INFLATION TEXT. BY PROF. MARTHA PAAS

[Stanley]

INFLATION TEXT. MARTHA

Preface



The study of inflation since World War II has had its theoretical base either in the real demand and supply of goods and services under the influence of Keynesian economics or, on the monetary side, the emphasis on the quantity of money available. Most economists agree that it is in the interaction of both of these, together with expectations of change, that inflations are instigated, supported, perpetuated, or extinguished. The recognition of this mechanism implies the appreciation developments in institutional and structural parameters developing over time. Whilst these parameters may be held constant in short-run analysis, the peculiarities of their origins and characteristics should not be ignored in a more comprehensive understanding of the phenomenon of inflation in general.

The economic history of inflation provides insights into these structural parameters and allows a clearer and more focused study of inflation within simpler structures than those in the current global environment. Such historical studies facilitate a more complete understanding of the physiology of inflation. While history does not necessarily repeat itself, it does provide precedents that can benefit economists and historians concerned with the vital topic of inflation. 1

The inflation of 1619-23, the so-called Kipper und Wipper, was the most serious inflation in Germany prior to the hyperinflation following World War I. It has been studied primarily as an acute monetary phenomenon in Germany alone, broadly akin to later wartime inflations. It bears some important resemblances to these later inflations but it also occurred in the context of broader and longer running structural dislocations which were international and had their roots in sectors other than the monetary component. This structural context in addition to the short-run events is essential to understanding the origins of the inflation.

Moreover, this inflation left behind it a record in the form of broadsheets of its effects on the social fabric. These contemporary polemics provide us with a rare window into a seventeenth-century society in turmoil. It is in such times that underlying beliefs, prejudices, and anxieties reveal themselves most clearly. Published here in their entirety and in English translation, the extant broadsheets give a voice to the people who were actually devastated by the inflation. Thus it is possible to go beyond the statistics and give a humanity to the economic analysis which allows a more complete study of an early inflation than has hitherto been possible.
Essay In order to understand the particular Kipper und Wipper inflation, we must begin with the inflationary pressures which began a century earlier and caused the precarious economic situation of the early 17th century. The debate about the nature and course of the price revolution of the 16th century and its subsequent effect on wages and profits has intrigued scholars for over a hundred years.2 Economic historians now generally agree that the influx of bullion and the growth of demand promoted a modest but sustained rise in prices over most of the 16th and into the 17th century. Real wages fell and profits may have increased, though the extent is unclear. Agricultural prices appear to have risen fastest of all. These trends accelerated the movement from barter to a money economy with the accompanying growth of credit.3

Despite great regional variations, inflation was a Europe-wide phenomenon which was recognized and was a matter of concern. By the beginning of the seventeenth century the price rise became less marked on the Continent, and in some places, such as Paris, prices appear actually to have declined. England, meanwhile, had experienced a growth in exports in the second half of the sixteenth century due to a reform of the currency under Elizabeth and the relatively low prices of English goods compared with the Continent. This led to an upsurge in prices in England during the first decade of the 17th century which gave the Dutch an advantage in the all-important textile trade. Prices played a fundamental role in the development of mercantile policy and practice. Barriers were erected to lessen risk and to protect profits from the vagaries of a free market and nowhere were these barriers more in evidence than in the German territories.

Despite the agreement among scholars about this broad outline of events, the complexity of the inflation has also become evident together with the difficulty of specifying the extent and timing of the contributory factors. Although these differed in importance due to timing and location the most important factors appear to have been: 1) changing patterns of domestic production and imports of gold, silver, copper and lead, 2) increase in demand, and 3) growth of credit and changing velocity of money. In the German case, two other factors were important: 1) the passive trade balance, and 2) the structural flaw in the Imperial Coinage Regulations of 1559. We will examine each of these before looking at the specific events which triggered the Kipper und Wipper inflation of 1619-23.

