especially with Upper and Electoral Saxony and with Swabia.25 Maria Bogucka has at least one article in English on the experience in Poland.26 Writing on Bohemia, Arnost Klima asserts, contrary to my hypothesis, that the inflation in Bohemia in the early seventeenth century (1621 to 1623) was unconnected (his emphasis) with the general European economic situation of the time but had special features evoked by the uprising of the Czech Estates of 1616 to 1620 and their defeat.27 Shaw has twice dealt with the question generally, without giving much attention to either the propagation mechanism or the 1622-to- 1623 stabilization.28 Writing on French currency problems of the period, Spooner looks over his shoulder at the German (and Spanish) inflationary

23 Wuttke, "Zur Kipper- und Wipperzeit in Kursachsen," pp. 120-21, 136; and Redlich, Die deutsche Inflation, p. 51.

24 Wuttke, "Zur Kipper- und Wipperzeit in Kursachsen," p. 123. 25 Ibid.; Redlich, Die deutsche Inflation; Gaettens, Geschichte des Inflationen; Schottle, "Die

grosse deutsche Geldkrise"; and Schottle, "Munz- und Geldgeschichte." 26 Bogucka, "The Monetary Crisis." 27 Klfma, "Inflation in Bohemia," pp. 375-86. 28 Shaw, History of Currency; and Shaw, "The Monetary Movements of 1600-21."

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The Economic Crisis of 1619 to 1623 157

Kreise H

j Burgundy Circle

Q Lower-Rhine Westphalia Circle LUBECK

Lower Saxony Circle ,= MECKLENBU-e1

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gift Sites of C , SWISS CONFEDERATION/ ., Imperial Diets d TIROL

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FIGURE I

DIVISION OF THE HOLY ROMAN EMPIRE INTO CIRCLES, 1512

Source: dtv, Atlas, vol. 1, p. 218.

disorders.29 The considerable literature on the commercial crisis in Britain at the time debates the extent to which it resulted from the debasement of German subsidiary coinage.30

CURRENCY DEBASEMENT AND THE THIRTY YEARS' WAR

As is true of so many financial crises transmitted from place to place, it is virtually impossible to pin down a unique geographic origin. The mechanism is clear enough and has been described in a chapter appendix on coin debasement by Jacob van Klavaren.3' A prince (duke, bishop, abbot, city) with the right to coin money foresees troubles arising from the Reformation and the Counterreformation that led to the Thirty Years' War. A war chest is needed and, after war breaks out,

29 Spooner, Monetary Movements in France. 30 Gould, "The Trade Depression of the Early 1620s"; Feaveryear, The Pound Sterling; Supple,

"Thomas Mun"; Supple, "Currency and Commerce"; Supple, Commercial Crisis; and for documents, Thirsk and Cooper, Economic Documents.

31 Van Klavaren, General Economic History, appendix to chap. 13.

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158 Kindleberger

soldiers (who are increasingly mercenaries) have to be mobilized and strong points fortified. Adam Smith holds forth on this subject, too, but in connection with debt rather than debasement.32

Apart perhaps from Spanish Flanders (Antwerp), Holland (Amster- dam), and Spain, the last of which continually overborrowed, govern- mental capacity to borrow in the first half of the seventeenth century in Europe was limited by the absence of efficient capital markets and competent officials. France raised money through the sale of offices, a means not open to the many small states of the Empire. Taxation of commodities would have had to be uniform to prevent arbitrage from state to state, an integrative step for which the Empire was far from ready. One way to prepare financially for war was for the separate principalities, duchies, cities, and the like to seek greater seignorage by coining more money. Many states were interested in raising seignorage within their own boundaries, but it was soon discovered that debased money could be taken abroad and exchanged for good money, which could in turn be brought back and recoined with greater seignorage. Those engaged in exchanging debased money for good included north- ern Italians and Jews, but people from all walks of life and even women participated. Glib dealers went abroad to set up exchange booths, exploiting as best they could pastors, millers, and peasants.33

And so the neighboring principality finds itself flooded with bad coin and losing good. To retain the latter, it raises the price of the metal in its coins, thus crying them up. With the higher prices it begins to attract good coin and export bad. The process builds up. Some princes lease mints to entrepreneurs, who need to add their profit to the seignorage of the prince specified in the leasing contract. At the old prices mints find that the higher price of silver and rising wages make it unprofitable to produce standard subsidiary coins.34 Thus honorable mints stop pro- ducing subsidiary coins altogether.

