Inflations in History

History shows many examples of inflation - from debasement of metal coins in Ancient Rome to the hyperinflation in Zimbabwe. This page lists a few notable episodes.

The schinderling inflation in Austria

The fall of the Roman Empire brought an economic decline in Europe's Middle Ages. Luckily, it was spared for the most part from major inflations.

The coinage in Western Europe was inspired by the Romans and later reformed by Charlemagne to a silver standard. The Pfennig remained a key coin, the privilege was given to many cities and high nobles, so by the 13th century many local pfennigs circulated in Austria and surrounding countries. Many local lords recalled the coins every year, exchanging them for new coins, keeping a part of them; some did so even more often. Duke Rudolf IV made an end to this practice and instituted a tax instead. But the purity and value of the pfennigs kept sinking.

After the death of Albert II, a conflict inflamed between the brothers Frederick IV and Albert VI over the inheritance, Austria itself. Frederick, who was very capable with finances did not have the means to finance the war, which has broken out in 1457. He started to massively devalue the currency and gave the privilege to others; binding them to maintain the same quality as of his own coins. Albert followed suit, and the practice has spread further. Besides the white pfennigs appeared "black pfennigs", then grey pfennigs, and all the bad coins came soon to be called hebrenko or schinderlings. Finally, they turned into copper coins.

The continuing inflation of the pfennig (1 pound was 8 schillings and 240 pfennigs) could be seen in its exchange rate against the Hungarian gulden, a solid gold coin based on the ducat. At the beginning of 1458 was the rate 1 gulden = 7 schillings 12 pfennig (222 pfennigs). In April 1460 was 1 gulden exchanged for 15 pounds 2 schillings 26 pfennig (3686 pfennig - over 15 times the rate!). The price was going up daily by 20 to 30 pfennigs. By 1460 was the situation so bad, that people complained to the emperor, "that he may order a better coin to be made, for all wars, robberies and fires did not impoverish the land as the bad coins did". Frederick blamed others and promised a new coin to be made, but it failed completely and the prices continued to rise. Eventually was the minting of the bad coins stopped.

This devaluation carried many signs of a modern inflation. People refused the money, and no goods were to be had, unless one happened to have the good old money or the Bohemian groschen. The chronicles describe the great suffering in the lands of Austria and neighboring Bavaria, and there are reports of deaths of individuals as entire families, and the destruction of countless livelihoods. The return to normal was possible with a return to good currency.

Vellon inflation in Spain

After the unification of Spain, king Charles the 1st (emperor Charles V) reigned over all the lands of the Habsburg line, Germany, Netherlands and large parts of Italy. The discovery of the New World made Spain a colonial empire upon which the sun would never set. Though it enjoyed growth from trade, it kept little of the treasures of silver and gold, that streamed through it into Europe.

Though he was the most powerful ruler in Europe, Charles the Fifth had huge problems with his finances. The constant wars meant huge expenses, the incomes from his lands were varied and insufficient. The taxes, tariffs and various donatives were much larger than the incomes from silver and gold imports, still it was not enough. The interest rates were 10-20% high (at times up to 30%), incomes had to be often pawned or sold off. It is estimated, that at his abdication had his government a debt of 20 Million ducats, the interest ate most of the incomes.

When Philip II took over, he was advised to renounce the debts of his father, but chose not to as it would mean effective bankruptcy. The introduction of new special tariffs, selling of monopolies on salt and noble titles and offices brought some temporary relief. He also confiscated several shipments of gold and silver, which caused many bankruptcies. By 1564 was the debt 23 Million ducats, in 1574 already 35 Millions. Since the interest consumed all incomes, in 1575 were all payments stopped and the public debt should be revised by a commission, the interest lowered. Since so many of the great trading companies of all across Europe were lenders to the Spanish Crown, many were pushed to the brink of bankruptcy and some beyond. The debts had to be recognized in full, but at least the interest was lowered.

The situation deteriorated again with the war in Netherlands, which turned from a major income source into a major financial burden. The hostilities against England and the sinking of the Armada did not help either. More taxes were raised, carried mainly by Castile; and Portugal came under Philip's control. But at the time of his death in 1598 was the debt estimated at one hundred million ducats, Spain's economy seriously damaged by his measures.

Until this moment has the Crown resisted meddling with its currency. The son, Philip III left much of the reign to the Duke of Lerma. To his credit, he achieved peace with France, Netherlands and even England. But in turn, the royal court became incredibly wasteful (the Duke and his family became wealthy as well).