Traditionally, gold and silver imports from the New World have been seen as the most important single factor initiating the price revolution. Gold imports from America to Spain rose throughout the first half of the 16th century, culminating in 1551-60. The imports declined thereafter with the exception of 1591-1600. However, it is also the case that gold was produced in Europe and was imported from Africa and Asia as well. Recent research has shed new light on the importance of these sources in enhancing the growth in supply of these precious metals. Although most of the main sources of gold in Europe had been worked out by the end of the Middle Ages, it continued to be produced in many areas in significant amounts throughout the early modern period, especially in Silesia, Slovakia, and later in Salzburg and the Carpaths.4


African gold was also important, especially from the 13th century onward as Genoese trade expanded toward the western Mediterranean. By the time of the influx of American gold to Spain, gold from Africa was coming into Lisbon in amounts equal to 30-60% of the American tonnage. When we add to these crown imports gold from other markets, the Portuguese imports of African gold in the first two decades of the 16th century must have been at least 75% of that coming into Spain from America.

In the second half of the 16th century, other Europeans, Moroccans and the owners of caravans who organized trade through the Sahara were rivals of the Portuguese in West Africa. However, the Portuguese managed to monopolize the gold in areas of East Africa, although most of it went to India for minting and it is unclear how much came into the market via Lisbon. The Dutch made inroads into the East African trade after 1593, and gold came into the Republic as a result. Substantial amounts of gold were also produced in the Far East, but most was consumed in India and Persia, and we have no estimates of how much may have entered Europe.

The estimates of American silver exports to Europe are complicated because the official statistics of imports through Seville tell only part of the story. How much was taken by pirates, how much was smuggled in order to avoid taxes, and how much went via the Pacific and eventually to Europe are questions to which we have only partial answers. However, these are important questions which must be answered before definitive estimates of the impact of American treasure on the European money supply can be made.

In addition to the impact of American silver, the production of silver in Europe itself was significant in the monetary history of the period. The revival in the early modern period of the prosperity of mining and metallurgy in Europe had its origins in the mid-fifteenth century with the development of the Saiger process. This method used lead to help separate silver from the rich argentiferous copper ores. In the sixties, seventies and eighties new technology was discovered to recover drowned or buried mines and new seams of ore were discovered. According to Nef there was probably not a single mining center yielding 10,000 marks of silver a year in 1450. Around 1530 there were eight or more centers producing from 10,000 to upward of 50,000 marks.5 By the middle of the sixteenth century, beginning about 1540 in most places, production began to decline and did so steadily into the next century. The exceptions were Freiberg in the Erzgebirge where production continued to grow, at the Rammelsberg in the Harz, and at Kuttenberg in Bohemia, where production remained steady in the latter half of the sixteenth century. Scholars generally agree that the central European mining industry collapsed in the half-century before the Thirty Years War, and as the war began the mines were probably little more productive than they had been in 1450 with the onset of the silver expansion.

The copper trade was also important in the history of the European money supply. Europe is rich in copper, and we have records of significant copper production in England, Norway, Sweden and Central Europe from the Harz to the Carpaths and the Tyrolean Alps. The trading houses of Nuremberg and Augsburg, particularly the Fuggers, dominated this trade. In the second decade of the seventeenth century, Sweden began to capitalize on its large copper reserves at the Stora Kopperberg and produced and exported large amounts to Europe as did Japan. Spain had seriously debased its currency from 1599 to 1606 by coining 22 million ducats in vellon, a copper alloy. The Spanish treasury went bankrupt in 1607, and this led to the failure of the Fuggers and several Genoan bankers. Spain promised to cease coining copper and did so for a decade, but resumed again in 1617 under the pressure of inflation and the need for coins. So, while the supply of precious metals for coinage was growing, prices were also rising. Economic theory help us to specify the relationship between these events.

