Debasement of silver currency by Philip IV of France

There is a passage in Montaigne's Lettres persanes where he writes that the King of France is like a magician: if he has only one thousand ecu in his treasury, and he needs two thousand, he can persuade his subjects that one ecu is worth two, and they'll believe it ("s'il n'a qu'un million d'écus dans son trésor, et qu'il en ait besoin de deux, il n'a qu'a les persuader qu'un écu en vaut deux, et ils le croient").

We know very well who was the king Montaigne is referring to: Philippe le Bel, that is, Philip IV of France.

Silver gros tournois of Philip IV

His reign was eventful: it was him who destroyed the order of the Knight Templars; he was excommunicated by Boniface VIII in 1303; he expulsed the Jews from France in 1306, confiscated their wealth, and then appointed royal officiers to collect the debts that people owed to the Jews.

He seems to be always short of money, he often levied extra taxes to finance his wars, and he is also infamous for debasement of the 'good ancient money' of his predecessors, most notably Saint Louis (Louis IX).

Saint Louis IX in 1266 minted a coin of virtually pure silver (23/24) that was worth one sou, called the gros tournois. Up to 1295, it was regarded as equivalent of 12 deniers, which were small coins of billon, containing variable, but ever diminishing amount of silver. As Gresham's law would predict, the gros tournois, which contains much more silver than the equivalent 12 deniers, disappears from circulation: it is treasurized or melted down or taken out of the country.

In the following, I rely on data from the paper "The Expulsion of the Jews from France in 1306: a Modern Fiscal Analysis" by Stéphane F. Mechoulan, published in the Journal of European Economic History 33 (3): 555-584, 2004.

Philip tried to stop the outflow of silver in vain; he prohibited taking silver and gold out of France in 1289, 1295,1296, and once again in 1303. These measures were ineffective. National and international trade both required increasing amount of money and soon a shortage of silver developed.

In 1290 Philip declared that 1 gros tournois should be equivalent to 13 1/8 deniers, instead of 12. This was the first step in devaluating the denier. This move caused some increase in prices, and among others, price of silver increased as well: from 1285 to 1295, the price of 1 marc (244,752 g) of silver increased from 54 to 58 sous.

So Philip soon found that even at 13 1/8 deniers, the gros tournois is still undervalued, and in 1295 he changed the official exchange rate to 15 deniers, and he also reduced the silver content of the gros tournois to 75%. In a decree, announcing the changes, the king has spoken thus:

"We have been obliged to have a coinage struck which lacks something of the weight and of the alloy that our predecessors put into it.” But, adds the King, “ I shall accept myself this money in payment of that which is due to me, and later I shall indemnify those who shall have suffered any loss from this cause ”
(Quoted in The National History of France by Frantz Funck-Brentano transl. by Elizabeth O’Neill, London, 1922)

Prices again adjusted soon, and the price of silver immediately rose to 61 sou per marc. and by 1303, 1 marc of silver was already 104 sou!

In 1303, Philip set the exchange rate to 26 1/4 deniers, following the de facto exchange rate of the market. This kind of devaluation of the denier turned out to be quite rewarding for the state: income from seigniorage mounted to 50-60% of the total income of the crown.

The denier reached its lowest point in 1306 when the gros tournois was exchanged for 41 and 1/2 deniers. Of course, devaluating the denier also means that the sou and the livre is devaluated as well, since these are not coins but units used for keeping accounts and to express prices, and their relation (1 livres = 20 sou, 1 sou = 12 denier ) remained fixed. The billon denier coins were really token currency, having little inherent value, that is, silver content. So it was possible to produce lots of them with little cost, just like producing money in our modern monetary system.