The 16th century was a period of massive inflation. European silver production increased as gold and silver came from the Americas. The growing importance of credit transactions plus population growth and the expansion of European economies and trade were all factors. In the Danube region the price of grain increased 170%; meat prices soared by 110%. Wages did not keep up with the precipitous rise in agricultural prices: A Viennese bricklayer’s apprentice had received daily wages equivalent to eight pounds of beef in 1500; in 1600 his daily earnings netted him only five pounds of beef.

At the beginning of the 17th century, inflation accelerated, finally leading to a bout of hyperinflation known as “Kipper und Wipperzeit” in 1621–22. It should be noted that coin scales to check the Wippen were illegal. You weren’t supposed to check the weight of the coins.

Timeline of events in a bit more detail:

1559—The Augsburg Imperial mint ordinance of the Holy Roman Empire was implemented. Per this ordinance, only a selected group of princes had the right to mint. Mints could not be sold. Export of coins and silver was prohibited and import of foreign coins limited. The metal content of coins was set and debasement punishable by death. Standardized denominations such as 9.5 gulden to the mark were defined. Bimetallic standard largest coins were gold; all others silver. Except it didn’t work. People started breaking the rules before the ink was dry, starting with the lowest denomination coins where the cost of minting was greatest for a given amount of silver.

1576—Spain declares bankruptcy

1582—1 reichstaller = 68 kreuzer

1587—Venetian Banko della Piazza di Realto founded in response to the bankruptcy of the private deposit banks.

1596—Spain declares bankruptcy

1607—Spain declares bankruptcy

1609—1 reichstaller = 84 kreuzer

1609—Amsterdam Deposit Bank founded. Coins could be deposited and the respective amount would be credited in bank money. The quality of the coins would be assayed at the time of deposit. Bank money could be transferred to someone else’s account by assignment, avoiding the cost and pain of transferring the coins directly.

1614—Lending bank established in Amsterdam, to make loans to the government and against collateral, mostly coins and bullion. This led to the creation of money through writing of bills of exchange. Any account holder could write bills in terms of bank money. In effect, the two banks together become a fractional reserve bank without being thought of as one.

1617—Duke of Braunschweig-Wolfenbuttel ordered the coining of 210 groschen from one mark of silver compared to 110 required by the ordinance.

1616—Middelburg Deposit bank founded.

1619—Hamburg deposit bank founded.

1621—330 groschen to the mark. 46 gulden to the mark

1621—Nuernburg Banko Publico founded. Note: the Nuernburg Banko Publico never did all that well because its bank money wasn’t a consistent amount of silver and because it started loaning money to the government of Nuernburg from the get go.

1622—Hans de Witte, Albrecht von Wallenstein and Karl von Liechtenstein lease all mints in Bohemia, Moravia and Lower Austria from Ferdinand II and are granted a monopoly for silver purchases and coin production in those areas. Silver was to be minted at 79 gulden per mark. But they diluted it even more. Ferdinand II got six million gulden from the lease. The value of the thaler rose from an original equivalent of 1 gulden, 8 kreuzer to 11 gulden, 15 kreuzer. Yet that change could not have been because of an overwhelming increase in the money supply simply because they could not melt and remint all the coins in the Holy Roman Empire in the space of a couple of years. There would be coins of varying silver content from older mintings. How many coins could they manage to mint in just under two years when they had to buy the silver? Assume that they mint 90 gulden to the mark and assume that they managed to mint coins equal to twenty percent of those already in circulation. The total increase in the money supply is somewhere between ten and fifteen percent. That’s not hyperinflation territory if you’re dealing with credit money.

1623—Near the end of the year Ferdinand II decreed the withdrawal and exchange of the kipper money. 100 thaler of kipper coins were exchanged for only 13.3 thaler imperial coins—an 87% loss of value tantamount to national bankruptcy. Note that the people who had been stuck with the kipper coins took the loss, not Ferdinand II.

1624—Most of the exchange of Kipper and Wipper money for new imperial coins. Legal copper coins were first minted in Sweden.

1627—The Castilian economy collapsed. The Spanish had been debasing their currency to pay for the war in the Netherlands and prices exploded in Spain.