To have any income at all, in 1599 was the vellon (based upon the accounting unit maravedí) coined from pure copper, devoid of any silver content. The Cortes protested to no avail. In 1602 was the coin reduced to a half weight and the copper price was fixed to prevent its rise. The huge profits were undercut by foreigners, who produced their own coins and smuggled them into Spain by the shipholds - buying up the fine gold and silver coins for cheap. The government soon received its taxes in the debased copper coins. When a new tax was sought in 1608, the Cortes allowed it, despite threats and attempted bribes, only in exchange for a promise to not make any more vellon coins with or without silver for the next twenty years.

The successor, Philip IV did not feel bound to the promises of his father. He has cut the expenses of the court to a half, but immediately started inflating. The massive increase in currency was first blamed on smugglers, threatened with a death sentence. But the situation became unbearable and the vellons were in 1628 devaluated by a half, the king promised to never again change the rate, not should his successors. But in 1636 were all coins withdrawn and by re-stamping their nominal value tripled. Attempts to reform the system were halted by the war with France and an uprising in Catalonia. In 1641 was the coin value multiplied again. The consequent growth of prices created a great unrest, and the king reduced the coin values, promising to not raise them. It took less than a year to break the promise. Until the peace with France in 1659, several such inflations and deflations followed.

In the period of inflation, most payments were done in vellons. In the country with the largest silver mines in the world have gold and silver vanished from circulation. Larger payments required separate rooms to store the money, and officials were required just to count, sort and weigh it. Perhaps the most surprising is the loyalty, which the Spanish felt to the Crown, despite serious losses to all the financial manipulations. Finally, in 1660 was minted a new silver coin, the moneda, and the inflation ended.

The kipper and wipper inflation in the Habsburg lands

After the peak of silver production in the Holy Roman Empire in 16th century, the rising silver prices made silver coins more worth than their nominal value - and so were they molten down or exported. But a larger problem was the too high precious metal content in small coins (the pfennigs, kreuzer and groschen), that were coined at a loss to the minter. The demand for them was so large, that many small minters produced lesser coins against the regulations. The practice was forbidden, but despite many calls and resolutions have reached alarming proportions by the beginning of the 17th century. Many of the mints have been rented and sold, run for purely fiscal reasons. An additional motive were the preparations and arming for war, which many have seen coming by 1615. Paradoxically, the inflation came before a war and ended in its beginning phases in 1623.

Many merchants have taken up the trading and exchanging of coins. The "kipper" and "wipper" were the dealers with money (named after the weighing of coins to filter out high quality pieces and melt them down or shave them - see the Tipper and See-Saw Time, in German Kipper- und Wipperzeit). Mints have been popping up everywhere. In 1610 was the currency formally reformed, making the production of small coins profitable. But many minters have continued to make devalued coins, and the good Thaler continued to vanish abroad.

In particularly hit Saxony, where 110-130 of good groschen were once made from a mark* silver, and in 1610-1617 they were not more than 170, by 1619 it was already up to 270. This rose to 320 in 1620 and 330 groschen on a mark in 1621. The inflation of the Schinderlings was 150 years ago and not widespread, so the dangers of inflation were not recognized. Everybody enjoyed the easy money and believed to get rich quickly, and at first there seemed to be an economic boom. But the prices have risen in consequence. Those with fixed incomes were hit first, by 1621 were the complaints universal. Particularly clergymen have seen in this the work of the devil. In 1622 was the unrest widespread; miners have rioted and plundered the coin dealers. Copper itself has become so expensive, that housewives sold their pans and kettels to the mints. Everyone paid their debts and taxes, and many lawsuits followed due to paying with bad money. The thalers were requested for all payments and the devalued coins were rejected. Some towns held public collections to protect clergy and teachers from misery.

Prices of cereals in Dresden:	1600-1620	1621	1622	1623
a scheffel of wheat	2 thaler 15 groschen	5 thaler 13 groschen	11 thaler 5 groschen
a scheffel of rye	2 thaler	4 thaler 19 groschen	9 thaler 19 groschen	11 thaler 10 groschen

The course of the Reichstaler rose from 1 florin 32 Kreuzer in 1618 to 6 fl. in 1622 (i.e., the value quadrupled) when averaged over different states of the Empire. It climbed to 7 fl. in Frankfurt, 10 fl. in Southern Germany, 11 fl. 15 Kr. in Bohemia, and 15 fl. in Electoral Saxony ("Kursachsen"). (1 florin equals 60 Kreuzers.)

