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I have a question concerning how exactly debasement works in terms of coins becoming reduced in value. I am aware that debasement is when the amount of a precious metal in a coin is reduced, the value of the coin goes down.

But my question about this is, how exactly is this degree of value change qualified, and how is it understood by the people, especially in regards to more ancient cultures such as Rome or even just medieval and rennisance periods. As I do not see how they would so easily ascertain the amount of change in the metal content, and come to a relative agreement upon the difference in value implied by this change.

Such as, how do they determine the difference in value between a coin of 80% gold and 20% silver at 5.2 grams; and one of 20% gold 50% silver and 30% copper at 3.65 grams. This seems way too difficult to calculate, especially for less educated people.

Would one just look at the weight of each metal within the coin and the value per mass unit, so 4.16g gold and 1.04g silver; versus 0.73g gold, 1.825g silver, and 1.095g copper? Where you take the value per gram of each and then add it together to find how it changes? Because, again, that seems like it is too complicated and requires knowing the exact alloy. Which is the origin of my confusion.

In Short

So, can someone please explain to me how exactly debasement leads to a change in the value of coinage as used by the people? And upon what factors are these changes precisely quantified? This is a general question about inflation as well, just how do people just come to an agreement upon how a currency is changing in value.

I apologize if this question is a bother.

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  1. People could discover debasement by weighting the coin. In fact, for example, in Roman empire at the mint the the coins were minted by having a target weight and debasement was done by decrees that changed the weights of coins (Florijn 2012).

    Perhaps average person would not be able to know how to properly weight coins, but merchants and money lenders routinely weighted coins. During metalic standards the exchange rate was basically based around weight of the coins and relative price of metals. Hence there would be large amount of people who would be able to discover this independently. Consequently, it would be very hard to keep this secret. Even, if only 1% of Rome's population in 1st century knew how to weigh coins we are talking about 10000 people, since Rome's population was about a million at that time (Morris 2013). It is impossible to keep things secret from population if there are at least few dozen or hundred of people who can independently verify the weight of coins.

  2. Strictly speaking measurement is not necessary to change the value of the currency. When the currency was debased it was not just to reduce the portion of the metal for the sake of doing it but so that there is more metal to mint more coins. As money supply increases value of money drops, because value of money is, among other factors, inversely related to supply of money (Mankiw Macroeconomics pp 87). As people and government spend the newly minted money store owners observe increased demand and since productive capacity of country is not improved, with the same supply, market can only clear with higher prices.

    Ultimately every price in an economy is relative. When prices of all other goods increase then the value of numéraire good (in this case metallic money) drops.

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  • $\begingroup$ Thank you for your answer, but I will note you mispoke at one point " because value of money is, among other factors, inversely related to value of money". it should be inversely related to the supply of money, right? $\endgroup$ Commented Dec 11, 2023 at 14:46
  • $\begingroup$ @DanceroftheStars yes you are right I will correct it $\endgroup$
    – 1muflon1
    Commented Dec 11, 2023 at 15:06

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