11/11/2016 15:00


This paper investigates the determinants of the value of money and patterns of monetary stability in Europe from the late medieval era until World War I. For this purpose we compile a new annual data set of value of money and periods of silver, gold and fiat standards for 11 major European polities (Austria-Hungary, Dutch Republic, England, France, Ottoman Empire, Poland, Portugal, Russia, Spain and Venice). An overview of the value of money series identifies episodes of rapid depreciation alternating with periods of stability. By the 19th century, states in Western Europe had for the most part stabilized the value of their money, while states in Eastern and Southern Europe had not. In order to explain the differences in monetary stability, we test various explanations offered in the literature relying on OLS, Discrete Choice and Instrumental Variables methods. The evidence is consistent with fiscal explanations, with demands of warfare triggering depreciations. Political regimes with constraints on executive authority, on the other hand, gave economic actors adversely affected by depreciations a say in policy and stabilized the value of money. As for state capacity, we find that states with intermediate levels of tax revenues depreciated their money the most, because weak states lacked the capacity circulate widely accepted currency in the first place, while strong states did not need the revenues from depreciating money.
*: Joint work with Şevket Pamuk and Seçil Yıldırım-Karaman