Small Change

October 2023

For a long time, the poor in Europe didn’t have any money. I mean that in the physical sense that they had no coins, paper bills, or other formal currency. Georges Duby notes that in eighth century Gaul, the only minted coins were made of gold and silver, too valuable for use in day-to-day transactions amongst peasants:

More characteristic of the limited part played by money in the development of exchange is the absence, in the most advanced societies of those times, of small change suitable for minor transactions. The ancient world had struck small currency in bronze. This no longer appears in Italy or Gaul after the sixth century: from then on only gold and silver coins were in circulation. These had very high values as legal tender. In exchange for a single silver denarius [4.5g of silver, about $3.15 today], the Frankfurt capitulary of 794 enjoins the king’s subjects to part with one dozen wheaten two-pound loaves, fifteen rye-bread loaves, or a score of barley-corn loaves. How then did people pay for one loaf, a man’s daily ration?

(The answer was barter.) Eric Helleiner notes that hundreds of years later, in 1700s England, it was still too expensive to produce low-denomination coins at scale:

The limitations of preindustrial coining also prevented public authorities from producing mass quantities of high-quality, low-denomination coins. Only with enormous time and expense could copper and bronze be worked in such a way with traditional techniques to produce very high-quality, low-denomination coins. Coining costs were particularly steep because the face value of these coins was very low. Indeed, copper coins would normally have to be produced at a loss in countries that were committed to keeping the metallic value of coin equal to its face value.

Helleiner goes on to further note that even producing paper money at low denominations was impractical, because the cost of anti-forging precautions was higher than the face value of the notes.

The result of all this is that there was a categorical difference between “real” money (gold and silver coinage) and petty currencies, used by the poor mainly as bookkeeping tokens. As a peasant, you might sell a loaf of bread to your neighbor and get a lead token from him, mainly as an IOU tally mark. You obviously can’t exchange this token for “real” money, unless you find someone locally who’s willing to pay you for a debt obligation from your neighbor. Helleiner:

Low-denomination monetary instruments in many parts of the world consisted of “fiduciary” coins made of copper, bronze, or other base metals. These coins were often issued by local merchants or towns, and were not easily convertible into officially sanctioned higher-denomination metal coins both because of their uncertain value and because their circulation was often limited to small geographic areas… The authorities who produced these petty coins rarely tried to control their supply and, as noted in chapter 3, they often did not even consider them to represent “real” money.

Interestingly, part of the push for national currencies (what we’d call fiat money today) was an argument that it was egalitarian: at last, the poor would be paid in “real” money, and their earnings would have value outside the small hamlet where they lived. It’s similar to the argument against corporate scrip that came later (“I owe my soul to the company store”).