The Economics of Small Change: Resolving Coinage Challenges in Medieval Europe

Abstract

In medieval Europe's coinage systems, the introduction of small denomination coins was a significant challenge due to their higher relative production costs, often leading to shortages. To address this issue, economic theory suggests a standard formula: mint small coins as overvalued credit money on the government's account, and make them convertible on demand at a pegged rate. This paper explores the alternative methods adopted during different periods to mitigate this issue. In the early and high Middle Ages, mints employed a simple yet effective strategy: dividing larger coins into smaller units, effectively bypassing the cost barrier. Our analysis of coin hoards from this era confirms the success of this method in preventing small change scarcity. In the late Middle Ages, central and northern European minting authorities innovated with uni-faced 'hohlpfennigs', utilizing cost-efficient technology. Our analysis not only demonstrates the absence of hohlpfennig shortages but also elucidates the economic and technological factors influencing this minting method and its eventual decline by the early sixteenth century. These historical insights underscore that small change production was primarily a supply-side challenge, offering valuable lessons for modern economic systems. The authors would like to thank the participants at the XVI International Numismatic Conference in Warsaw for insightful comments. Roger Svensson gratefully acknowledges financial support from the Sven Svensson Foundation for Numismatics and the Gunnar Ekström Foundation. The opinions expressed in this article are the sole responsibility of the authors and should not be interpreted as reflecting the views of Sveriges Riksbank.

Keywords: Small change, production costs, minting technology, hohlpfennigs

JEL Classification: E42, E51, N13