At the same time, the average German peasant saw cash money only occasionally for most of the sixteenth and seventeenth centuries. Per Govind P. Sreenivasan’s The Peasants of Ottobeuren, 1487-1726, they used “money” but not cash. As in: Hans has a debt of 4 Gilders on which he pays two and one half Gilders by taking five horses to market. There are lots of examples that indicate that though actual coins were occasionally used, more often than not it was small-scale money of account, because neither side of the deal actually had any coins. It was debt money, full faith and credit money, but not issued by the government. It was issued by the borrower when he promised to pay later for something that he needed and accepted by the lender he was getting the goods from.

In today’s world there are tight-money economies, and cash-strapped economies, but the situation in early-seventeenth century went beyond that . . . to the border of a barter economy. At least for the poor and up to the lower middle class.

This way of doing things compensated some for the lack of money. However, it had its drawbacks. It meant that people were tied into a market where they were known. Their credit wasn’t, for the most part, portable. They couldn’t go after a better job because they didn’t have a reputation in the next town and they had no money to get them by till they got established.

So, how can you have hyperinflation when there isn’t enough money to support the economy? Simple: base your money on a commodity, in this case silver, then don’t put the full amount of silver in the coins. Credit money and commodity can coexist and trade one against the other, but they don’t mix well. You can’t have a solid currency that is part one and part the other. If you try, the lack of the commodity in your coins causes the value of the coins to drop. Or, if the commodity price goes up, people start buying your coins for the commodity and taking them out of circulation.

That was the general state of affairs in Europe when the Ring of Fire happened in 1631. The Ring of Fire brought with it some—but by no means all—of the knowledge of economic theory that had been accumulating over the ensuing centuries. Spain’s economy was in collapse; Germany’s was worse; France’s was held together by the power of the central government. The economic bright spots were the United Netherlands and Venice.

People were making do, making their own money, simply by deciding it was there. By accepting each other’s promise to pay them later and then accepting goods and services for the debt owed.

After the Ring of Fire

The Ring of Fire happens and things start to diverge. What follows is deduction combined with canon from the books and stories in the 1632 series.

There is going to be pressure on the Finance Subcommittee from the beginning to introduce silver coinage. The Finance Subcommittee will fight the pressure as long as it can, but may be forced to a compromise. The compromise is the issuing of silver coins that are not American dollars or any multiple of dollars. It won’t be a silver dollar or a silver ten-dollar coin or twenty-dollar coin. If anyone tries to call it a dollar, Coleman Walker will have a conniption fit and so will the rest of the Finance Subcommittee. An Amsterdam bank money gulden represents a bit over three-quarters of a troy ounce of silver in a vault in Amsterdam. 24.616 grams or 0.791 troy ounces. So, sterling silver is going to start trading in the Grantville exchange at about $250.00 a troy ounce. By the time that the Dutch gulden is down to $42 to the dollar, sterling silver is trading at around $53 dollars an ounce. The Pfennig, which is generally the smallest denomination available before the Ring of Fire, starts at about $7.50 and ends up around $1.50. Even a brass farthing in England starts out at $3.12 and is still worth $0.66 when the American dollar reaches $42 to the guilder.

There is a transaction cost in having a currency that is hard to subdivide below the dollar level. It’s not just that little Penny can’t save her pennies and little Hans isn’t going to get his hands on any hard money no matter how many chores he does. Little Hans’ mom is affected when she goes to the bakery for the family’s daily bread as well. The baker can charge one pfennig for a loaf of bread or he can charge two. He can adjust the size of the loaf a bit if the price of flour changes, but he can’t drop his price nor raise it in small increments. So the family ends up with extra three-day-old bread but can’t put aside a little at a time to buy a new cheese grater. Not having currency in smaller than dollar amounts limits competition because the baker down the way can’t lower his prices.

One of the hidden benefits of the introduction of the American dollar will be the ability to make incremental price adjustments. The baker can offer the widow Schmidt a three-quarter size loaf for less than the full-size loaf, since she has only little Hans to feed and a full-size loaf would get moldy before it got eaten. And if the first baker won’t do that, well, the one down the lane will and get more customers for his trouble. This hidden benefit will show up gradually as increased production and sales of low cost items and in minor price adjustments on larger purchases. This will be followed by a gradual decrease in the “in kind” arrangements that were so prevalent.

The acceptance of paper money that isn’t based on silver isn’t that much of a stretch, not for a farmer who has been trading his labor for goods and services based on the local merchants’ account books. It takes a bit of explaining and a bit of salesmanship. Some of the farmers need some silver, enough to pay off debts, or at least pay them down. So, just at first, there is quite a silver crunch. The Roth’s stock of precious metals is vitally important in the first couple of months. So is the silver that Captain Mackay deposits in the first national Bank of Grantville. And while a couple of trunks full of silver may not seem like that much to run an economy on, the local economy has been running on not much more. What it hasn’t been doing—couldn’t do—was be flexible enough to expand.