The quantity theory of money in modern economics holds that initial price changes are a function of the money supply and that all prices and incomes should rise proportionally assuming there is no change in the rate at which money is spent ( its “velocity”). In this formulation, an increase in the money supply acts to raise the price level and is therefore an exogenous variable. Keynesian and Post-Keynesian economists, on the other hand, regard changes in the real economy ( the demand and supply of goods and services) as being the source of most inflation. The money supply changes in response to changes in demand through changes in debt and is therefore an endogenous variable. The debate is not merely academic. How inflation is initiated is critical to understanding how it can be combated.

Until the 1950s, a less restrictive version of the quantity theory of money, “the price-specie-flow” formulation, which sees a positive but not necessarily proportional rise in prices resulting from the growth of the money supply, was the dominant theory used to explain the 16th century price revolution. Jean Bodin, a 16th century French philosopher, was the first to make explicit the link between the quantity of money and inflation, and mercantilist writers seem to have generally accepted Bodin’s view. Gold and silver from Mexico and Peru were believed to have flowed through Spain to pay for the war in the Spanish Netherlands and this initiated the price revolution and the rapid development of markets.

In the 1950s, scholars investigating this process discovered a problem in the timing of this explanation. Prices appeared to have risen throughout Europe before the Spanish treasure reached them.6 If this is true the quantity theory of money in its price-specie-flow formulation would appear to be inapplicable to the price revolution and other explanations must be sought. Moreover, agricultural prices rose faster than other prices, which would suggest that something other than the flow of bullion was at work to cause the differential in rates of inflation.

The main alternative to the quantity theory as a theoretical explanation for the price-revolution has been the “population hypothesis”, which emphasizes the growth of the real economy in a Keynesian theoretical framework. This hypothesis holds that European population rose perhaps as much as twice or three-fold from 1500 to 1618. Along with this rise was a growth of urbanization and a gradual monetarization of economic life as trade expanded and specialization increased. It is argued that this explanation satisfactorily accounts for the relatively faster growth of agricultural prices and is consistent with the timing of the inflation. Population grew most rapidly in the first half of the sixteenth century and more slowly thereafter. In the 17th century, population and prices both stagnated.

This argument also links the population growth and the price level to monetary theory. It holds that population growth would itself have generated growth in the supply of money by releasing money previously hoarded or by stimulating the minting of precious metals and the growth of credit. Urbanization and specialization accompanying the population growth would also have caused large velocity increases.7

More recently, economists favoring a monetary explanation have utilized a more sophisticated approach to the quantity theory, the “monetary approach to the balance of payments” to argue that it was indeed the growth of precious metals which is the key to the price revolution. This approach argues that the actual physical money is irrelevant in a time when prices were largely determined internationally. Therefore, the actual physical presence of specie or lack thereof is not inconsistent with a monetary explanation of the inflation. These economists argue that a growth of demand using a Keynesian model is inappropriate for long-term analysis and challenge the suggestion that investment may have expanded in response to population growth when, by the second half of the 16th century, real wages were falling.8

A more detailed consideration of the theoretical debate is beyond the scope of this work.9 However, both theory and the current state of historical research allow us to tentatively conclude that the growth of the money supply ( both in minted coinage from domestic and imported gold and silver, and in credit) facilitated the growth of output and trade as population grew in the 16th century. Seen in macroeconomic perspective and with hindsight, the long-term movement toward market capitalism is undeniable from the 16th century onwards, with interruptions of war, disease and famine. How the other historical forces at work ( the advent of Protestantism, new technologies, urbanization, the growth of nation states, expansion of long distance trade and business practice) figure in the calculus of causation likewise defy quantification but nonetheless are undeniably involved.

