Nicolaus Copernicus (1473-1543) is widely known as an outstanding astronomer and a versatile man (he was also a physician, theologian and administrator of church property), as befits a representative of the Renaissance. He also made a breakthrough in the social sciences, indicating a threat posed by the state exercising too much control over the actions of other people (especially those not connected with the authorities) manifested in the inhibition of progress to obtain own benefit,e.g. by increasing the amount of money in circulation leading to its depreciation and decline in confidence in it. Therefore, from the point of view of an economist, Copernicus appeared to be a precursor of the quantity theory of money (changes in the general price level result almost always from the changes in money supply) as well as well as the true author of Gresham’s law (bad money drives good money out of circulation). The Polish scholar touched upon these issues in his two works: in the “Treatise on Coins” (1519) and “Method of Minting a Coin” (1526). The circumstances in which his interest in monetary matters was born is particularly intriguing.
The socio-economic conditions in which scientists live and work have an impact on their views and theories. It was no different in the case of Copernicus, who was born at the end of the Middle Ages, the time permeated with pessimism, to experience the Renaissance era, which was full of optimism and faith in the human capabilities. Renaissance also coincided with the period of the Reformation, which drastically transformed Europe through bloody conflicts. As a canon in charge of property of the Catholic Church, Copernicus had to write his versatile and revolutionary works carefully, so as not to run afoul of the church authority, which was unquestioned in Poland due to the zeal of King Sigismund I the Old (1467-1548), who was strongly determined to persecute critics of this institution.
In the political field, in contacts with the Church, Copernicus enjoyed king’s support as he had publicly expressed his opposition to the election of bishops by the Vatican without the consent of Sigismund I, leading to the restoration of his impact on their appointment. Thus, it is not surprising that the king, who had to face the task of putting the monetary system in order, invited Copernicus to participate in the discussion on the reform.
In Poland, at the beginning of the sixteenth century, there were basically three monetary systems: Polish, Lithuanian and Prussian. There were numerous, also counterfeit, coins in circulation hindering foreign trade settlements. Inflation was an additional problem, caused by the influx of bullion into the Poland as a result of geographical discoveries (in Central Europe, in the years 1470 –1520, the supply of silver doubled) and the debasement of money(mainly by mints independent of the king) by reducing the content of precious metals in coins, thanks to which their supply could be increased. It is worth noting that the Polish economy of the first decades of the 16th century did not develop evenly. Poland, as the largest grain exporter in Europe and one of the leading suppliers of raw materials (wood, iron, etc.) to the Netherlands and England, which were embarking on the path of industrialisation, did not diversify production. The textile industry and crafts did not develop, which, with the inflow of money from the export of raw materials, caused inflation and forced the country to increase imports of industrial products. This happened as a result of the control of agricultural production by magnates, who, by enriching themselves on the export of raw materials, impoverished other social groups.
Copernicus, together with Justus Ludwik Decius, an advisor to Sigismund I the Old and a friend of Erasmus of Rotterdam, argued over the shape of the reform of the monetary system, which was aimed at eliminating the general increase in prices (in the Polish-Lithuanian Commonwealth, prices doubled in the years 1510-1520, and the prices of agricultural products increased by 250% in the years 1515–1520).Copernicus emphasised that money is not only a medium of exchange, but also a measure of value, therefore its value should be constant for the sake of the development of trade. According to Copernicus, inflation resulted from the “debasement” of money, i.e. the deterioration of its quality in such a way that the reduced content of gold or silver in coins was conducive to a rise in their quantity in circulation. He expressed it directly in 1526 in his work entitled “The Method of Minting a Coin”, “The estimation of coin is lower, especially due to an excessive quantity of it.”, and “… the general increase in prices results from the debasement of money.”
These formulations are treated in the literature as a contribution to the creation of the quantity theory of money, the idea expressed only in 1752 by David Hume, who proclaimed the principle of monetary neutrality, i.e. the statement that in the long run an increase in the amount of money in circulation leads only to an increase in the general price level. Copernicus evidently noticed the relationship between the change in supply of coins and prices of other goods, and his work of 1526 was mentioned by J. Schumpeter in his comprehensive work “History of Economic Analysis” written in 1954 and published posthumously.