With the small denomination coins being the ones that have been most adulterated during Kipper and Wipper and time leading up to it, there are a lot of small denomination silver coins that are mostly copper. Some up-timers will end up selling stuff for silver that turns out to be copper. This makes the up-timers, at least most of them, hesitant to take down-time silver coins. The First National Bank of Grantville accepts silver coins but only after assaying them.

The value of a large number of coins as judged by their metal content is difficult to determine with precision. Coins can be devalued by clipping, shrinking or adulteration. If you have a hundred coins and a few of them are clipped or shrunk and you put them all on a scale, you will get the same weight as if you have a hundred coins and half of them are adulterated with copper. So, if you go by weight, you’re going to end up paying silver prices for a weight of copper.

That is, however, much less of a problem for the up-timers than it would be for the down-timers. Starting with a coin-operated vending machine—or perhaps two or three of them—you can readily develop a device that will sort coins individually by size and weight. Uriel Abrabanel, as a banker, has a stock of local silver coins from various mintings. Without costing Uriel much, if anything, those coins can be used as a base line to test the equipment. A few representative samples can be further tested to determine with precision their metallic content.

From very early on the Bank of Grantville and the Credit Union are in a position to judge down-time coins. Private individuals and merchants mostly aren’t.

There was a fairly consistent “company store” mentality in the towns and cities of Germany at the time, a concerted and consistent attempt to restrict where the villages could buy and sell. Various authorities in various places would write laws requiring that villagers within a certain distance buy and sell only from the town. From the first trade that is made, the up-timers in the Ring of Fire are net exporters, simply because they have so much and their machines make their labor so much more productive. The up-timers are unwilling to be restricted in who they can sell to or buy from. From the very beginning of Grantville’s arrival, the towns of Germany are in no position to enforce such restrictions outside of their own walls.

Before the Battle of the Crapper there would have been some consideration given to the possibility of using force to get the up-timers to follow the rules—or at least to punish the villagers for buying from within the Ring of Fire. After the Battle of the Crapper, that is no longer a consideration.

In the summer of 1631, the only reason that the towns can still enforce their trade restrictions in town is that the up-timers decline to force them to stop. As a result, during the summer and fall of 1631 the towns around the Ring of Fire are walking a very fine line, trying to maintain their control of the surrounding countryside while not taking any action that the up-timers would consider justification for the use of force. Looked at in this light, the little incident with Gretchen and Jeff after the battle of Jena has some additional connotations in terms of what sort of restrictions the city governments can get away with placing on their citizens. So does Mike Stearns’ discussion of printing cooperation.

This doesn’t endear the up-timers to the towns and cities of Thuringia, but it sure makes them popular with the farming villages. Advanced sales of some or all of a village’s food crops helps with the food shortage in the winter of 1631-2. However, most of the people living in farming villages are in a state of perpetual debt. Much of the crop is already contracted to local towns. It’s hard-to-impossible for the farmers to sell where they want until debts are paid off.

These political factors have an effect on how towns and farming villages react to up-timer money. The towns would prefer not to take the up-timer money and the farming villages would prefer to have it accepted. However, the towns are in a bind. They are losing their market to the up-timers. Not just the villagers, but also the merchants—who the towns have less control over in the first place. The towns need to be able to sell their goods to the up-timers. If they can’t, their situation is going to go from economically precarious to out-and-out disaster.

Badenburg, Rudolstadt and Saalfeld, being closest, are affected first and most strongly. Uriel Abrabanel takes some heat in the early days for his acceptance of the American dollar. The fact that his niece sits on the Emergency Committee of the up-timers prevents that resentment from taking the sort of concrete form it might have otherwise.

Faced with little in the way of other options, Badenburg, Rudolstadt and Saalfeld took an “If you can’t beat them join them” approach. The American dollar became acceptable currency in those towns and the villages near them while production started moving from inside the Ring of Fire to all three towns, HSMC in Badenburg, USE Steel in or near Saalfeld, Krause Furniture in Rudolstadt, and many more. By the spring of 1632, the three towns around the Ring of Fire and the surrounding farming villages had effectively merged in terms of trade. You could buy products produced in any of them, in all of them, without special restrictions. You could buy little things, like buttons. Things that cost less than even an American dollar. A whole new market opened up for the manufacturers of the Greater Grantville Area. Retail was born. And since the market was there, it became suddenly worth the effort and cost to make labor-saving devices that let you make lots of little things more quickly and cheaply.