It is against this background of structural change in Europe that the Kipper-und Wipper inflation must be viewed. There are three important additional factors relating to the inflation which were peculiar to the German case. The first was a deterioration in the agricultural sector after 1600 which exacerbated the crisis of 1619-23. Agriculture, especially the cultivation of grain, expanded in the sixteenth century in response to price rises and to demographic expansion. While agriculture was not stagnant in the 17th century, the technical innovations that were to produce huge surpluses in the 18th century were not yet on the horizon.10 The main way to increase agricultural output was to put more land under cultivation. This was increasingly expensive in Germany as forests had to be cleared and marginal lands brought under the plow. This accentuated the rise in grain prices. Farmers acquired more land and more debt as they counted on the price of grain remaining high. By the last decade of the 16th century, the slowing of population growth caused agricultural prices to decline, although good harvests in 1598, 1599 and 1600 buffered the effect of the price decline for farmers. Harvests stagnated after the end of the century, so the possibility of saving and spending in the dominant agricultural sector was further reduced. Farmers could not pay their debts and many lost their farms.11 The harvest failures in 1618-22 and the outbreak of war caused agricultural prices to rise dramatically. This cyclical crisis coincided with the monetary crisis and served to intensify it.12

The second German problem was the stagnation of industry as territories adopted a defensive stance in response to increased competition from other parts of Europe. The shifting of trade routes to the Atlantic with the opening of trade with the New World and the development of the lucrative entrepot trade in the Atlantic ports had put German industry at a geographical disadvantage. They continued to produce expensive, high quality handicrafts and textiles for export when the market was moving toward lower quality, bulk goods. ( Excellent examples of these goods, including hundreds of different kinds of metal products as well as precision instruments for navigation, surveying, etc., may be seen at the Germanic National Museum in Nuremberg.) In the course of the 16th century the German trade balances turned negative with Italy, England, and the independent Netherlands. In addition, trade in raw materials and cattle with Poland and Hungary also resulted in a negative balance. Only to the Spanish Netherlands, Switzerland and Lorraine did German lands export more than they imported. This unfavorable trade balance put pressure on the increasingly scarce money supply as silver flowed out to settle accounts.

The third peculiar problem was a structural flaw in the Imperial Coinage Regulations from 1559.13 Medieval monetary theory held that there was a difference between valor impositus and unitas intrinseca.14 That is, the value of a coin was determined by the value given to it by the highest authority in the land instead of by the market value of the metal it contained. This is understandable for the medieval period when markets were not so well developed and the amount of coin in circulation was relatively limited. But it obviously made currency reform difficult in the early modern period when the supply of gold and silver increased dramatically and a separate market existed for the precious metals. Add to this the problem peculiar to the Holy Roman Empire, namely, that it was made up of many individual cities and principalities with the right of coinage so that no central mint was responsible for striking money. Under these conditions, the morass in which the monetary sector found itself is not surprising.

The sixteenth century had witnessed a gradual monetization(?spelling) of life with demographic growth, expansion of trade, urbanization and specialization. Yet, the Parliaments seemed to consistently misunderstand the function of small denomination coins for transactions and their relationship to larger denominations. They relied on valor impositus for maintaining the value of the coins. When the Imperial Parliament met in Augsburg in 1559 to discuss the need for reform of the coinage regulations, the amount of silver content prescribed for the small coins was less than that of the larger coins but not proportionally less. This made the smaller coins uneconomical to produce. Mints could produce a larger total value of output of coins with the identical amount of silver and labor by producing the larger denominations rather than the smaller. As the price of silver began to rise in the second half of the 16th century with the decline of silver production and imports and the growth of demand for money with expanded trade, this differential became greater and the price of silver rose above the price stipulated in the Imperial regulations.


An interesting example from the writings of the Saxon Master of the Mint Heinrich von Rehnen in 1606 illustrates the problem. For 100 marks of fine silver the profit (calculated solely by the value of the coins produced) was 14 Fl. 17 Gr. 101/2 Pfg. for the larger coins ( taler and gilders); for the großchen there was a loss of 18 Fl. 2 Gr. 11 Pf.; for the pfennig a loss of 28 Fl. 14 Gr. 11 Pf.; for the heller a loss of 37 Fl. 18 Gr. 3 Pfg.15 In addition the mint had to figure the interest on the 50,000 gilders which it had to invest each year in silver, copper and lead. When this is added, it is clear that the minting of coins under the Imperial regulations was not nearly as profitable as contemporaries seemed to believe and that there was a strong disincentive to mint the smaller coins.