Unfortunately, in the economic literature of the period of the Polish People’s Republic, representatives of Marxism, like Edward Lipiński, denied that Copernicus was a precursor of the quantity theory of money as according to the Marxist theory, the quantity theory of money was wrong, and that the eminent Polish scholar could not have made such a great mistake, which is why for a few decades his achievements of were not promoted in Poland. From the perspective of Marx’s theory of money (bullion money according to Marx is a measure of value only because it is itself a product of labour and its quantity has no effect on the general price level), Edward Lipiński argued that, according to Copernicus, the purchasing power of coins depended on the amount of bullion contained in them, and the prices of other goods changed in proportion to changes in the amount of silver or gold contained in coins. Lipiński incorrectly interpreted the word estimation used by Copernicus in reference to coins. According to Lipiński, it was based only on the value of the bullion, while in fact, in Copernicus’ works, estimation meant the nominal value or demand for coins, which could make their market value differ from the value of the bullion. On this basis, he came to the conclusion that in Copernicus’ reasoning, the estimation of coin changes only due to the content of the bullion, which really contradicts the true view of the astronomer. According to Copernicus, the coin estimate could exceed its value identified with the amount of bullion it contained, and then the coin was overvalued. When, after some time, this fact became apparent, the prices of commodities rose.
Inflation was not the only negative effect of the debasement of money, as the decline in the quality of coins could also drive those with a high content of precious metals out of circulation, because entities possessing appropriate information (e.g. goldsmiths) hoarded “good” coins, paying only with “worse” ones, or they exported the former. This phenomenon is now referred to as Gresham’s law, after an English merchant and financier who was born in the year Copernicus wrote his “Treatise on Coins”, i.e. in 1519, when Copernicus first raised this issue (he had already worked on it in 1517 at the request of the Bishop of Warmia). Thus, there is no doubt as to the primacy of Copernicus in the formulation of this law, although some authors claim that its real author was fourteenth-century bishop Nicole Oresme.
With well-established views on monetary matters, Copernicus tried to convince Decius he was right, but his opponent did not accept the fact that worse money may drive out better money. As a consequence, Decius questioned the legitimacy of the whole concept of reform proposed by Copernicus. In addition, it collided with plans made by the king, who had political as well as his own interests to pursue. In 1526, Copernicus postulated that only one mint should be maintained in the kingdom in order to control the money supply, “… so as to avoid excessive quantity of coins.”Unfortunately, due to political reasons, this goal was not achieved and there were two mints: Polish and Lithuanian. In addition, Copernicus recommended withdrawing the old coin from circulation when introducing a new one (Gresham’s law), contrary to the view put forward by Decius, who believed that a “bad” coin would spontaneously disappear from circulation some time after the introduction of a new one (e.g. it would be exported). According to Copernicus, what we now call seigniorage income (income from the issue of money) should only be used to cover minting expenses, i.e. the king should not derive profits to finance his expenses by putting coins into circulation. Copernicus believed that such practices lead to a lower purchasing power of money. It is easy to guess that Sigismund I did accept these solutions (it was a normal practice in Europe at that time for rulers to benefit from the issue of money) and implemented a worse project, i.e. the proposed by Decius, which led to a further decline in the value of money.
It may be said that Copernicus’ reform project, which assumed a monopoly on the issue of money and the elimination of quasi-fiscal profits from this activity of the state, was revolutionary in the time in which he lived. Although today the superiority of Copernicus’ idea over that of Decius is clear, at that time the astronomer’s proposal was not accepted for various reasons. Perhaps, apart from political and financial factors, there was something as trivial as the vanity of the king, in whose honour eminent humanist Erasmus of Rotterdam, who was Decius’ friend, wrote some letters of praise.
Copernicus’ contribution to the development of the theory of money is unquestionable; although due to the evolution of its form, Copernicus’ statement about driving out money with a higher gold content by money with a lower content is primarily of historical significance. However, the observation about the impact of the debasement of money on the increase in the general price level remains valid because, regardless of the material from which money is made, monetary authorities often still succumb to the temptation to increase the amount of money in circulation, generating inflation, i.e. a decrease in the value of the monetary unit. Copernicus’ concern for the value of money was for him one of the least understood elements of the guarantee of state security. Let the words of the great scholar serve as a summary of this article: “Of the innumerable calamities which usually cause the fall of kingdoms, principalities, and republics, four in my opinion are the most dangerous, namely discord, high mortality, crop failure and debasement of money. The first three are so obvious that certainly there is no one who would not know about them. But as for the fourth one, which concerns money, apart from a handful of people of exceptional abilities, there are few who would take their interest in it. This is because this calamity does not ruin the state immediately, but slowly, as if acting in a hidden way.”
The article was published in The Magazine of Warsaw School of Economics (gazeta SGH).
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