Buttons and latches and files! Oh, my!

All of which the spies and other visitors to the area talked about when they got home, generally taking examples with them.

Spring planting in the region took full advantage of tractors, hastily constructed greenhouses and other up-time innovations, so that yields were generally improved and the yield of vegetables drastically improved. The use of greenhouses to sprout vegetables before the last frost of winter for planting outdoors later was labor-intensive, but—thanks to the tractors—the labor was available. Not that everyone, or even most, in the area were interested in such innovations, but enough were so that the tractors were kept busy and the greenhouses full. This produced a noticeable increase in food and other agricultural products. Prices for agricultural products that had been high in the first winter went down.

On the downside, by the summer of 1632 what they could do with just what had come with them was mostly already being done. The rate of economic expansion slowed as they had to wait for new tools-to-build-tools to come on line. Expansion didn’t stop; it just slowed to something closer to what one might consider a sane rate of expansion. Roads were still being built as fast as they had been before, but there were more to build. New businesses were still starting but they were having to wait for their production machines to come out of the machine shops, whereas most, but not all, of the new businesses in 1631 had been able to use modified up-time equipment.

Also, by 1632 the majority of people who have dealings involving American dollars have not seen the Ring of Fire. This is a change from 1631, when checking it out only took a couple of days walk. There is a noticeable difference in the response to American dollars between those who have seen the Ring of Fire and those who haven’t. Those who haven’t seen it but have just heard about it, even from a reliable source, may believe but still take with a grain of salt the miraculous event. So they look on the pieces of paper that the up-timers use as money with considerably more skepticism.

Somewhat countering this is the increasing availability of crystal sets and the increasing range of the Voice Of America. The money market that developed in Grantville in 1631 and the exchange reports that give weekly or daily reports on the relative value of American dollars, plus the extended Abrabanel family’s acceptances of American dollars and stated willingness to buy them with silver provides more than just a floor. It also provides an endorsement. “If the Abrabanels, canny merchants that they are, are willing to buy American dollars, there must be something to American dollars.”

By 1632 the economic advisors of various nations of Europe are getting information on how up-timer money works. Or, rather, how it worked up-time. Depending on the advisor and the government being advised, they may look at this as a way of scamming the hoi polloi, or as a valid economic system. Most fall somewhere in between. Monetary metals have a lot of inertia on their side, in terms of people’s belief that silver and gold have innate value. There will be quite a bit of head-shaking about how even peasants can be so gullible.

However, as the advisors and governments look at it, the more observant of them will see the trend of silver and gold flowing into the New US and out of the surrounding areas. It will take observation, because at that point the New US is still small enough that it’s barely a blip in the overall economy of Europe. It will be visible because the economy of Europe is a forest that can’t be seen for the trees. A few items will have reached places like Vienna, Rome, London and Madrid, but they will be curiosity cases. Agents will have reported on the phenomenal productivity of the area right around the Ring of Fire and the increase in general trade in the area as the roads get better. But it will as yet be fairly difficult for most to see it affecting them in any major way. It’s too small and far away. Like a campfire three valleys over, you might get a whiff of smoke, but that’s about all. The whiff of smoke in this case is rumors in the merchant circles that “This New US might be an interesting place to invest a few bob. If it survives that is. If it doesn’t get run over by one of the marauding armies.”

By mid 1633 it’s still a distant flame, but more of a bonfire than a campfire. It’s starting to get really noticeable. Merchants have started putting their few bob into manufactories along the Saale River, most of which are using small one-to-five horsepower steam engines. Magdeburg is being rebuilt with Simpson’s naval base and starting to look like a bonfire, too. But as fast as they are turning out goods in both places and innumerable places in between, they are not even close to keeping up with demand. Another fire is starting along the Werra River in and near Eisenach, where the improved roads connect it to the Ring of Fire and the Saale corridor. With good roads to Eisenach and the rail line rapidly approaching the navigable part of the Saale River, it’s cheaper to ship goods produced in Bremen to Halle by way of the railroad and roads than by river. The up-timers and their down-time partners aren’t just making money by manufacturing but by transporting goods as well. In the process, the price of even down-time produced goods is going down while the variety goes up.