The inflation has grown after the Battle of White Mountain in 1620 and the integration of Bohemia. Karl I, Prince of Liechtenstein was appointed to stadtholder and viceroy of Bohemia, and quickly began to inflate. In 1622 was all currency-making loaned to a consortium co-owned by the prince and Albrecht von Wallenstein, among others. (The profit was also used to buy land of protestants in Bohemia; an estimated ⅔ of its land area was confiscated after their defeat). A rapid inflation followed, the export of good coins was forbidden, and they were soon melted down. The rising prices caused a general unrest and a rebellion almost broke out in Vienna.

To bring the situation under control, some cities began to take measures by 1618. In 1622, Lower Saxony demanded according to old laws the personal introduction and swearing in of every Münzmeister, upon which most of them vanished. 1623 followed Lower Saxony suit, and returned to the old currency. The debased coins were withdrawn and replaced with good coins, the losses mostly carried by the population. Finally, the emperor ordered to stop the production of the 'easy coins' in all Habsburg lands and return to to the Viennese standard. 100 debased thalers were exchanged for 13,3 reichsthaler from silver. Germany was more destroyed by inflation than by the Thirty Years' War and likened by some pamphlets to pestilence.

_{*) In Germany became the Cologne mark standard, with 233,856 g. The English mark was 233,275, the Spanish 230,348, the Portugese mark 229,50 g.}

John Law's inflation in France

Following the ideas of John Law, paper money was introduced in France, producing first an economic and speculative boom from 1718, and ending with a disastrous crash in 1721.

Main article: John Law inflation in France

The Swedish crisis under Charles XII.

The Scandinavian lands including Sweden used the mark introduced by the leading Hanseatic cities, first in coins of 1/3 an 2/3. 1 Swedish mark was 8 Öre, like the shilling from Lübeck. Later were produced 8-, 4-, 2- abd 1-mark pieces, the 4-marks were called in the 17th century "Daler Carolin" or "crowns", like the crowns made in Denmark and Norway. The 2-marks were named "Carolin". Under Gustav Wasa was introduced the riksdaler similar to the German Thaler. Gustav Adolph began to use the wealth in copper for coinage. After their devaluation to a half in 1635 people started to calculate in Silvermynt and Koppermynt (S.M. and K.M.), using two parallel currencies. In 1633-1643 was a daler-silvermynt equal to 2 daler koppermynt, in 1643-1662 2 1/2, from 1664 3 daler koppermynt. Queen Christine brought copper in large plates into circulation, the "Platmynts" from 1 to 10 talers - the 10 talers weighed 19,7 kg. Under Charles XII was 1 riksdaler = 3 daler S.M. = 9 daler K.M.

Sweden was by the year 1715 in a difficult situation. After twenty years of war and loss at the battle of Poltava was the country exhausted. It lost important territories in Northern Germany and the Baltic, but it still had a wealth of copper and iron. But the king Charles XII was not interested in peace. Returning to his country after fifteen years, there was little enthusiasm for war. He found an eager helper and advisor in baron Georg Heinrich von Görtz, a man of great financial knowledge, but few scruples. To mask his authorship of the unpopular decrees, that followed, the king has left the announcements to the "Contribution Rent Office", an institution created by the Riksdag.

The taxes were raised, but didn't bring much income, foreign loans were also limited. Instead of slowly devaluing coins, Görtz aimed for pure credit money. First were introduced 'wage notes' as payment of state officials, that should be accepted as money. Later came obligations as payment for supplies, especially war supplies. First only for large sums. smaller denominations were soon introduced as well.

The king borrowed in Netherlands 2 million riksdaler in exchange for obligations, the right to make Swedish coins and trade with Sweden's most important export goods - esp. copper, brass, iron, tar, etc. Their buying price was set by the king, and all goods had to be delivered to royal warehouses. Instead of payment were given 'weight bills', later also given the status of currency. The goods were exported for silver and gold. But it was the new coinage, that brought the real income.

The introduction of pure credit coins took a full year to realize due to resistance of many officials, the emission was in May 1716. For a lack of sound currency and to "prevent the export of silver coins" was issued 1 million dalers from copper, denominated as silver (S.M.). The coins would be used to pay taxes, and were promised to be repaid.

In October 1716 it was announced, that these coins, marked with the symbol of a crown, would be withdrawn and exchanged for coins inscribed with the words "Publica Fide". The king, worried about the wellbeing of his subjects, wanted to prevent counterfeiting or imports from other lands. The coins with the crown, withdrawn until May 1717,were reissued as token coins of 3 Öre K.M. or 10 Öre S.M. to "avoid waste". The "Publica Fide" coins were issued in over 3.800.000 pieces until June 1717. Meanwhile, another issue was announced, marked with the image of a knight and designated as "Wett och wappen", also to replace the previous issue. Over 9 million of them were made. The old coins were again reused as token coins, first as 4 Öre K.M., later were both types of coins set to 6 Öre K.M. and 6 Öre S.M. In January 1718 was announced another issue, with the image of a knight and a lion and the inscription "Flink och färdig". Over 7.300.000 were issued. In June 1718 were announced five more issues with images of Saturn, Jupiter, Mars, Phoebus and Mercury, to replace the previous coins.

