Kipper and Wipperzeit I
Money is most obviously the base of our modern life. We need money every day, mainly to purchase goods and services. Normally we don’t think about money in terms of quality. Money seems to be always the same. Products may rise and fall in price, but money remains constant. This view might be correct in some examples and especially when we view prices in the short term. But if we compare prices in the middle and long terms, we recognise the different purchasing power our money has. Generally we call this inflation and are used to a small and steady increase in the prices of our basic daily goods. But is it the value of the goods and services we consume increasing, or is it the value of our money decreasing?
As prices are based on complex markets this is not always easy to define. But if we go back to the 17th century we are able to analyse a crisis that was caused by the direct quality of money. At the beginning of the Thirty Years’ War in Europe, city states needed to raise money to finance the war. Hereby no method seemed to be too evil. The “Kipper and Wipperzeit” started, which literally translated means “Tipper and See-saw”. States started to debase their currencies, finding two practices to be among the most successful.
The first method was to reduce the value of silver coins by shaving or clipping material from them. The remaining coin still had the same face value but was worth less than before, as it contained less silver. The second method was not as simple as it required a state to own its own mint. However many city states had their own mint, so they took the silver coins, melted them down and mixed them with copper or similar materials. The coins were then reminted and still showed the same face value but due to the lower silver content the coin was worth less than before.
So the quality of money does have a direct influence on price in some cases. After all every purchase is just a trade between goods so in this way money is a product, just like any other product.