More important to the foreign powers looking on is the increasing souvenir market. People are going to go look at the Ring of Fire and while there are buying souvenirs. An important souvenir will be photographic prints of the Ring of Fire. Which means that even those down-timers who aren’t able to go to the Ring of Fire themselves are able to see clear photorealistic images of it. Plus all sorts of knickknacks, some few of which were actually produced up-time. So, belief in the Ring of Fire increases and so does tourism and along with it comfort with up-timer credit money.

Also by 1633 Gustav Adolph, who introduced large copper coins in 1624 because he was short of silver, is very interested in American dollars and what he can do in a similar vein. One thing that he can do is introduce the Copper Dollar, a paper money that is based on a given weight of copper. Note that this is not canon that I am aware of but is likely. What he won’t be able to do—or at least will be advised against—is the introduction of credit or fiat money. This mostly because he overvalued the copper coins when he introduced them in 1624, so his credit isn’t any too good.

That changes with the creation of the USE in the fall of 1634. The New US Federal Reserve becomes the USE Federal Reserve and the right of princes and cities to mint their own coins is drastically curtailed, though probably not totally eliminated. This noticeably displeases any number of German princes, including John George of Saxony and George William of Brandenburg and is one factor—but only one—in their declining to accept the USE. It also produces resentment against the up-timers and the Stearns government among those who made all or part of their income through seigniorage. It’s not really a step the USE government can avoid, because failure to curtail private minting would pretty much amount to having government-sanctioned counterfeiting operations running.

Meanwhile, silver is arriving through trade and through increased mining operations allowed by up-time pumps and other up-time equipment. Improved refining techniques allow for more silver to be gotten from poorer ore and, for that matter, from copper through electrical refining. Taken together these things have the effect of a major silver and minor gold strike in the State of Thuringia-Franconia

By 1635, large amounts of information on industrial processes have poured out of the Ring of Fire into the rest of Europe. And to a great extent that knowledge of improved production techniques has gone directly into the hands of the courtiers closest to the crowns. This noble bud of his Majesty gets the right to make internal combustion engines. That old friend gets the right to manufacture toilets and plumbing systems. This imperial city gets the right to make typewriters, that one the right to make sewing machines. And, of course, it becomes a crime for anyone else to do it. Not everything, of course, nor in every country. But have no doubt that the powers that be will want to restrict by law who is and who is not allowed to get in on the new gravy train. And the kings will write and sign the laws with one hand while the other takes their gold in exchange.

But these would-be monopolists quickly run into a difficulty. Who can buy all these new products? They have just given a fortune—another fortune—to the king. The peasants have even less money than they had before. More of the middle class, small as it already was, was looted to get the money for the bribes. In the New US and now the USE, the problem has been sort of solved by giving credit to the poor and middle class. Which, in turn, is made possible by the controlled increase in the money supply.

So how are the other nations of Europe going to respond to this?

In our timeline it’s the Weimar Republic in the 1920s that is the cautionary tale of hyperinflation. Complete with pictures of people burning bundles of bills to keep warm. Though there are numerous examples of hyperinflation both before and after, the Weimar Republic is the one people point to. The causes for hyperinflation are the subject of economic debate, but in general it’s a debate of “which model” rather than “what’s happening.” What’s happening is that the minter/printer needs money and minting/printing more seems the easiest, best, or only way to get it.

Okay, hold it right there for a minute. We have a naming problem. The problem is that in the modern world there are two sorts of people that produce specie, whether coins or notes. Those are: employees of national governments and forgers. In the seventeenth century there were several shadings we don’t have. Sometimes governments issued currency directly. Sometimes they sold or rented the right to issue currency. The people who had that right, whether government or individuals, contracted with private mints for the coining. And the private mints often added a little more base metal to the mix and pocketed the extra coin. Also, it wasn’t just national governments that issued money. Lots of cities had the right to issue their own money, so did many and varied members of the nobility and who knows who else. So when it came time to weigh the coins there were lots of folks to blame.

There were also mints minting coins in one country with the full legal recognition of their governments for distribution in other countries. Often these were coins that looked quite a bit like a more valuable coin from the country of distribution. It was all mints then. There was paper money and the Bank of Amsterdam bank notes were preferred over coins, but it was, in today’s terms, more like checks or bearer bonds than what we would recognize as paper money. There were also accounts with the local merchant, often paid off in kind with no coins ever changing hands. Almost modern money . . . but not quite. Close enough so the concept isn’t hard for the down-timers to get their heads around, whether that particular down-timer is a financier or farmer.