The price of the good Reichstaler kept rising in terms of debased groschen (see Table 1) at an increasing rate until 1619, and especially rapidly in 1621 and the first months of 1622, a period characterized by Shaw as the peak of monetary panic and crisis.35 These figures seem to be averaged across many states, though some higher ones in 1622 are pinpointed for Nuremberg, Augsburg, and Vienna. In general, accord- ing to Opel, northern German states such as Westphalia, Luneberg, Pomerania, Mecklenberg, and the Hanseatic cities experienced less depreciation of their subsidiary coinage than did those in the south. In July 1622 the Reichstaler went to 15 gulden in Nuremberg; with the help

32 Smith, Wealth of Nations, pp. 861-62. 33 Langer, Kulturgeschichte, p. 29; and Opel, "Deutsche Finanznoth," p. 222. 34 Wuttke, "Zur Kipper- und Wipperzeit in Kursachsen," pp. 126, 132; and Gaettens,

Geschichte des Inflationen, p. 74. 31 Shaw, History of Currency, p. 102.

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The Economic Crisis of 1619 to 1623 159

TABLE 1 QUOTATIONS OF THE REICHSTALER ON SPECIFIC DATES, IN FLORINS AND

KREUTZERS

Date Florins Kreutzers Date Florins Kreutzers

1582 1 8 1621 Jan. 2 20 1587 1 9 Feb. 2 24 1590 1 10 March 2 30 1594 1 11 April 2 36 1596 1 12 May 25 2 48 1603 1 14 May 31 3 15 1604 1 14 June 3 6 1605 1 15 July 3 15 1607 1 16 Aug. 4 0 1608 1 20 Aug. 10 3 15 a 1609 June 15 1 22 Sept. 4 30a

July 7 Oct. 5 oa Dec. 19 1 24 Nov. 5 30a

1610 1 24 Dec. 6 30a 1613 Sept. 1 26 Dec. 20 3 15 1614 Aug. 1 28 1622 Jan. 18 7 30b 1615 March 1 28 Jan. 27 4 30

Nov. 1 1 24 Feb. 10 10 Oc Nov. 17 1 30 March 10 Oc

1616 1 30 March 12 6 0 1617 1 30 June 16 3 15 1618 1 32 Oct. 5 0 1619 Oct. 1 48 Nov. 6 0

Dec. 2 4 1623 April 1 30d 1620 June 2 8

Nov. 9 2 20 a Nuremberg b Augsburg c Vienna d Value was fixed at this last figure until 1669. Note: 60 kreutzers equals 1 florin. Source: Shaw, History of Currency, p. 103. Shaw observed that similar quotations of the gulden, thaler, and the gold gulden for the empire at large are available. They are set out in Shaw, "The Monetary Movements of 1600-1621," p. 209.

of the death penalty, the city council got it down to 10 gulden. But the various sources fail to agree narrowly on rates, not unexpectedly given a country with a primitive transport and communication network.36

A historian of the Swabian experience and its central city, Ulm, suggests that the first invasion of debased money came from Italy and especially Switzerland as early as 1580. The entry point for the northern Italian noble counterfeiters and those of Graubunden in Switzerland, especially the Bishop of Chur, was at Lindau on the Bodensee (Lake Constance). The same account, however, records that three upper circles-Swabia, Franconia, and Bavaria-found the counterfeiting of

36 Opel, "Deutsche Finanznoth," pp. 229-31.

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the Upper Rhine Circle that included Strassburg to be particularly insolent. 7

As the agio on the Reichstaler rose slowly during the seventeenth century, more and more mints were established or leased by princes and nobles, both secular and ecclesiastical, as well as by cities. Some were even rented by the week. An early attempt had been made in 1603 and 1604 to limit the number of mints to no more than three or four to a circle, except for those having silver mines. The move was opposed by six cities with mint privileges, all located in the lower Saxon Circle: Lubeck, Hamburg, Rostock, Bremen, Brunswick, and Magdeburg. This successful opposition allowed other towns with minting privileges to establish more mints; even those without the privilege began minting.38 Mints sprang up "like mushrooms after a warm rain'39 and debased coinage "poured from them in avalanche proportions."40 Brunswick had 17 mints in .1620; by 1623 there were 40, including a convent that in the course of a few months converted itself into a mint employing 300 to 400 workers.41

One widely noted operation was the lease by the Emperor Ferdinand II himself to a consortium of which only five names are known. These included Prince Carl von Liechtenstein and Albert Wallenstein, a general, later Duke of Friedland and then of Mecklenberg, who was murdered in 1634. Wallenstein had married an elderly widow in 1609 and inherited her fortune when she died in 1614. This he enlarged with the mint lease covering Bohemia, Moravia, and Lower Austria. With these monies he bought close to 60 estates in Bohemia belonging to Protes- tants after the Catholics had won the battle of the White Mountain in November 1620 and either confiscated the estates or bought them at imposed prices with debased coinage. These fortunes enabled Wallen- stein to finance his own army in Thirty Years' War battles at a time when other armies had to rely on booty just to feed their troops.42 The consortium's final contract in January 1622 specified a payment of 6 million gulden of 60 kreuzers to the Emperor, with substantial profits to its members. The terms of the lease are known but not the names of most of the leaseholders, who may have chosen to be anonymous. The cartel later took over a lease of the mint of the Bishop of Breslau in Silesia.43

Because most of the literature describes single circles, or at most two 37 Schottle, "Munz- und Geldgeschichte," pp. 78-80. 38 Gaettens, Geschichte des Inflationen, p. 75. 39 Langer, Kulturgeschichte, p. 30. 40 Schottle, "Munz- und Geldgeschichte," p. 84. 41 Langer, Kulturgeschichte, p. 80. Further mint numbers are given by, among others, Opel,

"Deutsche Finanznoth," pp. 226-27. 42 Redlich, De Praeda Militari. 43 Gaettens, Geschichte des Inflationen, pp. 86-87, 97-98; and Klfma, "Inflation in Bohemia,"

pp. 378-79.