Mints, therefore, began to concentrate on making larger silver coins and produced “pagament” instead of the smaller silver coins.16 The potential for profit was great enough as the price of silver rose to tempt mints to engage in various kinds of illegal activity, including the melting of larger coins and the debasement of smaller coins, both of which the regulations of 1559 explicitly forbade and for which the Parliaments of 1570, 1571, 1576 and 1594 set out penalties. The fact that increasingly severe penalties were imposed tells us that the regulations were being ignored.

Because of the dearth of coins for daily use, emergency coins were produced from brass, iron, tin or lead ( in Innungen even leather was used) and stamped with the city coat of arms to be used for local transactions only. Before long, some of the mints began to openly defy the laws. The local authorities had lost out when the regulations of 1570 limited the rights of coinage to fewer mints in an attempt to combat the debasement. Therefore, the now(new?) unofficial mints were more than willing to defy a law in which they no longer thought they had a stake.

The result was that small silver coins were melted down to make more small, debased coins with the silver mixed with copper or lead or silver of lesser quality. The chronicler of Sangerhausen records that “Boilers, kettles, pipes, gutters, and whatever was made of copper was removed, taken to the mints and turned into money... If a church had an ancient font...it was sold by those who had been baptized in it”.17 This “new lamps for old” mentality led the public to rush to sell larger, pure coins for smaller ones and even to sell silver plates, etc. for their silver content. They believed themselves to be profiting because the nominal value of the smaller coins they received was greater than the nominal value of the silver they sold. Treasure and savings alike flowed into this illegal activity and this caused the inflation to worsen.

Debasing a coinage to provide the treasury with money was particularly effective when the debased coinage could be exchanged in neighboring territories for good coins, as was the case with the dozens of small territories and principalities in the German lands. The good coins could then be brought back to strike still further debased money. The neighboring territory which was then inundated with bad coins would try to attract good coins by raising the price of silver in the coins. This, along with rising labor costs, made it increasingly unprofitable to mint subsidiary coins, so they either debased them further or stopped striking them altogether. Good coins disappeared and bad coins circulated. Gresham’s Law operated in the German lands increasingly with a vengeance.18

Records of mint trials held in Nuremberg reveal several examples of debasement.:
In 1606 Frankfurt minted six-kreuzer pieces lacking nearly 37% of the Imperial standard. The Duke of Tesch minted three-kreuzer pieces lacking almost 27% and the Count Palatine of the Rhine minted three-kreuzer pieces lacking 30%. The Count of Solmes minted three-kreuzer pieces lacking 31%, 34% and more. In 1609, the list of debasers had grown to more than twenty, including the Counts of Waldeck, the Dukes of Holstein, Count Simon of Lippe, the Count of Stoberg, etc. 19

The situation became so critical that the city of Nuremberg took measures to try to stabilize the currency on its own.20 At the Parliament in 1613 in Regensburg it was urgently discussed again and shortly thereafter the imperial authorities circulated a draft of a reform act among the cities and territories. This came to nothing as did an attempt by the leading trading cities to cooperate to find a solution. There were a number of reports issued by the officials of various mints about the causes of the crisis and various suggestions for reform were made, but these too came to naught.21 The political unity necessary for reform was not there, although the economic understanding as shown in these texts is remarkable for the times, and the debasement continued unchecked.

This then was the situation in the German lands shortly before 1618: structural weakness in agriculture, chaos in the monetary sector, a worsening of trade balances , a tradition of inflation, and no central authority capable of reform. The last weakness was critical for monetary reform because individual cities and territories stood to lose unless every one of them cooperated. When the conflicts of the Counter-Reformation broke out with the Defenestration of Prague which began the Thirty Years War in 1618, the crisis was compounded by these structural weaknesses, and the Kipper und Wipper inflation was the economic result.

