The utility of a common coinage: Currency unions and the integration of money markets in late Medieval Central Europe

Abstract

This paper employs a new method and dataset to estimate the effect of currency unions on the integration of financial markets in late medieval Central Europe. The analysis reveals that membership in a union was significantly correlated with wellintegrated markets. We also examine whether currency unions were endogenous. Our results indicate that where unions were established, markets had been significantly better integrated already in the preceding period. In addition, we show that currency unions created by autonomous merchant towns were better integrated than unions implemented by territorial rulers. The overall implication is that monetary diversity was a corollary of weakly integrated markets in late medieval Central Europe. IntroductionIn the eighteenth century, the law lecturer and enlightened publicist Johann Stephan Pütter (1788: 451) claimed that Germany alone had more currencies than all the rest of Europe together. If this was true in the early modern period, it was all the more true in the late Middle Ages. In the fifteenth-century Holy Roman Empire, around 500 mints were in operation (Sprenger, 2002, p. 81); the number of currencies was smaller but still large. How large it was is something that we cannot determine with any degree of precision, in particular as over time some currencies fell out of use while others emerged. However, an attempt to provide a rough estimate would produce, at least, approx. 70 different currencies, 1 many of which were used only in a few cities and their environs, while some had at least regional importance. 1In this paper, we consider how currency unions that were formed in Central Europe between the middle of the fourteenth and the middle of the sixteenth centuries affected the integration of money markets.Specifically, we ask if markets were better-integrated where consumers used the same silver currency, or if well-integrated markets were a precondition of the harmonisation of currencies supplied by several political authorities.There are several reasons why these issues are important and interesting. For one thing, given the generally low level of investment and the slow pace of technological progress before industrialisation, we can expect most growth that there was to have been Smithian growth (cf. Epstein, 2000, pp. 38 ff.; 2001, p. 34). This is why the economy of premodern Europe is increasingly being studied in the context of a 'commercialist' framework (e.g. Unger, 1983;Aloisio, 2007;Unger, 2007; Hatcher and Bailey, 2001, pp. 121 ff.;Persson, 1999 2 grain prices are relatively well documented. However, there are drawbacks to this approach. Grain prices were subject to violent seasonal fluctuations, and where at best a few price-observations per year existas is the case for most places before the sixteenth century -their informational content is limited. Also, as grain was a good with a high weight-value ratio, grain market integration was strongly affected by transport costs. To be sure, under a commodity money system transport costs of money were ...

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