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The Economic Crisis of 1619 to 1623 161

or three, little speaks to the geographical spread of the debasement. Indeed, Opel says that it is impossible to give a full account of the territorial spread of the Kipper und Wipper. Of particular interest is its spread from the German states to Poland, possibly through Danzig at the instance of the Dutch who were said to have dominated that port and dictated its prices and exchange rates. Alternatively, it may have moved along the coast from Pomerania, one of the worst debasers in the Lower Saxon Circle, or via Cracow, which was the center for the export of Polish coins to Silesia and the Czech lands. Another route was via Leipzig, which paid the highest prices for silver in all of Germany, so that silver poured into it. Leipzig was also a central city for coins, its fair specializing in trade with the east, including Poland, a country with minting troubles of its own at that time. The larger coins depreciated more slowly in Danzig than elsewhere because of the Polish export surplus, mostly rye and timber, which the Dutch paid in silver. But Poland also had import surpluses, not only with central Europe but also with the Near and Far East, and considerable amounts of coin left the country eastward by way of Lvov. It is difficult to reconcile the various statements about Polish money: Bogucka claims Poland was flooded with foreign coin, whereas one earlier source on Germany notes that good Reich coins left the country and light Polish, Dutch, Spanish, and Hungarian coins flowed in. The same account elsewhere notes that all groups in Brandenberg-merchants, hand laborers, peasants, retailers, daily workers, and serving people-sold to Poland, along with Meck- lenburg and Pomerania, in order to acquire precious metals.44

THE BRITISH COMMERCIAL CRISIS OF 1621

Britain's economic crisis, in contrast, was more commercial than financial and did not involve currency debasement at domestic mints. Much of it was ascribed to the loss of wool exports to the Continent resulting from the undervaluation of the German and Polish currencies: prices rose less than the metal value of coin-at least subsidiary coin-declined. But contemporary documents present long lists of reasons for the decline in income and rise in unemployment in Britain: (1) the shortage of money in the country as a result of the export of coin and bullion, partly through the East India Company to pay for pepper and calico but also to the Baltic for timber and naval stores; (2) the abortive Alderman Cockayne project of 1615 to hold back woolens from the Continent for finishing in England; (3) the clumsy adjustment of the prices of gold and silver relative to the ratio in Amsterdam: first in 1606,

4' Opel, "Deutsche Finanznoth," p. 228; Braudel, The Wheels of Commerce, p. 255; Wuttke, "Zur Kipper- und Wipperzeit in Kursachsen," pp. 133, 136; Bogucka, "The Monetary Crisis," pp. 141-43; Gaettens, Geschichte des Inflationen, p. 83; Redlich, Die deutsche Inflation, p. 14; and Opel, "Deutsche Finanznoth," pp. 216-37.

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when the silver content of coins was lowered more than gold, and again in 1611, when the price of all gold coins was raised45 to bring a large volume of silver to the mint from 1601 to 1611, and none from 1611 to 1630; (4) the trial in the Star Chamber in 1617 and 1618 of 18 foreign merchants for smuggling coin out of England to the fantastic extent of ?7 million, which may have been a blundering attempt to stop the flow of interest payments to Holland but also possibly led to a halt in Dutch lending to London and contributed to the financial crisis there in 162 1.46

The loss in exports of woolen cloth gets special stress in the contemporary documents, as exports fell from 127,000 pieces in 1614 to 45,000 in 1640 after having risen from 100,000 pieces in 1600. Further causes of the "spectacular British crisis of the 1620s" have been adduced: bad harvests, plague, and the disastrous loss of 11 ships, some filled with silver, in the Far Eastern Dutch-British war of 1618 and 1619. The many causes (and remedies) cited suggest that the crisis was overdetermined in the minds of contemporaries, so it is difficult at this remove and in the absence of sufficient financial data to form a solid judgment. Feaveryear suggests that the Gresham's-Law undervaluation of silver was more important than the decline in cloth exports, because the continued inflow of gold to the mint implies that the balance of payments cannot be blamed.47 The exchange of an equal value of silver for gold was a blow to the "effective monetary circulation" because of the far greater use of silver than gold in ordinary transactions.48