At the time of king's death (November 1718) were 24.527.000 coins denominated to 1 S.M. in circulation. In addition there were 2.6 million dalers in money notesand 15 millions in obligations. Compare this to Görtz' estimate of currency in circulation from 1715 - 2 million dalers (which was probably too low - the state income of that year was 4 to 5 million).

The value of copper platmynts was raised in 1715 by 50%. Speculators made a lot of money on the revaluation, while debtors suffered, but all complaints were ignored by the king. Passed ostensibly to prevent their export, the measure worked and some platmynts were even re-imported. In 1718, copper was set to the original value, but could be in the meantime exchanged for notes, obligations or token coins, to aid in their circulation. Shortly after the devaluation, the platmynts had to be stamped under threat of confiscation, and then were to be revalued again. But the tricks did not bring the desired income as Görtz declared during his trial.

The export of gold and silver was already banned, it was renewed in 1717 with serious punishments. By March 1718 no private person could own the silver "Carolins" or foreign silver coin. From July could no one own any coins or unprocessed silver, all had to be exchanged for obligations and token coins, or confiscated.

But the new coins were not welcome. Punishment awaited those unwilling to accept them as early as 1717. The officers complained, that nobody wanted them, and copper miners could not buy anything from the peasants. At the end of 1717 had all trading to be supervised by soldiers and able folk, informants were richly rewarded. The peasants were duty-bound to bring their wares into cities. In Stockholm, trading except on public places and markets was banned. Withdrawing of wares from the market was punished and anyone's home could be searched. In 1718 were introduced price controls, for the goods bought by the army, the prices of bakers, brewers and all grains. The number of breweries and inns was reduced. Mining has suffered, but fines had to be paid if the planned production was not fulfilled.

In July 1717 was the agio of the token coins against sound coin reported as 22-24%. In May 1718 it was written, that 4 daler koppermynt buy more than 6 token dalers - which would be over 50%. After king's death were the token coins in 1719 devalued, the reports speak of 200 to 400%. A private report speaks of prices rising twentyfold, an official of 6-, 8- and 12-fold increases.

After the unclear death of Charles XII (there are claims of a conspiracy by his own soldiers) were attempts to continue with the issues of new money, but were eventually stopped. The token coins were to be exchanged from 1719 for half of their nominal value. But most of it was paid in debt obligations, the repayment of which took decades. Many of their owners got nothing in the end.

Görtz was successful in establishing a pure credit money and giving the king the means to wage a war. Even the economy was upheld for some time, though it had to became a planned economy of a sort, the freedoms of the subjects severely limited. After the king was dead, he was arrested and blamed for all the ills of the country. Without due process he was quickly sentenced to death and executed.

The Seven Year War and Frederick the Great

When Frederick the II. came to power in 1740, Prussia was very far from a united country. The currency was silver, as in the rest of German lands, but Prussia did not have any significant silver mines, it relied on imports from America. The prices of gold and silver changed from 1701 to 1710 from about 1:15,27, to 1:14,93 in 1740-50. In Germany has the Reichstag in Regensburg (1737-38) set the ratio to 1:15,1.

After complaints about the lack of coin has Frederick decided to reform the currency. The 10-Reichsthaler piece (a "double-Friedrischdor") should be made 17 1/2 pieces on a mark* of gold, the 5-Reichsthaler (a "Friedrischdor") 35 on a mark, and the 2 1/2 thaler coins at 70. The silver thaler should be fixed againts gold, with 5 Thaler equal to one Friedrischdor. From 1 mark silver should be made 10 1/2 thaler; half-thaler coins 21 on the mark and quarter-thalers 42 on a mark. The ratio of gold to silver was seen as too high and set to 1:13.793 for Prussia. The name Reichsthaler reflected Frederick's expectations and it indeed became the first step towards a unified German coinage.

Frederick, who saw the upcoming war, had to change his monetary policy and rented his mints to capable Jewish money traders, who were able to make them profitable. Most coins were in the contracts exactly defined in weight and purity, but some token coins circulating outside of Prussia were wildly inflated. In Poland were no coins made throughout the 18th century. It became an ideal target for devalued coins, the trouble this caused suited the king's long-term plans well (the First Separation of Poland in 1772 was being justified by the economical disorder). When the 18-groschen pieces ("tympfs") from Königsberg became popular, the Polish king and Saxon Kurfürst decided to make more of them in Saxony. Since it and Poland were separated, they had to be transported through Prussia, and would be a competition for his minters, Frederick forbade the transport. In response were his coins from Königsberg banned. Frederick has responded by coining money with the seal and all marks of Saxon coins.

