The Story of a 1700-Year Old ‘Silver Bug,’ and What They Can Tell Us Today

In or shortly after 294AD, someone who was living in what is now rural Switzerland buried nearly two years of wages (over 4 000 ‘silver‘ coins) – a hoard which was discovered in an orchard earlier this year. The find, though extraordinary in itself due to size and state of preservation, is also remarkable for what it literally contained.

As is the case with most Roman coin hoards, the coins were consciously selected by the person who deposited them –  generally for their metallic value, or, as in this case, their perceived level of debasement.

Romans were used to the debasement of their silver coinage – and as a result, inflation in goods and services. The correlation is because the silver Denarius was the coinage of taxation – and thus the preferred coin of commerce. With mounting financial difficulties through the late second through to the late third centuries AD, successive rulers reduced the silver content and increased the circulation numbers of their silver ‘workhorse’ coin so as to be able to cover mounting budgetary deficits. This meant that in a span of a little over two centuries, the silver content of the Denarius had fallen from 95% to 5%.

It is thus not difficult to see why someone was removing 5% content Deanarii and setting them aside – whoever this person was, they correctly foresaw the complete debasement of their wages (a reality which resulted in coins being dipped in silver rather than having any real content whatsoever). One curator at the British museum put it quite succinctly when he explained that “the silver contained in [these coins] guaranteed a certain value retention in a time of economic uncertainty” – this person was hedging, much like the ‘silver bugs’ and ‘gold stackers’ of today.

Had this person been able to return to reclaim their savings, they would certainly have benefited, but unfortunately, for whatever reason, they were unable to do so. It must be noted though that this person would have done better to hold gold, which maintained it’s value relative to goods more or less completely through the course of the Empire’s history.

Startlingly enough, this is proving to also be the case with the US dollar, which has lost 83% of it’s spending power since 1981. Conversely, an ounce of gold has increased in price by 97%, meaning that it is actually outperforming one of the world’s most trusted currencies. Though stocks and bonds might have a higher short term yield, it would seem that the role of the yellow metal as a stabilizer and hedge against inflation isn’t quite over yet.

When Nobody Listened to Copernicus

Everyone knows that Copernicus forever altered how we perceive the functioning of the solar system. Few people realize, though, that he was also an economist!

Sixteenth century Europe was a place of relatively sudden and great economic prosperity. New geographic discoveries completely changed the face of trade and commerce, and this prompted the formation of new financial institutions – both processes generated a greater demand for currency.

The wave of demand in turn led to a boom in the extraction and processing of silver, which at the time was one of the main raw materials in the production of coins. The diversification of the economic landscape began to lead people to begin to think about their relationship with money, and so ‘modern’ economic thinking was born.

Thinkers began to discuss the true function and value of money. Heated debates between mainstream nominalists, believing that money is worth as much as the ruler dictated, and others who argued that it is worth as much as the agreed value of the ore. These are fundamentally the same debates which continued right up until most countries abandoned the gold standard in the 20th century.

Nicolaus Copernicus, as an administrator of Warmia, came into contact with economic problems every day. He was particularly concerned with the debasement of the coinage which circulated in his region, as the adding of the cheaper metals to coin issues with continuity of design made governing fiscal policy a nightmare. The symptoms of monetary inconsistency included constant price increases, and the depreciation of rents paid by peasants.

In the period from 1519-1526 Copernicus wrote a number of treatises on money, of which the most important is the piece “Monetae cudendae ratio,” or “On the Minting of Coin” from 1526. This work was a breakthrough in the nascent science of money, and, later branded as “Gresham’s Law,” is still an accepted economic principle today.

“Monetae cudendae ratio” was an attempt to explain the phenomenon of inflation and the resulting risks. As Copernicus notes, since the the introduction of coins, rulers routinely attempted to balance budgets through the debasement of older, purer coins obtained through taxation. In the case of the German lands, by reducing the metallic content of a coin, and reissuing a greater number of debased coins with the same nominal value, revenues were ‘increased’ by up to 20% per annum.

Likening it to one of the plagues of Egypt, Copernicus claimed that debasement of coinage was one of the greatest disasters that a land could face. He strongly, and largely successfully opposed the practice in the Polish lands, as he made more and more people aware that by reducing the value of money, higher prices would ensue, resulting in the need to increase wages, and leading to a lack of confidence in the currency – a principle that we today know as inflation.

Another negative consequence of debasement, which was perhaps more convincing to the leadership, was their ‘flight’ from the market. The purer, and therefore more valuable coins would be kept deep in holdings, and only the base coins would remain in circulation. Money with a higher content of precious ore would disappear abroad, because merchants from far refused to accept “rotten” coins – a serious economic issue in a mercantilist economy.

Nicolaus Copernicus’ economic thought was of great importance both at the time and today – and yet it would not be long after his death that his own lands would begin the precarious game of debasement. What is more is that if one looks at current governments and currencies, one can see that the game fundamentally hasn’t changed a bit.