I have some difficulty in accepting the analysis that the debasement of German and Polish coins led to the English commercial difficulties, because the debasement affected primarily the subsidiary coinage and not those of larger denomination such as the silver Reichstaler or the gold ducat normally used to settle balances in international trade. These coins may have been so widely hoarded, however, that the effective exchange rate ran to the gulden (or florin) rather than to the higher units of account. As I have already noted, and as has been recently analyzed for later inflations, inflation can be accompanied by export surpluses at a stage frequently encountered when the external depreciation exceeds the rise of domestic prices.49 Evidence from the Swabian Circle, at a considerable distance from the seacoast, indicates concern over local export surpluses. Ulm, Biberach, and Uberlingen restricted the export

45 Feaveryear, The Pound Sterling, pp. 88-89. 46 Barbour, Capitalism and Amsterdam, pp. 122-23. Among those convicted and fined was Philip

Burlamachi, a royal exchanger of Italian stock, who was born in France, began his career in the Netherlands, and arrived in England in 1605. See Judge, "Philip Burlamachi."

47 Thirsk and Cooper, Economic Documents, chaps. 1, 5, 6; Wilson, Transformation of Europe, p. 53; Chauduri, English East India Company, pp. 60-61; and Feaveryear, The Pound Sterling, p. 89.

48 Supple, Commercial Crisis, p. 173, italics in the original. 49 Hoszowski, Les prix a Lwow, p. 64. For a modern statement, see Bernholz, "Currency

Competition. "

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The Economic Crisis of 1619 to 1623 163

of foodstuffs, hay, cattle, and yarn and confined sales to local markets following a "policy of supply," the rationale for which was developed in Italy in the eighteenth century.50 Closer to the time I am concerned with, Biberach clad its civil servants in uniforms of Meissen cloth rather than the English cloth that "had become too dear, and must be paid for in ducats, doubloons, Rose Nobles and other hard talers, all of which required a large agio." 51 Shortages in Swabia became so acute that the authorities on one occasion commandeered a shipment passing through on its way to Switzerland and sold the goods on the local market.

THE INCIDENCE OF DEBASEMENT AND INFLATION

Many people in this period became very rich: often through minting, as was partly the case of Wallenstein, and sometimes through corrup- tion. The Duke of Lerma, who managed Spain for 20 years until 1618, when he was attacked for malfeasance, amassed a fortune of 44 million thalers, equivalent to the entire income of Phillip III of Spain for five years. Earlier the Duke of Alva, a Spanish general in the Netherlands war with no reputation as a rich man, had died in 1582 with 600 dozen silver plates and 800 silver platters. In Poland magnates, nobles, and well-to-do burghers hoarded jewelry, luxury plate, and coin by the ton, according to Bogucka, who notes that Duke Januz of Ostrog left a sum of 600,000 ducats, 290,000 different coins, 400,000 crowns (gulden), and 30 barrels of broken silver. Similar treasures are recorded in the inventories of other decedents. The members of the Prague consortium made their profits by selling silver to the mint at exorbitant prices and in large volume. Hans de Witte, who operated the mint, sold silver at a low price but in such volume that he received 31,240,000 gulden. Klima also mentions the case of Albrecht Jan Smiriky', who at the time of the uprising of the Protestant Estates in 1618 deposited 300,000 gold ducats and three tons of gold jewelry in Frankfurt am Main.52 There is less anecdotal evidence of huge fortunes in the German circles, perhaps because many of them were dissipated in the Thirty Years' War.

If the rich in some cases benefited from the currency debasement of the Kipper- und Wipperzeit, the poor suffered, especially salaried workers in cities without a plot of land or animals for meat. That prices of basic foodstuffs rose on the order of five to eight times during the inflation is indicated by data gathered from (rather unreliable) hospital records; those for Augsburg are shown in Table 2, and inflation for rye is shown in Figure 2. The latter also indicates daily wages for journey- man masons and for farm laborers engaged in the harvest.

50 Schottle, "Die grosse deutsche Geldkrise," p. 41; and Stuart, Free Trade in Tuscany. 51 Schottle, "Die grosse deutsche Geldkrise," p. 41. 52 Parker, Thirty Years' War, p. 49; Braudel, Structure of Everyday Life, p. 463; and Klima,

"Inflation in Bohemia," pp. 376, 381.

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164 Kindleberger

TABLE 2 PRICES OF SELECTED FOODSTUFFS, AUGSBURG, 1618-1624

Pennies per Pennies per Bushel Pennies per Pound Quart

Year Rye Barley Oats Peas Rice Pepper Cheese Carp Grease Honey Milk

1618 787 756 473 1006 21.0 196 35.0 24.5 21.0 84.0 3.50 1619 952 892 544 n.a. 21.0 189 35.0 24.5 n.a. 96.7 3.50 1620 1153 1036 552 1428 19.0 203 38.5 25.0 24.5 100.6 3.50 1621 2636 1771 1337 1720 20.0 420 84.0 70.0 70.0 129.5 3.50 1622 6516 4755 3729 6065 n.a. 560 224.0 126.0 n.a. 369.2 2.65 1623 2357 2065 1271 2895 26.2 140 52.3 52.5 52.5 121.0 2.67 1624 1938 1370 1054 1568 21.0 157 52.5 42.0 42.0 108.0 3.01

Note: n.a. indicates not available. Source: Elsas, Geschichte der Preise, vol. 1, pp. 595, 602, 623.

