The Big Problem of Small Change

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Princeton University Press, Nov 23, 2003 - Business & Economics - 405 pages

The Big Problem of Small Change offers the first credible and analytically sound explanation of how a problem that dogged monetary authorities for hundreds of years was finally solved. Two leading economists, Thomas Sargent and François Velde, examine the evolution of Western European economies through the lens of one of the classic problems of monetary history--the recurring scarcity and depreciation of small change. Through penetrating and clearly worded analysis, they tell the story of how monetary technologies, doctrines, and practices evolved from 1300 to 1850; of how the "standard formula" was devised to address an age-old dilemma without causing inflation.


One big problem had long plagued commodity money (that is, money literally worth its weight in gold): governments were hard-pressed to provide a steady supply of small change because of its high costs of production. The ensuing shortages hampered trade and, paradoxically, resulted in inflation and depreciation of small change. After centuries of technological progress that limited counterfeiting, in the nineteenth century governments replaced the small change in use until then with fiat money (money not literally equal to the value claimed for it)--ensuring a secure flow of small change. But this was not all. By solving this problem, suggest Sargent and Velde, modern European states laid the intellectual and practical basis for the diverse forms of money that make the world go round today.


This keenly argued, richly imaginative, and attractively illustrated study presents a comprehensive history and theory of small change. The authors skillfully convey the intuition that underlies their rigorous analysis. All those intrigued by monetary history will recognize this book for the standard that it is.

 

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Contents

Introduction
3
A Theory
15
Our Philosophy of History
37
Technology
45
Medieval Ideas about Coins and Money
69
Monetary Theory in the Renaissance
100
Clues
123
Medieval Coin Shortages
131
England Stumbles toward the Solution
261
Britain the Gold Standard and the Standard Formula
291
The Triumph of the Standard Formula
306
Ideas Policies and Outcomes
320
A Theory of FullBodied Small Change
335
The Model
337
Shortages Causes and Symptoms
350
Arrangements to Eliminate Coin Shortages
366

Medieval Florence
139
Medieval Venice
160
The Price Revolution in France
186
Token and Siege Monies
216
The Age of Copper
227
Inflation in Spain
230
Copycat Inflations in SeventeenthCentury Europe
254
Our Model and Our History
373
Glossary
375
References
377
Legal Citations Index
393
Author Index
395
Subject Index
399
Copyright

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About the author (2003)

Thomas J. Sargent is Donald Lucas Professor of Economics at Stanford University and Senior Fellow at the Hoover Institution. A pioneer of the rational expectations school of macroeconomics, he is the author of The Conquest of American Inflation (Princeton), Bounded Rationality in Macroeconomics, and Dynamic Macroeconomic Theory. François R. Velde is Senior Economist at the Federal Reserve Bank in Chicago and Lecturer in Economics at the University of Chicago.

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