Commodity Money

To read the full-text of this research, you can request a copy directly from the authors.


Commodity money is a medium of exchange that may be transformed into a commodity, useful in production or consumption. Although commodity money is a thing of the past, it was the predominant medium of exchange for more than two millennia. Operating under a commodity money standard limits the scope for monetary policy, actions that alter the value of money. However, it does not eliminate monetary policy entirely. The value of money can be altered by changing the commodity content or legal tender quality of monetary objects, or by restricting the conversion of commodities into money or vice versa.

No full-text available

Request Full-text Paper PDF

To read the full-text of this research,
you can request a copy directly from the authors.

ResearchGate has not been able to resolve any citations for this publication.
Full-text available
This study establishes several facts about medieval monetary debasements: they were followed by unusually large minting volumes and by increased seigniorage; old and new coins circulated concurrently; and, at least some of the time, coins were valued by weight. These facts constitute a puzzle because debasements provide no additional inducements to bring coins to the mint. On theoretical and empirical grounds, the authors reject explanations based on by-tale circulation, nominal contracts, and sluggish price adjustment. They conclude that debasements pose a challenge to monetary economics. This article was originally published in the Journal of Economic History (December 1996, vol. 56, no. 4, pp. 789--808). It is reprinted in the Federal Reserve Bank of Minneapolis Quarterly Review with the permission of Cambridge University Press.
Currency crises in Europe and Mexico during the 1990s provided stark reminders of the importance and the fragility of international financial markets. These experiences led some commentators to conclude that open international capital markets are incompatible with financial stability. But the pre-1914 gold standard is an obvious challenge to the notion that open capital markets are sources of instability. To deepen our understanding of how this system worked, this volume draws together recent research on the gold standard. Theoretical models are used to guide qualitative discussions of historical experience, while econometric methods are used to help the historical data speak clearly. The result is an overview of the gold standard, a survey of the relevant applied research in international macroeconomics, and a demonstration of how the past can help to inform the present.
This paper presents a theory of inflation in commodity money and supports it by evidence from inflationary episodes in France during the 14th and 15th centuries. The paper shows that commodity money can be inflated similarly to fiat money through repeated debasements, which act like devaluations. Furthermore, as with fiat money, demand for commodity money falls with inflation. However, at high rates of inflation demand for commodity money becomes insensitive to inflation, since commodity money has intrinsic value in addition to its transactions value. Finally, we show that anticipated stabilization reduces demand for commodity money.
This is a full-scale study of the history of money, not merely of coinage, to have been written for medieval Europe. The book is not limited to one country, or to any one period or theme, but extracts the most important elements for the historian across the broadest possible canvas. Its scope extends from the mining of precious metals on the one hand, to banking, including the use of cheques and bills of exchange, on the other. Chapters are arranged chronologically, rather than regionally or thematically, and offer a detailed picture of the many and changing roles played by money, in all its forms, in all parts of Europe throughout the Middle Ages. Thus money is seen as having differing values for differing parts of individual societies. The book shows money moving and changing as a result of war and trade and other political, economic and ecclesiastical activities without regard for national barriers or the supposed separation between 'East' and 'West'.
Commodity money is modeled as one or two of the capital goods in a one-consumption good and one or two capital-good, overlapping generations model. Among the topics addressed using versions of the model are (i) the nature of the inefficiency of commodity money, (ii) the validity of quantity-theory predictions for commodity money systems, (iii) the circumstances under which one commodity emerges naturally as the commodity money, (iv) the role of inside money (money backed by private debt) in commodity money systems and (v) the circumstances under which a government can choose the commodity to serve as the commodity money.
The authors analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo. Nash equilibria in trading strategies are characterized. Certain goods emerge endogenously as media of exchange, or commodity money, depending both on their intrinsic properties and on extrinsic beliefs. There are also equilibria with genuine fiat currency circulating as the general medium of exchange. The authors find that equilibria are not generally Pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare. Velocity, acceptability, and liquidity are discussed. Copyright 1989 by University of Chicago Press.
This paper formulates a model of commodity money that circulates by tale, and applies it to a variety of situations, some of which seem to confirm, and others to contradict, `Gresham's Law'. We analyze how debasements could prompt decisions of citizens voluntarily to participate in recoinages that subjected them to seigniorage taxes.
L'int�r�t de l'approche par les jeux globaux ("global games'') est pr�cis�ment d'ancrer les anticipations sur des variables exog�nes r�elles. On peut ainsi garder l'aspect auto-r�alisateur des anticipations mais en restaurant l'unicit� de l'�quilibre et donc un meilleur pouvoir pr�dictif du mod�le. Nous illustrons ces m�canismes sur deux exemples. Le premier a trait au choix r�sidentiel d'agents qui ont une pr�f�rence "identitaire''. Le second a trait � la contagion de paniques bancaires d'un pays � un autre. De mani�re plus g�n�rale, tous les jeux qui pr�sentent des compl�mentarit�s strat�giques sont susceptibles d'�tre analys�s au moyen des techniques des "global games''. Il convient toutefois de rappeler que les techniques utilis�es demeurent assez sp�cifiques: l'incertitude strat�gique porte essentiellement sur les croyances de premier degr� des autres acteurs. Or, si de mani�re plus g�n�rale on suppose que cette incertitude peut porter sur des ordres plus �lev�s, les conclusions des mod�les peuvent changer. Ainsi, Weinstein et Yildiz (2004) montrent que dans un oligopole de Cournot, il y a une tr�s grande multiplicit� d'�quilibres si on suppose que l'incertitude porte sur les croyances de niveaux suffisamment �lev�s.
this paper, and traces England's inability to adopt the gold standard before the 19th century to the problem of small change. She finds that "technological di#culties (the threat of counterfeiting) and institutional immaturity (no guarantor of convertibility)" were the main obstacles. According to Redish, Matthew Boulton's steam-driven minting press of 1786 overcame the first obstacle by finally giving the government a su#cient cost advantage over counterfeiters. Redish identifies no such watershed with respect to convertibility. Though she traces the Bank of England's protracted negotiations with the Treasury over responsibility for the silver coinage, it is not clear what the obstacle was, and how it was overcome. In her conclusion, Redish suggests the earlier history of small change as a possible testing field for her theory. In some ways, we are pursuing this project here.
Bimetallism: An economic and historical analysis
  • A Redish