Although we lack cost-of-living indices for that portion of the popu- lation using market rather than natural or barter economies, a crude estimate of real income is possible using journeyman masons' daily wages and the price of rye in Augsburg. The rough correlation of food prices in Table 2 provides some limited justification for taking the price of rye as a proxy for the cost of living; it is likely, too, that bread

A B 1C1 * I D '| I I 'U ' ' C&D

5000 50000 A 500

1000 10000 100

500 5000 -Ir o 50

I0 I 00 1 000 B I I I I 1 0

1550 1600 50 1700 50 FIGURE 2

PRICES AND WAGES IN AUGSBURG, 1550-1750

Notes: A equals price of rye in pennies per bushel; B equals price of wheat in pennies per bushel; C equals daily wage of journeyman masons (summertime) in pennies per day; D equals daily wage of farm laborers (reapers) in pennies per day. All series are on semilog scales. Source: Elsas, Geschichte der Preise, vol. 1, p. 784. The data are taken from hospital records.

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The Economic Crisis of 1619 to 1623 165

TABLE 3 RELATIVES OF REAL WAGES IN AUGSBURG AND SOUTHERN ENGLAND FOR

SPECIFIED YEARS 161 1-1627 (1601-1610= 100)

Year Augsburg Southern England

1611 77 100 1612 82 90 1613 105 85 1615 78 85 1617 129 88 1619 118 95 1621 52 102 1622 34 90 1625 55 80 1627 68 95

Source: For Augsburg, calculated from daily summer wages of journeyman masons and the price of rye by Elsas, Geschichte der Preise, vol. 1, pp. 731-32, 395; for southern England, calculated from Phelps Brown and Hopkins, "Seven Centuries of Prices," pp. 312-13.

constituted approximately 50 percent of the cost of living. The data of Table 3 suggest that real wages of market participants in Augsburg fell by more than half from 1619 to 1621 and perhaps to a third in 1622. Recovery after stabilization was of course impeded by the Thirty Years' War. The table provides a comparison with real wages for building labor in Southern England as calculated by Phelps Brown and Hopkins, and makes clear the far greater loss in Germany than in Britain.

Perhaps more damaging than the gap between wages and prices was the widespread breakdown of trade between town and country. Peas- ants refused to deliver produce to the town or city unless they were paid in Reichstalers or received outrageous prices in coin. Everywhere was evidence of what is called today "private compensation" (organized barter) and the trading of town dwellers' household possessions for country dwellers' food. Craftsmen such as shoemakers, potters, sad- dlers, and rope makers kept their goods at home, and the baker, butcher, and fishmonger stopped bringing goods to the market.53 The available literature does not discuss the impact of the debasement/ inflation on merchants in the Hanseatic ports or the major trading cities, but judging by the pressures in the former for stabilization and for deposit banking, the adverse impact on merchants there was probably substantial.

In the first stages of the debasement there was a boom, felt all over Europe.54 Bit by bit the pace of debasement and inflation accelerated in 1620 and especially in the summer of 1621 and the first quarter of 1622, when it became manic.

53 Wuttke, "Zur Kipper- und Wipperzeit in Kursachsen," p. 148; Schottle, "Die grosse deutsche Geldkrise," p. 41; and Langer, Kulturgeschichte, p. 31.

54 Glamann, "European Trade," p. 481; and Gaettens, Geschichte des Inflationen, p. 88.

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As soon as one receives a penny or a groschen that is a bit better than another, he becomes a profiteer. . . . It follows that doctors leave the sick, and think more of profits than of Hippocrates and Galenus, judges forget the law, hang their practices on the wall and let him who will read Bartholus and Baldus. The same is true of other learned folk, studying arithmetic more than rhetoric and philoso- phy; merchants, retailers and other trades-people push their businesses with short goods, which are then marked with a mint stamp.55

Even nobles danced around the golden calf.56 The 1622 quotation is perhaps evocative of the 1980s' interest in

financial manipulation, but especially echoes a 1650 quotation from a Spanish source: "Agriculture laid down the plow . .. the arts disdained mechanical tools. . . . Goods became proud."57

At first the uneducated masses could not tell the difference between good and bad money, so authorities in Ulm forbade exchanges of money against money-but to no avail. In some cases, as understanding spread, peasants were forced to take bad coin and pay in good. This slowness to understand was echoed later, when it took months for the masses to realize that good money had come back. The literature stresses that the exchangers "enticed" the general run of people, provoking "giddiness." One particularly debased coin was called a " snare" (Schlinger). In time, as domestic trade broke down, the differences became all too apparent. In Hameln, the glittering new coins were called "tinsel" money, the white coating of which wore away after a few weeks in circulation. Children played with it in the street.58

As inflation proceeded and the distribution of income and wealth became more and more skewed, riots broke out. The houses of exchange dealers were stormed in Brandenburg and Halberstadt, and in February 1622 a riot in Magdeburg involved several hundred people, leaving 16 dead and 200 wounded. In Cracow crowds clashed with the municipal council in 1622 and 1623, largely over money matters. Some cities in Saxony forbade gatherings for fear of demonstrations after crowds stormed houses in various places in 1621.59 Most of the historians commenting on these demonstrations observe that the crowds blamed the exchangers and minters rather than the nobles, princes, and cities that established scores of new mints and leased still more.

