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October 31, 2020
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Money has been wasted in the past on the world. Part 5. The golden period – Blocksats

In the previous section (available here) we discussed what happened at the level of money during the Middle Ages. Today we will look at the times after the discovery of America by Christopher Columbus. Despite appearances, it revolutionized the economic situation of almost all countries in Europe.

“Golden Period”

Geographic discoveries paved the way for European powers to conquer new continents. However, we are most interested in something else. Namely, how it affected the economy. If you read our cycle carefully, you know that the Old World had some problem with the availability of gold. The crusades may have partly helped, but there was still too little ore. The latter (plus greed and a tendency to cheat subjects) provoked the rulers to mint as many coins as possible from the smallest amount of gold and silver.

After that, however, when the Spaniards arrived in America and began to import ores from there, the number of the latter on the markets jumped several times. It was only in the second half of the 16th century that the gold supply stopped growing dramatically. The matter was even worse when it comes to silver. In the 17th century, there was 15 times more silver in Europe than gold.

Theoretically, the head does not hurt from the tabernacle. Unfortunately, that’s the theory. The influx of gold led to a decline in its value and thus a jump in prices. You know, it’s kind of like someone suddenly pumping a lot of new dollars or zlotys into the market. The effect would have to be inflation. Sounds familiar, right?

However, the problem affected primarily Western Europe, and all this turned out to be an opportunity even for Poland. As somebody wise once noticed, human work cannot be reprinted. Our ancestors had an economy based on grain exports. These, however, began to become more expensive due to the drop in bullion prices. For the Polish-Lithuanian Commonwealth truly golden times have begun!

Unfortunately, as early as the 17th century grain prices collapsed. Note that this was also partly correlated with the reduced supply of gold. Let us also point out that along with economic problems came political ones. This is the period about Henryk Sienkiewicz: the uprising of Chmielnicki (“With Fire and Sword”), the Swedish Deluge (“Deluge” and the war with Turkey (“Mr. Wołodyjowski”). It remains to be regretted that the gentry elite are in a good way, instead of thinking a few steps forward and investing large earnings in development. Once again we will repeat: it sounds suspiciously familiar …

Thaler reform

Let’s get to the level of strictly money emission. Thaler reform was carried out in Europe at that time. Thaler was a general concept. It was only a type of coin that was minted under different names in different countries. For example, in 1526 Henry VIII (yes, this famous bigamist) began to beat his crowns in England – a type of thalers.

Interesting is the fate of Sweden. Thalers have been beaten there since 1534. The problem was, however, that Sweden, which was known today for its prosperity, was a very poor country at that time. Poverty, however, increases creativity. So the Swedes came up with the idea of ​​not minting gold or silver coins. After all, if there is … copper. Yes, they began to produce money from this raw material.

Of course, the inhabitants of the kingdom did not want to use such miserable coins (after all, this is a big shame!). It was then that the country’s authorities came up with an innovative idea. In a sense, they created the fiat currency. What is going on? Swedes were forced to use coppers. Despite the fact that they did not present actual value in themselves, the subjects were stuck in their heads that they must pay them, because the king orders them so! Let’s understand recalcitrant Swedes. It’s like someone telling them to pay them with pieces of paper! Oh, wait … One by one, however.

Coins to kill

This is not the end of the Swedish adventures with coins. In 1633, platmynters appeared in circulation. It was money. Kind of, because in practice they probably resembled gym equipment. The 10-thaler platmynt weighing … 20 kg. Such a block can probably kill someone more, and not pay for a roll, ham and cheese, right? They looked more or less Yes – seriously, it’s hard to believe that someone came up with something like that! We hope that after this paragraph you will stop complaining about the “bumps” that are buzzing in your wallets!

Paper money

golden periodWe have already mentioned the idea that money should be in the form of papers. Okay, we wrote it in a fairly humorous tone, but to tell the truth this vision is not original. The ancient Chinese used banknotes for centuries, and then even Mongols. Europeans, who for centuries despised the first and second, began to use them later.

We are now returning to England. The inhabitants of this country began to use banknotes first – at least when it comes to Europe. Why did they come up with such an idea? From convenience! They deposited their savings in the form of ores in some safe place, which was the national treasury. There, they received a receipt confirming the adoption of the measures. In time, along with this solution, goldsmiths appeared on the market as depositaries. And they began to store gold, and instead issued paper bearer receipts – something like banknotes. Initially, it was a quite successful system. Unfortunately, people have something in them that causes them to spoil everything …

The goldsmiths quickly realized that they could issue more receipts than they have from gold customers. So they began to produce empty money.

At first, everything went fine. Gold was safe with goldsmiths, and they produced their receipts in record quantities. Unfortunately, in 1672, the financial crisis hit Europe. It all started with the panic that broke out about the problems of the Bank of Amsterdam. This existence was threatened by the war with France. The resulting panic moved to England, in which a recession broke out. This was accompanied by a wave of bankruptcy of many goldsmiths. Their manipulations were also revealed. The financial system of that time was ruined. However, some influential groups decided to take advantage of it …

central bank

The concept of the central bank was created in England. Its creator, however, was not an Englishman, but a Scot, William Patterson. In the background, the authorities decided to impose a tax on the transport of goods by water. The money was to be spent on the war, but Patterson suggested that a bank be set up to go to. Ultimately, it was created in 1694.

Importantly, the Bank of England was a joint stock company that was independent of politicians. It was headed by a 26-member Board of Directors, governor and deputy governor. What’s even more interesting, the first had to come from outside the bank, the second was to be a former employee of the institution.

Historians evaluate the Bank of England very well. In 1717 he established the parity of the pound at 7.322385 g of gold, which strengthened the currency. The creator of the parity was the father of modern physics – Isaac Newton. This parity lasted until 1931. Then it was worse …

CDN.

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