And it was Saxony, that was captured first in the Seven Years' War, not least because of its wealthy silver mines. The coins were minted as before, but were not allowed in Prussian lands. Their small silver content showed after some use, and the new coins were dubbed Ephraimiten, according to their minter. Silver-white at first, the copper shone after a while through, as in the verse "From outside Frederick, from inside Ephraim."

The suggestion to make money with such a low content in Prussia in 1757 was strongly rejected by the king, the "infamous coins" should not circulate in his own lands. The king went as far as to destroy the records of his inflation, so not much is known about its magnitude - except for the mint in Dresden, which was briefly occupied by the enemy.

In 1758 was all coinage, even in Prussia, unified on 19 3/4 thalers per mark. In December 1758 were the Friedrichsdors devalued by 41%. In 1760 was the content set down to 30 thalers on a mark, only the Prussian 'Kurantgeld' (coins used to pay taxes) were left on the older standard. The new devalued coins were intentionally minted with the year 1753 to hide their true nature.

The situation in the war forced the king to look for more sources of income. The golden Saxon Augustdor was minted with old years, on the beginning of 1761 at 11 carat, later that year 7 carat. Since 1759 are in the contracts with minters also "other coins." Frederick's devalued coins were an inspiration to many other German nobles, who inflated their currencies as well. Frederick used the opportunity to mint copies of these coins for more profit. By 1760 was the war going badly for Prussia. That was noticeable in the exchange rates as well - the price of silver that had to be bought from Netherlands rose from 19 to 28 Reichsthaler per mark. The war money became harder to deploy, the armies to spend it were separated from homeland, in many places were Saxon coins forbidden and in some was their mere possession reason for imprisonment. It was decided to mint Saxon and "foreign" coins at 40 Reichsthaler per mark, the "Tympfs" were to be made in any amount desired. The mints in Anhalt and Schwerin were forcibly closed as undesired competition.

By end of 1762 was a return to normality possible, for a start was the money improved to 19 3/4 Reichsthaler per mark. The old money was being withdrawn, the Saxon 1/3 thalers were accepted at a discount of 70%, the groschen at 117,50%. A lack of new money was noticeable until the end of 1763. In 1764 was the standard finally returned to 14 Reichsthaler per mark for the thaler and its parts . The golden Friedrichsdor was again coined by the standard from 1750. The mints were again run by the Prussian state.

In the Seven-Years' War Frederick faced the forces of Austria, France and Russia, allied only with England. Wars were typically financed by taxes, loans or inflation. Frederick chose not to take out loans. War taxes were used, especially in occupied territories (Saxony alone paid 50 million thaler). Subsidies from England were paid in gold and silver, and they too pointed the way to reliable currency devaluation. And never before found inflation so many new ways. The money streamed in all directions, whether to hostile or neutral lands. The years on coins were often faked. The Austrian army paid its troops with Saxon war money. Even the French army used them. A large number of German mints have also depreciated their currency, including those run by religious leaders. These currencies were then copied by Frederick's minters. Poland, that gave minting some time ago, became an ideal target for devalued coins, and the trouble this caused suited the king's long-term plans well (the First Separation of Poland in 1772 was being justified by the economical disorder).

How many coins were actually minted and what the total income from this inflation was, is unknown. Documents exist only for the mint in Dresden from 1758 to 1759. In a year and three months were made over 8 million coins. The treasure paid by the mints totaled almost 30 million Reichsthaler. An estimated 50 million went to the Prussian crown for the privilege of making war money (note that these payments were made in good coin). The profit of the minters was estimated at 25 million. The losses of Prussian holders of money, judged by the conversion criteria after war, were on average 67%.

Frederick came out of the war as a winner and his disconnected lands could be united by keeping the wealthy Silesia. Since a long period of peace followed, the Prussian economy recovered rather fast.

_{*) In Germany became the Cologne mark standard, with 233,856 g. The English mark was 233,275, the Spanish 230,348, the Portugese mark 229,50 g.}

Inflation during the French Revolution

The French Revolution brought with it a massive inflation of the paper money called assignats. It was nominally backed by confiscated lands, when introduced in 1789. But eventually it was printed to finance all government's expenses and has lost most of its value by 1796 when its production has stopped.

Main article: Inflation during the French Revolution