In order to raise the armies necessary for this larger conflict, governments needed to raise large sums of money to pay mercenaries. Capital markets did not function efficiently and so it was hard for the governments to borrow the sums needed. Taxation was difficult without broad-based cooperation. If taxes were not unified across territories, suppliers and customers would gravitate to the area of the lowest tax rate. A unified tax code was impossible in the “crazy quilt” of territories which was the Empire, each with its partisan interests. The easiest solution was to strike more debased coins. The effect of debasing within one’s own borders could be further enhanced by going outside the territory and exchanging the debased coins for good coins and then returning these for further debasement, as previously discussed. Those dealing in this theft were people from all walks of life. Pastors, millers and peasants were particular targets. Pastors and millers turned over coins frequently but did not travel enough to know first-hand what was happening, and peasants, who might have small sums set aside, were particularly naive.

The period of inflation which broke out over the German lands in 1619 was known as the Kipper und Wipper inflation. The origins of “kipper” and “wipper” is uncertain, though both words are of lower Saxon origin. They may refer to the low German “kippen”, which means “to tilt” and “wippen” which means to “to wag”, recalling the action of the scales on which silver was weighed. They are possibly a more recent version of the early German “Stabreim”, or alliterative rhyme, of which “Kind und Kegel” and “Man und Maus”are examples still in use. Together their musical sound made them come into the language as a unit. Kippen und wippen may also be onomatopoetic, suggesting the back and forth action of the scales during weighing, which was not always done honestly, so the perpetrators became known as the Kipper und Wipper .22

Whatever their origin, the words came to mean the chaos in the monetary sphere resulting in an acute inflation in the early years of the Thirty Years War. Whilst not a hyperinflation in the modern sense such as Germany experienced after World War I, it was nonetheless unprecedented for contemporaries. The extent of the depreciation of the coinage in circulation has been illustrated by Sprenger23
Exchange Values of Large Silver and Gold Coins in Kreuzer, 1566-1623
(figures are averages; large regional differences existed)
Reichstaler Reichsgulden Goldgulden Dukat
(Guldentaler)

1566 68 60 75 104
1590 70 62 79 110
1600 72 64 80 116
1610 84 75 100 135
1616/17 90 80 112 150
End of 1619 124 105 140 192
End of 1620 140 120 150 210
End of 1621 390 330 480 720
1622/23 600+ 500+ 700+ 900+
after 1623 90 80 110 150

In July, 1622, Nuremberg imposed the death penalty for trading in debased coinage. That records for this period are scarce is understandable given the chaos and the lack of a good communications network. All that we can confidently say, lacking sufficient records for the smaller coins, is that mints sprang up “like mushrooms after a warm rain”24 and debased coins “poured from them in avalanche proportions”.25 Langer cites a particularly telling example in Brunswick, which had 17 mints in 1620 but by 1623 had 40, including the monastery at Ameluxborn, which had converted within a few months into a mint employing 300 to 400 workers.26

Most of the records we have are limited to a single Kreis, or circle, into which the Empire had been divided in 1512 for purposes of administering the Imperial Mint Regulations. This makes research into the course of the spread of the Kipper und Wipper extremely difficult. For example, scholars have suggested that it spread from the German lands to Poland through the port of Danzig, which the Dutch dominated and whose prices and exchange rates they controlled. Another possibility is that it may have moved to Poland along the coast from Pomerania, where debasement was rampant; another is that it entered Poland through Crakow, which was the center for the export of Polish coins to the Czech lands and Silesia. Another suggestion is that Leipzig was the origin, since it was a central city for coins and paid the highest prices for silver in all of Germany. Leipzig’s fair was the entry for much of eastern trade, including Poland’s. These commercial dealings all provided a possible conduit for the spread of debased coinage and thus inflation, but we cannot so far pinpoint the exact historical course.

