Why did people needed a different unit of account such as the dollar or sterling, instead of just using weight units such as grams? @GeorgeSelgin @lawrencehwhite1
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I recently learned how seriously Isaac Newton took his position as warden of the Royal Mint.pic.twitter.com/ExBjpo2fLH
20% of coins were already counterfeit by his day. He may have delayed the inevitable, but during the remainder of the 18th century, the problem only got worse, driven by craftsmen of Birmingham who also gave us much of the industrial revolution.
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By the end of the 18th century merchants had mostly given up on high-value coins in favor of harder to counterfeit bank notes, moving away from trust minimization by substituting IOUs for the actual metal. A trust that in the 20th century would be heavily abused.
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I believe bullion friction (cost of weight and purity validation) lead to coinage. Counterfeiting was common at the time. This friction is frequently underestimated, but it pushed people away from trust-minimization to end up with trust-based paper money.https://www.academia.edu/4192184/A_Quantitative_Approach_to_the_Beginnings_of_Coinage …
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I do not see an essential difference between mints and banks in this sense. In both you need to trust third-party and potentially also transacting party depending on how easy was to counterfeit
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The metal in coins can be validated. It's costly, not done at retail, but was often done by bankers and merchants. So people who dealt with coins on large and international scales could use coins in a trust-minimized way. But nobody can use bank notes in a trust-minimized way.
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I see. You mean that in principle you can validate a metal's weigth, but it is harder to asses what is backing a banknote? If one could know bank assets this problem would be at least partially solved?
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If the assets are trust-minimized collateral (i.e. bank doesn't have the ability to just transfer them out). Otherwise, the audit just tells you that the funds have not been absconded with or withheld from creditors *yet* -- useful but much less trust-minimized than Lightning.
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Ok, so the essential difference is that with commodity money you *can* validate money quality with technology that doesn't rely on people, just physics. However, this technology is costly. Mints help reduce physical validation costs but now you need to validate *them* 1/2
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As for the transacting party, they become a problem as long as one doesn't use the physical technology to validate. When this is the case, mints help reduce this problem but not altogether.
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But it was also Birmingham craftsman who saved the day, producing private tokens that were the world's first truly successful small change. The story perfectly illustrates my earlier point about competition, monopoly, and counterfeiting. Full story here:https://www.amazon.com/Good-Money-Birmingham-Beginnings-Coinage/dp/1598130439 …
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Indeed, Birmingham was full of skilled workers who played either or both sides of that game.
End of conversation
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