The impact of the Kipper- und Wipperzeit on mosaic Germany is a matter of some debate. In one view, so much of the population was

s Quoted in Ibid., p. 89. 56 Redlich, Die deutsche Inflationen, p. 89. " Vilar, Gold and Money, pp. 168-69. 58 Redlich, Die deutsche Inflationen, p. 14; Schottle, "Miinz- und Geldgeschichte," p. 86;

Bogucka, "Monetary Crisis," p. 146; Schottle, "Die grosse deutsche Geldkrise," pp. 47, 52; and Langer, Kulturgeschichte, p. 30.

" Redlich, Die deutsche Inflation, p. 36; Langer, Kulturgeschichte, p. 119; Bogucka, "Monetary Crisis," p. 146; and Wuttke, "Zur Kipper- und Wipperzeit in Kursachsen," p. 150.

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The Economic Crisis of 1619 to 1623 167

engaged in the natural economy, living with little need to earn or spend money, and so few had fixed incomes, despite some mention of ''widows and orphans," that the debasement and inflation did not hurt many people. Officials, it is claimed, were able to keep pace by graft and corruption.60 A similar view is that the economic and demographic catastrophe of the Thirty Years' War is, if not a myth, at least exaggerated.6' An economist who does not work with primary sources is in no position to judge the devastation of either the debasement or the war, but can call attention to one view that the former was far worse than the latter-in fact comparable with the devastation of the Black Death.62 Support for this view comes from Macaulay's History of England, in a passage dealing with the wave of clipping that led to the recoinage of 1696.

Yet it may well be doubted whether all the misery which has been inflicted on the English nation in a quarter of a century by bad Kings, bad Ministers, bad Parliaments and bad Judges, was equal to the misery caused in a single year by bad crowns and bad shillings.63

Or, as one Guibert de Nogent (1053-1124) remarked on the medieval debasement of Bishop Gaudri II of Laon, France: "No hostility, no plunderings, no burnings have done worse damage to this prov- ince. . . ." 64

THE PATH TOWARD STABILIZATION

The breakdown in both trade and the acceptance of Kippergeld became so complete that various steps were taken, albeit slowly and ineffectually at first, to bring the currency crisis under control. The first attempt was in Lower Saxony in 1619; despite the spread of the Thirty Years' War, there was talk of stabilization but no action. In February 1620 the Wurtemberg authorities sought to join Electoral Pfalz, Baden, Ulm, Augsburg, Strassburg, and other units in a minting union. But because the majority of the cities and states involved were geographi- cally separated by intervening governments that did not join, the attempt failed. Then in March 1620 the treaty of Ulm among Augsburg, Nuremberg, Frankfurt, Strassburg, and Ulm sought to establish new minting rules and to produce a 31-batzen piece equal to 2 florins, 4 kreuzer as the equivalent of a Reichstaler. Ulm used the occasion to

60 Van Klaveren, General Economic History, p. 165; and Wuttke, "Zur Kipper- und Wipperzeit in Kursachsen," pp. 97-98.

61 Parker, Thirty Years' War, chap. 7, part 2, esp. p. 214; and Steinberg, "Thirty Years' War," p. 1060.

62 Gaettens, Geschichte des Inflationen, p. 94. 63 Macaulay, History of England, vol. 4, p. 186. 64 Quoted in Bisson, Conservation of Coinage, p. 3.

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accelerate its minting.65 The same five cities tried to join with northern German cities in the endeavor, but without result.

Action, when it came, began in the north with the Hanseatic cities. Hamburg and Lubeck concluded a mint treaty in 1618. They were joined in January 1620 by the Duke of Mecklenberg in the Lower Saxon Circle and by the city of Bremen in agreement with Wismar. The Reichstaler was set at 42 schillings (equal to groschen), but raised in April to 48. The Kreistag at Luneberg in April 1621 set up a commission on the minting question. It reported back belatedly in 1623 with recommendations that, once adopted, constituted the decisive act in ending the Kipperzeit in the Lower Saxon Circle.66