As in all inflations, there were gainers and losers. One famous group of profiteers was a consortium which included Prince Carl von Liechtenstein and General Albrecht von Wallenstein, the commander of the Imperial forces. Under the terms of a lease from Emperor Ferdinand II made in January, 1622, the consortium was to control all the mints in Bohemia, Moravia and Lower Austria and to deliver to the Emperor specified amounts of coinage to support the army. Profit accrued to the members of the consortium through their selling silver to the mint at exorbitant prices or in such large volumes that they made vast sums. All circulating coins were to be turned into the nearest mint for a set price and then melted and re-minted with a copper alloy. The consortium devalued the money even more than allowed for in the contract in order to enhance profits. With profits thus made, Wallenstein enhanced a fortune he inherited on the death of his wife, who had been a wealthy widow, and this allowed him to acquire some 60 estates in Bohemia. When the Protestants were defeated at the Battle of the White Mountain in November, 1620, Wallenstein either confiscated the estates or bought them at imposed prices with debased coinage. With this vast fortune, Wallenstein was able to supply clothing and equipment for the Imperial Army he commanded after the Emperor was bankrupt and unable to raise the money to do so.

As in all inflations, the first stages had brought a temporary economic boom for merchants. People suffered from money illusion and increased their spending as they considered themselves wealthier with the higher nominal value of debased coinage. Profits may have risen as raw material and labor costs lagged behind prices. Since foreign imports had to be paid for in silver and thus became increasingly expensive (e.g. English cloth), local industry had a windfall of demand (e.g. Meißen textiles). By the same token, exports also boomed, as traders in linen, wool, wax, leather, yarn, and horses bought locally in debased coins and sold abroad for full-bodied coins.

While the nobility involved in debasement profited along with long-distance traders, others, especially those paid in cash in the cities, suffered. These would have included servants, day laborers, building craftsmen, teachers, miners, parish priests, carters, boatmen, and municipal officials. Without the ability to grow their own food, they faced increases of food prices of 500-800% over the course of the inflation. Elsas’s figures for foodstuffs and wages for journeymen in Augsburg in this period suggest that real wages fell by more than half from 1619 to 1621 and perhaps to a third in 1622.27 To make matters worse, those who supplied foodstuffs from the surrounding land began to demand payment in the larger, silver coins or payment of exorbitant prices in an attempt to hedge against the inflation. In Ravensburg it was written in 1623 that “ the farmers are treating the starving population so horribly that even a stone would be moved to pity”.28 Money broke down as a medium of exchange and laborers’ wages no longer supported them. They were forced to sell their household possessions for food, and hunger was widespread.

Violence broke out as the frustrated population directed their aggression toward the people they considered responsible for their plight. In 1621 in Halberstadt, for example, they plundered the house and property of the Mintmaster and then turned to the wealthy manufacturers. In 1622 in Magdeburg a mob destroyed the houses of the coin minters, even though earlier the city government had intervened and confiscated their equipment. 16 people were killed and 200 injured. There was unrest in Dessau, Erfurt, Halle, Eisleben, Mansfeld and Liepzig, and in Freiberg the citizens stormed the houses of the minters.29 Jews were often the target of blame, for they had traditionally been involved in coinage and long-distance trade.

We do not have direct evidence for the effect of the inflation on merchants, but we do know from the coinage reports contained in Hirsch that there was continual pressure on the Emperor from the Cities, and thus the merchants, to take action to stabilize the currency and to develop deposit banking. The deposit bank of Hamburg was established in 1619 following the example of Amsterdam in 1609.30 The bank helped to stabilize the exchange rates in the western Hanseatic trade by reducing trade in coinage and by making transfers from one account to another possible. By accepting only full-bodied Reichstaler, the bank effectively excluded the debased coinage from its transactions and preserved the value of the money in trade within the bank.