I can’t just talk about governments and their monetary policy because it was often not the government making the decision as to how many coins, how much silver, and how much copper went into the mix. Nor is there any particular reason to believe that the same people who got the minting franchise won’t get the printing franchise. So the person deciding how many guilder or pound notes might be the king, a member of his privy council, or it might be a printer in Cornwall. It might be the city council of Vienna or an imperial knight who owns a print shop and has a friend who has a friend in Ferdinand’s court.

So what I am going to do is use the word “Issuer” as a sort of catchall, including governments and people authorized to one extent or another to act for the governments in introducing cash money into the system.

The economic situation in seventeenth-century Europe was borderline hyperinflation territory before the Ring of Fire. That is to say that it had all the factors that encourage Issuers to try solving their financial problems by creating loads of new money. With the addition of the Ring of Fire, the stresses that cause hyperinflation will be multiplied. If you’re a major merchant or wealthy noble looking at the situation, you’re probably going to feel that your money is safer in the USE than it is in your own country. It’s almost certainly going to bring a better return. At the same time there are all those goodies to buy. So you’re not only investing in the USE, you’re buying fancy goods from there.

As money flows into the New US and later the USE, it’s flowing out of the other nations of Europe in a time when the money supply was not adequate to the needs of the economy. It’s hard to start competing industries when you don’t have the money to invest in them. But that’s nothing compared to the virtual impossibility of having those industries be successful when no one has the money to buy what they produce.

Then there are all those armies to pay, powder and shot to buy. The Thirty Years’ War went a long way toward bankrupting Europe in our timeline.

And finally there is simple greed. Since the right to mint money was bought and sold in the Europe of the time, how much money was in the economy was limited pretty much exclusively by the amount of monetary metals available.

Time for a short break to look at what hyperinflation is. It’s a positive feedback cycle. More money, to less confidence, to still more money, to still less confidence, to still more money . . . . On and on until something drastic happens to put the brakes on.

Kipper and Wipper was an example of hyperinflation which acted as a cautionary tale in our timeline and kept the Holy Roman Empire money stable for a hundred years or so. But the money stayed stable at the cost of a depression which was hidden by the Thirty Years’ War. Hidden or not, that depression—as much as the war—was a cause of the second serfdom. The poor are hurt by depression much more than the rich and their bargaining position is hurt even more. In the case of Kipper and Wipper, it wasn’t the amount of extra money so much as the perceived loss of value because of a lower silver content. The increase in the money supply was certainly inflationary but not really hyperinflationary. Which gives some credence to the Neoliberalism notion that hyperinflation is the result of a crisis of confidence.

Whether hyperinflation starts with more money or less confidence, it’s the positive feedback that kills you. Now we add in the “American dollar” that has no silver or gold in it and doesn’t even pretend to represent silver or gold. Yet people have confidence in it. At first this is because of the Ring of Fire itself, then because of the stuff you can buy with it from the Ring of Fire, then because the neighbors trust it. At first the Issuers of the CPE and the rest of Europe will scratch their heads in wonder at how the up-timers are getting people to accept money that isn’t based on monetary metals. Then at some point they, or at least some of them, will say to themselves, “If the New US can do it, so can I!”

With any luck at all they will start slowly. I suspect that the first groups to print money outside the New US will print silver certificates of one sort or another. The Dutch were already, sort of, doing this. What will be new is that they will print more money than they have the silver to exchange it for. The Amsterdamsche Wisselbank or Bank of Amsterdam was a reserve bank. There was silver or gold in the vault for every guilder it issued. Silver certificates will work fine as long as everyone has confidence that they can exchange the paper for silver or gold should they want to. The Issuers won’t necessarily want to show that sort of restraint, but for the most part they are going to find it a bit harder to sell credit money than the up-timers do.

It’s important to note here that the first effects of increasing the money supply will be good. New businesses will start, people will have a little money in their pockets. They will make more goods and provide more services because they will be able to sell them easier.

Some of modern economic theory has quite a bit in common with Mercantilism but one important later realization is that it’s not a zero-sum game. That economies grow without necessarily causing their neighbor’s economies to shrink. Improved production means more goods and the money supply needs to reflect that fact. Almost as obvious is that it is, over the short term, a limited-sum game. You can’t just make an infinite amount of new money and have infinite goods and services appear magically to absorb it. The question is: How much money can you add and have an overall positive effect on the economy?

