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Ditch the US Dollar Before It’s Worthless
Take a lesson from the French kings: currency debasement doesn’t end well
In the early and mid-twelfth century, the kings of France had a major problem: They were profligate money-spenders, their debts were piling up, and they had no efficient way to tax their subjects to pay for it all, thanks to a mostly agrarian economy and decentralized money in the hands of baronies, duchies, principalities, religious fiefdoms, and village market economies.
Luckily for them, centralized money-printing was on the rise.
By the late thirteenth century, the French kings possessed the sole right — the monopoly power — to mint the coinage of the realm. At the time, silver was the metal of choice for higher denominations, with bronze and alloys for the smaller stuff.
In a fair world, $100 worth of silver would be minted with the word “$100" on it. The people would spend it into the economy, with a transaction tax to finance democratic expenditures.
Instead, the French kings instituted a vile practice called seigniorage — they assigned far higher values than the actual coins were worth. Instead of stamping “$100” on a coin worth $100, medieval kings simply sent out an edict saying the big silver coins were worth, say, $100 in legal tender.
But here’s where things went horribly wrong:
Whenever the king was in need of money — and the French kings were always in need of money — they simply put out a new edict and changed the coin price. Suddenly, the $100 coins of yesterday were worth $90 today, or $50, or even $0. The king would then offer to re-stamp the coins to reflect the price change… charging a hefty fee for his re-minting services, of course. People didn’t have a choice, since the king has a monopoly on legal tender. During the re-minting process, the kings would often mix cheaper base metals into the silver stew— that’s why we call it currency debasement.
This process of debasement was wildly profitable for the French kings. In 1299, over one-half of the monarchy’s £2 million revenues were extracted by means of seigniorage debasement and recoining. By 1349, robbing citizens by devaluing their currency raised two-thirds of all revenues…
