Money Mischief_ Episodes in Monetary History - Milton Friedman [18]
While the welfare effects of the gold discoveries were almost surely negative, it does not follow that the existence of a gold standard—or, more generally, a commodity standard—is a mistake and harmful to society. True, such a standard does involve the cost of digging the gold out of the ground in one part of the world in order, in effect, to bury it in another. However, we have seen that having a widely accepted medium of exchange is of critical importance for any functioning complex society. No money can serve that function unless its nominal quantity is limited. For millennia, the only effective limit was provided by the link between money and a commodity. That link provided an anchor for the price level. Departures in general were, in Irving Fisher's words, "a curse to the country involved." As noted earlier and discussed in more detail in chapter 10, the world is now engaged in a great experiment to see whether it can fashion a different anchor, one that depends on government restraint rather than on the cost of acquiring a physical commodity. That experiment is less than twenty years old as I write—young even on a personal time scale, let alone on a historical time scale. The verdict is far from in on whether fiat money will involve a lower cost than commodity money (see Friedman 1987 and also 1986).
I turn now to the other major source of changes in the quantity of money throughout history, and since 1971 the only source—action by government. From time immemorial, government has played a major role in the monetary system. One element of that role has been to seek to monopolize the coining of money. The objective was partly to standardize the money. The sovereign's seal on a coined piece of metal was intended to certify its weight and fineness and thus enable such coins to be used in transactions by tale, or number, rather than by weight, thereby reducing the cost of transactions. Another objective was to earn seignorage, the mint's charge for converting bullion into coins.
Payment by tale, or count, rather than by weight greatly facilitated commerce.* But it also encouraged such practices as clipping (shaving off tiny slivers from the sides or edges of coins) and sweating (shaking a bunch of coins together in a leather bag and collecting the dust that was knocked off), whereby a lighter coin could be passed on at its face value. Gresham's law (that "bad money drives out good" when there is a fixed rate of exchange between them) came into operation, and heavy, good coins were held for their metallic value, while light coins were passed on. The coins became lighter and lighter, and prices rose higher and higher. Then payment by weight would be resumed for large transactions, and pressure would develop for recoinage.
Sweating and clipping were effectively ended by the milling of coins (the process of making the serrations around the circumference that we have come to take for granted), first used in 1663, and followed in Britain by the Great Recoinage of 1696 to 1698, which produced a much more homogeneous coinage.
A more serious matter was the attempt by the sovereign to benefit from his monopoly of coinage. In this respect, the Greek and the Roman experiences offer an interesting contrast. Though Solon, on taking office in Athens in 594 B.C., instituted a partial debasement of the currency, for the next four centuries (until the absorption of Greece into the Roman Empire) the Athenian drachma had an almost constant silver content (67 grains of fine silver until Alexander, 65 grains thereafter). It became the standard coin of trade in Greece and in much of Asia and Europe as well, and even after the Roman conquest the drachma continued to be minted and widely used.
The Roman experience was very different. Not long after the introduction (in 269 B.C.), of a silver denarius patterned after the Greek drachma, the prior copper