The Upper Saxon Circle came along only in 1623, but in one fell swoop rather than step by step. The gradual model, which was followed by the Swabian, Franconian, and Bavarian circles, was termed on one occasion by Schottle a "gigantic error" and later "unwise."67 Many mints in Upper Saxony had stopped producing Kippergeld in 1622 and 1623 because its passers could no longer get people to accept it. In June 1623, the Elector of Saxony brought together the various official boards and asked them five questions about currency policy. The commission reported the next day in a memorandum of 26 pages that recommended returning to the Imperial Ordinance of 1559 and setting the Reichstaler at 24 groschen. In the following days the Elector ordered a recoinage on that basis and the reinstitution of the mint trials, which had been allowed to lapse for five years.68

Shaw states that a great imperial deputation of all the circles was convened in 1623 to establish the final return to the Augsburg Ordinance of 1559, but this is not treated in the German literature I have consulted. The value of 1 florin, 30 kreuzer to the Reichstaler lasted with minor exceptions as the standard until the Zinnaische standard of 1 florin, 45 kreuzer, established in 1669 in an attempt to stabilize the currency once more, well after the end of the war. There was then a still further depreciation in the Leipzig standard of 1690 to 2 florins, or 120 kreuzer.69

It is of some interest that Ulm produced new copper coins while the stabilization was being worked out on a silver basis, and that in the Upper Saxon Circle a limited amount of credit money began to circulate after Kippergeld could no longer be placed-an important step, Wuttke claimed, in the development of German monetary relations.70 These steps toward providing some sort of circulating medium after all

65 Schottle, "Munz- und Geldgeschichte," pp. 84-85. 66 Gaettens, Geschichte des Inflationen, p. 91. 67 Schottle, "Die grosse deutsche Geldkrise," p. 53; and Schottle, "Munz- und Geldge-

schichte," p. 92. 68 Gaettens, Geschichte des Inflationen, pp. 92-93. 69 Shaw, History of Currency, pp. 106, 199, 200. 70 Schottle, "Mfinz- und Geldgeschichte," p. 93; and Wuttke, "Zur Kipper- und Wipperzeit in

Kursachsen," p. 153.

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The Economic Crisis of 1619 to 1623 169

subsidiary coins had vanished and high-denomination coins were hoarded are evocative of the Rentenmark established in the fall of 1923 before the creation of the Reichsmark under the Dawes Plan the next year.

A COMPARISON WITH THE GERMAN INFLATIONS OF THE TWENTIETH CENTURY

The debasement/inflation of 1619 to 1623 came in for renewed study in Germany after the inflations of 1919 to 1923 and 1939 to 1948. One telling difference noted by Gaettens is that the inflation of three centuries earlier got under way before the outbreak and especially before the spread of the Thirty Years' War, and stabilization took place early in the war rather than well after it.7' Although the institutions of 1618 and 1918 were vastly different, central authority was weak in both cases: in the former because of the organization of the Holy Roman Empire, in the latter because of the strength of warring "distributional coalitions," to use Olson's phrase-Junkers, peasants, industrialists, laborers, and civil servants-all pulling in separate directions and determined to fend off some appropriate share of the burden of reconstruction and reparations.72 The path to monetary reform after the more damaging World War II was smoothed both by the destruction of those vested interests in the Nazi period and during the war and by the existence of the authority of the occupying powers, which ultimately produced the stabilization of the monetary reform of 1948-despite the widespread myth that this was the work of Ludwig Erhard.

One more comparison is worth making between the Kipper- und Wipperzeit and the positions taken after World Wars I and II: it concerns the question of debt. This is widely discussed in the literature on the earlier inflationary episode; it is generally agreed that the muddling-through that ensued was not satisfactory. Princes, nobles, and ecclesiastics who had been paid rents or interest in debased money lost, as did all manner of states that similarly received money in taxes and dues. Ordinary people who turned in their debased money for recoinage and got back in new coin only its metallic value also lost heavily. So did those whose debts had been repaid in debased money. New debts contracted during the inflation provoked the difficult question of what money was required for the payment of interest and repayment of principal. An earlier rule of 1572-a period of far milder inflation- stated that debts should be repaid in the currency in which they had been contracted, and there was a wave of pressure for reinstituting such a rule. The issue animated churchmen and jurists as well as business people, lenders, and borrowers. Redlich charges that the Elector of Saxony, who insisted on new money for his Kippergeld loans, was

7' Gaettens, Geschichte des Inflationen, p. 91. 72 Olson, "Some Questions about the Weimar Republic."

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170 Kindleberger

either feathering his own nest or drunk. In any case, the invasion of Electoral Saxony in the Thirty Years' War made any payment of debt by the impoverished populace impossible.73 In general, different circles and the states and cities within them worked out different solutions over a period of years stretching well beyond the 1648 Treaty of Westphalia. The Swabian Circle laid down a rule as early as March 1622 calling for creditors to get back when they invested-good money for good, bad for bad-following not the letter of the law but the dictates of Christian love. There were many exceptions to the 1622 rule, especially where official fiscal interests were affected, and the authorities were still struggling with the issue three decades later when it was decreed that all debts remaining from the period were to be cut in half. Kassel in Hesse promulgated an effective and equitable solution set out in detail by Redlich over three pages.74 One distinction was drawn between debts contracted in money and in goods. Authorities and courts were over- whelmed for years. The comparison holds, of course, not only with the period after the inflation of 1919 to 1923, when holders of property and those who had repaid debt gained substantially whereas wealth in the form of money and government debt was wiped out, but also with the Lastenausgleich associated with the Monetary Reform of 1948 after World War II, which together reduced all fixed claims to wealth by 90 percent and imposed a mortgage of 50 percent on real property.