With the Weimar Republic in mind, and the natural fear about how “the peasants from the middle ages will react to paper money,” plus the fact that the only news they have heard in their lifetime is news of inflation, the New US Fed is going to take a conservative, “safe” approach to the question. Other Issuers will not feel the same level of restraint.

When Wallenstein, Lichtenstein and their partners acquired the right to issue currency in the sixteen-teens they did so by paying the Holy Roman Emperor an annual fee, which was standard practice at the time. It was then up to them to buy the silver, mint the coins, and distribute them by using them to buy stuff. After paying the emperor for the privilege, buying the silver and paying for the minting, the money produced was theirs to do with as they pleased. The more they produced, the greater their profit. There is no particular reason to think that printing money will be treated all that differently. Some differently, yes. There will probably be limits set on how much money an Issuer can produce, perhaps requirements that he keep so much silver on hand to exchange for paper currency on demand or, more likely, he will be required to pay the crown in silver. That kings, emperors and city councils will suddenly stop thinking of the right to issue money as an income source is not at all likely.

In fact, it’s probably not possible in terms of income stream. Seignorage was a significant part of the royal income which was not fully distinct from government income. In effect, it was a flat tax on everyone who used money. So, as the governments are losing other income streams in the form of provinces lost to Wallenstein, Don Fernando, the USE and so on, they are unlikely to be able to afford the loss of revenue that a federal reserve system would entail, whether the governments get that money by issuing it themselves or selling the rights to issue it.

That probably needs a bit of explanation. In the good old days the Issuer just minted money and bought stuff. Good for the Issuers, but not for the rest of us. In a modern federal reserve system, the new money is loaned to banks and in turn to the rest of us. Seignorage is mostly paid to borrowers in the form of lower interest rates. This allows not only for the adding of money to the system but for its removal as the loans are paid back.

Where were we? Right. The kings and potentates are losing territories and the income those territories generate, but not necessarily losing the expenses along with the income. Wallenstein’s army in the Thirty Years’ War was paid for by Wallenstein, not Ferdinand II. He financed the army he commanded and was to receive territory in return. He wasn’t intended to receive as much territory as he did in the 1632 universe, even if Ferdinand II hadn’t had him assassinated in our timeline. Still, the assassination of Wallenstein and the seizure of his lands was the only thing that put the Holy Roman Empire in the black, even temporarily, in our timeline. I don’t know what the arrangement was for the payment of Don Fernando’s troops in his campaign in the Netherlands, because that didn’t happen that way in our timeline, but fairly standard practice would have been to make him (that is, the Spanish Netherlands) pay for at least part of it.

The New US, at first, isn’t paying taxes to anyone but the New US government, so those towns, cities and lands are being taken out of the income stream starting in 1631. When the New US joins the CPE, it helps Gustavus Adolphus’ income stream tremendously but most of the territory he gives them is territory that at least nominally belongs to the Holy Roman Empire—still more of the HRE tax base gone. When the USE comes into existence, it includes a really big chunk of what used to be the Holy Roman Empire and which directly or indirectly paid taxes or fees to that body. The HRE actually owned a lot of that land as the government, so when the USE came into being the HRE not only lost taxes, it lost rent income as well. And the same is true of Wallenstein’s Bohemia. Since the Ring of Fire, the HRE has lost something like two-thirds of its territory and three-quarters to four-fifths of its income. Because Bohemia was a real cash cow.

France, at first glance, seems to be in pretty good shape, but it has been sending money to the various parties involved right along and debasing its currency to do it. It has just bought North America from England and paid King Charles a fortune for it. Which Charles needed, because he hasn’t called Parliament into session in a decade or so.

The northern Italian states like the Venetian Republic are in a relatively decent financial state. “Relatively” being the operative word. The southern Italian states are, at the moment, a drain on the Spanish economy. As are, by now, the central Italian states.

Spain is spending more money in Italy than it did in our timeline, and has lost the resources of the Spanish Netherlands. But that isn’t Spain’s real problem. Spain’s real problem is “Rule Espainia.” In the sixteenth century, Spain got rich from its conquests in the New World. It won the lottery—then spent more than even that provided. “Pissed it all away at the track.” “Blew it on fast women and fast cars.” So that Spain by now has champagne taste on a beer budget. The Spanish government is convinced that it is the natural ruler of the world. After all, the pope has said so. He divided the world between Spain and Portugal and Portugal is now part of Spain. The fact that the rest of the world, including Portugal, doesn’t agree is irritating but not significant. It would require a major change in direction and Spain isn’t set up for changing course. There are way too many vested interests who have too much to lose. Spain has not been kind to its possessions. It can’t afford to loosen its grip lest they rebel. It needs an army, a large one, to avoid disintegrating.