The situation elsewhere became intolerable when debased money was no longer accepted by merchants and farmers in payment for goods. The nobility who had played a major role in the inflation began to be paid rents in debased coinage and when debtors began to repay loans in worthless money, “what goes around” came around. At this point it became in the interest of everyone to end the inflation.

Some faltering first steps were attempted ( in Lower Saxony in 1619, in Wurtemberg in 1620, with the Treaty of Ulm in 1620, etc.) but these failed. The first successful step came when a mint treaty concluded in 1618 by the Hanseatic cities of Hamburg and Lübeck were joined in 1620 by the Duke of Mecklenburg, the Lower Saxon Circle, and by the Hanseatic city of Bremen in agreement with Wismar. A commission established by the local Parliament in Luneburg in April, 1621, set up a committee on the minting question. Its report in 1623 was adopted and was the crucial step in bringing the inflation to a halt in the Lower Saxon Circle, where it had been so rampant.31

The Upper Saxon Circle took decisive action in 1623 by immediately returning to the Imperial Ordinance of 1559, establishing a valor impositus that matched the unitas intrinseca. They ordered all coins to be re-minted on that basis and reinstated the mint trials which had not been held since 1618 to enforce the new regulations. The Swabian, Franconian, and Bavarian Circles undertook a more measured reform considered by Schöttle to have caused the “necessarily painful transition period to be unnecessarily severe and prolonged.”32 Finally, on February 8, 1624, Kaiser Ferdinand II issued a mandate reaffirming the Imperial Coin Laws.

A major problem in the aftermath, as with any inflation, was that of debts incurred during the period. A regulation from 1572 stated that debts should be repaid in the currency in which they had been contracted, and there was much support for basing a resolution on this principle. In the end, different circles worked out different solutions over a period of years, depending on who stood to lose and who to gain from the various options and how much influence they had in the courts.33 The resolutions of the court cases took years, and the courts were still bogged down with cases at the time of the Treaty of Westphalia in 1648 which ended the Thirty Years War. Those left holding debased coins received only the value of the metal they contained, which was a fraction of their previous market value. Langer estimates that people lost on average about 90% of the value when new coinage was introduced.34 So widespread was the fall-out from the inflation that in many cities and towns, a majority of the population was economically ruined. Freytag’s assessment of the damage is fully supported by contemporary accounts: “ The evil of this sudden devaluation of money fomented passion and discontent in families, hatred and indignation between creditors and debtors, hunger, poverty, begging and homelessness. It made upstanding citizens into gamblers, drunkards and brawlers, drove priests and teachers from their posts, brought well-to-do families to the point of begging, threw authority into hopeless disarray, and threatened city-dwellers in heavily populated areas with starvation.”35

This account of the events of the inflation is based on official written records, including prices, wages and government documents, and the analysis of its pathology is based on current economic theory. But whatever insights this episode may have for economists, it is certainly at least as interesting to political scientists and historians, for its foundation lay in the weakness of the government structure and in the lack of checks on its officials who were allowed to exercise their greed. Clearly, there was far more to resolve in seventeenth century German society than was accomplished on the battlefields of the Thirty Years’ War. In order to enhance our understanding of these broader issues, it is important to consider another contemporary source, the German political broadsheet. These broadsides provide a type of eye-witness account of the inflation and its impact which give insights which are otherwise lost over time.

[Stanley]

I know that not many visitors to the site have an interest in German Medieval Inflation but Martha write this for us and it's authoritative. Nice to remind ourselves that we have it in the archive.
Worth a read just to learn about Kipper und Wipper! (A handy phrase to drop into the conversation if you feel you are losing the advantage......)

[Stanley]

I still like Kipper und Wipper!

[Whyperion]

there is some thought that the ideal interest rate is one that gives a return of zero after inflation (so inflation rate=interest rate) For business and govt there is possibly an allowance to pay a little over this if growth exceeds inflation as a result of borrowing for investment