CONCLUSION

Let me try to draw some conclusions from the foregoing. To the five known methods of propagating international financial

crises-(1) gold and short-term capital movements (or money flows); (2) price changes in internationally traded goods and assets; (3) trade flows; (4) long-term capital movements, including their sudden halt; and (5) pure psychology-we can add currency debasement that spreads abroad following Gresham's Law, though this may perhaps be regarded as a special case of money flows.75

There is also considerable support for the view that 1619 to 1623 was a watershed in the economic development of Germany, as the entire first half of the century was for Europe as a whole. It is striking how many economic series are broken then-stopping short of 1620, starting only in 1624, or showing wide gaps in the data for those years (for example, in the exchange rate of Piacenza on Nuremberg, but not Frankfurt). Note also the number of missing observations in Elsas's price series for

73 Redlich, Die deutsche Inflation, p. 57. 74 Schottle, "Munz- und Geldgeschichte," pp. 98-100; and Redlich, Die deutsche Inflation, pp.

58-61. 75 Kindleberger, "International Aspects of Financial Crises."

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The Economic Crisis of 1619 to 1623 171

Germany.76 Bookkeeping in the imperial city of Nordlingen broke down during the hyperinflation and took years to recover.77 Of greater importance was the shift from old banks such as the Welsers of Nuremberg, which went bankrupt in 1614, and the Neapolitan Bank of the Holy Spirit, which stopped growing in 1622 after a brilliant expan- sion from 1600,78 to new deposit banks, which hastened the develop- ment of the bills-of-exchange network.

Another issue, which has a bearing on a banking question of today, is the stability of free competition in the creation of money. Roland Vaubel and Friedrich Hayek in Europe and George Selgin, Richard Timberlake, Lawrence White, and Leland Yeager in the United States advocate abandoning monetary controls and opening the business of issuing money to anyone who chooses to enter it. This policy assumes an inverse of Gresham's Law: that the public will perceive which firms issue good money and bank with them alone. This surely happens at the peak of a debasement or overissue, when money becomes so bad as to be worthless and substitutes are found. But free minting, which oc- curred when the controls of the Holy Roman Empire-coin-testing days, oaths of mint masters and their journeymen, oaths of the official assayers, agreements of the separate circles and the monetary controls within them-all broke down, suggests that some control is necessary. The fallacy of composition worked against a simultaneous and universal movement toward restraint, each circle free-riding in a fashion that prevents production of the public good of monetary stability in the absence of effective central government. Various appeals to the Elector of Saxony were made for help in the currency disorder, but he did not see what he could do. No single Stand could produce order. The only possible means was a general Imperial Assembly, but the Elector's proposal for such a meeting would not work. The weakness of the Empire lay exposed to all eyes. And the Elector realized that he could not produce order by himself.79

Centralized effective control might not be necessary in a world populated by economic men-rational, intelligent, and with access to cheap information-but history reveals that the world is not like that. By revealed historical preference, some controls are needed to protect the vulnerable underclasses, and in a world in which some people at various levels of authority are greedy and perhaps unprincipled, strong, honest, central control is necessary. The breakdown of wildcat banking in Michigan in the 1830s, I understand, is blamed by the advocates of free banking on government: they claim that if the bankers had been left

76 Hoskins, "Harvest Fluctuations"; Posthumus, Nederlandische Prijsgeschiedenis; Silva, Banque et credit en Italie, vol. 2, pp. 149-52, 187; and Elsas, Geschichte der Preise.

77 Friedrichs, Urban Society in an Age of War, p. 148. 78 Spooner, Monetary Movements in France, p. 65. 79 Wuttke, "Zur Kipper- und Wipperzeit in Kursachsen," pp. 137, 154.

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172 Kindleberger

alone free banking would have worked. This counterfactual strikes me as absurd. In addition to the millions of vulnerable in the world are perhaps hundreds of thousands of the guileful-persons ready to exploit the unwary-and including even those assigned to protect the unsophis- ticated. The Kipper- und Wipperzeit was blamed at the time on the minters who violated their oaths or on the exchangers and smugglers of good coin out and bad coin in. Source after source, however, recognizes that the real responsibility lay with the nobles, princes, city officials, high church officials, and even the Emperor.

Monetary regulation, as the press has constantly reminded us in the 1980s and early 1990s, can never be completely effective; nor can it be safely abandoned. The tension between regulators and regulated, and between regulators and their watchdogs, is inevitably continuous.

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