The Polish Lithuanian Commonwealth money was in the hands of the Grand Treasurers and a series of lesser officials. None of them were paid. Corruption wasn’t just rampant, it was standard practice. Which really isn’t all that different from the rest of Europe. When you add being able to just print money without having to actually acquire silver to the acceptability of corruption . . . well, let’s just say things can get out of hand.

Russia was reduced to paying for most of what it got in goods of one sort of another because it simply didn’t have any money to speak of.

The Ottoman Empire was huge but regimented. I haven’t found out much about their monetary policy except for the fact that they, like everyone else, seemed to be monetary-metal based. Their guilds were government controlled and prices for goods produced in the empire were set by that government. Their merchants weren’t so controlled, and set their own prices. And the whole focus of governmental policy was stability centered. Economic growth was limited to territorial expansion. However, the central government had, at best, limited control over what went on in the provinces. I don’t know who minted the money, but it was decreasing in silver and gold content.

Let us not forget the USE. A change in administration can lead to a change in policy. Should Wettin win the election, he is going to have favors to pay back and someone is going to want the treasury, someone is going to want to take over the USE Fed or abolish it. Having the keys to the mint is a plum post if you’re looking to get rich. And it will be argued that the income from seignorage is properly the king’s income to distribute as the government wishes. It will also be pointed out that that income would pay for a couple of good-sized armies.

Don Fernando is going to have expenses, too, what with the new wife and buying an airline. These things add up. Besides, the new wife’s family is a bit short of funds at the moment and will probably be hitting him up for a loan. A bit of bad advice and the Dutch guilder could take a nose dive.

Any monetary system requires restraint and in Europe in the seventeenth century, the lack of large quantities of silver and gold was the only restraint that they had. Everything else was designed and focused on producing the most coins and getting the most profit out of the system.

Sigh.

It’s a disaster waiting to happen, ain’t it, folks? All over Europe, all the evil, corrupt money men printing paper money by the cart load. The restraint of silver scarcity gone. Nothing at all to restrain their monstrous greed. Except . . . for the most part they weren’t evil, corrupt men. Really, they weren’t. Even the Polish Grand Treasurer who complained “Who’s this son of a bitch that I failed to pay off?” probably wasn’t a particularly evil man. Paying and accepting bribes was a standard part of business and politics. Nor were they stupid men; they got to the top in a very rough game.

For the most part, these are men who will risk their lives, fortunes and sacred honor in defense of king and country. Yes, they take bribes and pay bribes. Yes, they mint as much money as they can and pocket as much as they can of it. But they are doing it that way because that’s the way business is done. The large majority of these men are going to realize that some form of restraint on the money supply is needed. Granted, they are going to be a lot more concerned with restraining “that corrupt bastard in the next county” than in restraining themselves.

Of course, it doesn’t take all of them screwing up. All it will take to bring about hyperinflation in a given country or province is a couple of corrupt individuals or a prince in desperate need of money . . . and there are plenty of both in Europe. Politics will certainly trump economics. So the good news for the 1632 writers and bad news for Europe is that the field is wide open. By 1633 the American dollar started to give the notion of paper money credibility. Partly this is true because the Bank of Amsterdam already had it, or at least something very close to it, so it wasn’t a wholly new concept. Whatever the reason, by 1633 paper money is starting to look like a really viable alternative to coins. We know that the HRE has introduced silver certificates that are, at least in theory, matched by silver in the HRE vaults. And that paper money is at least in the planning stages in Russia.

It’s up to you writers out there to determine what they are doing in France, Spain, Poland, and even in provinces of the CPE and USE. In England the king can’t start printing money without the consent of Parliament and he hasn’t called Parliament into session. So pound notes are going to take some finagling. Considering Charles, it’s not impossible that he will start printing pounds without the consent of Parliament.

There are a couple of things to remember. Almost universally, monetary systems are slow to react. It takes a while for people to decide not to trust money. And it will take longer for paper money than silver coins because the value of paper money can’t be measured directly, only in terms of buying power. Which is all that really matters anyway. The first results of introducing new money into the economic systems of Europe will be improvements in those economies because pretty much all the economies of Europe are cash-strapped. That was true of Kipper and Wipper and will be even more true of paper money.

So go forth and write money stories . . . or stories that mention coins, paper and inflation. Enjoy.

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