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Monday, July 12, 2010

Common Cause, Part XIV: The Latin and Scandinavian Monetary Unions

One of the fruits of the French Revolution was an attempt to put private and public life on a "scientific" basis. This was partly to conform to the official State worship of Reason, and partly to eliminate anything having to do with the ancien régime. Virtually everything was to be swept away, from the old calendar (based on papist idolatry, i.e., the reforms of Gregory the Great), to the ancient provinces with their customs, languages and laws. Political units were rearranged arbitrarily as new "Departments" of the French Republic. These generally had no relation to geography, traditional divisions, or the indigenous populations.

Some changes, such as the transformation of the seven-day week to the ten-day decade, were ephemeral. They were not implemented effectively even during their official life. Some changes were more permanent, such as the new political divisions and legal and tax reform. Other changes have kept on returning, such as attempts to change the calendar to reflect sectarian, social, or political agenda. Had the revolutionary changes in France continued, perhaps something could have been done about the various unscientific irregularities of the French language.

An Imposed Reform

One of the more enduring changes to come out of France was the reform of the coinage in "L'An 4," that is, in Year 4 of the Revolution. This is better known to history as 1796. The monetary reform was made infinitely more difficult than it otherwise would have been, however, by the financing of the Revolution and its various foreign adventures with vast issues of unbacked "Assignats." Assignats, although construed "officially" as small denomination, non-interest-bearing government loan paper, were effectively a fiat currency printed by the government and spent into circulation to cover its deficits. It would have been unwise to call the Assignats paper money, as the disastrous Mississippi Scheme of John Law was still at the edge of living memory.

The new French currency was to be strictly "scientific." The unit of currency was the Franc. The basic coin was the 5 Franc piece, weighing exactly 25 grams, and containing 22-1/2 grams of pure silver (.7234 of an unrevolutionary Troy ounce). The original fineness was .900. The Franc was divided into a scientific 100 "Centimes" or "Hundredths."

As the Revolution was spread throughout Europe by the forces of liberation, the new currency and its standards were implemented in the various new "Sister Republics" established in liberated areas by the Armies of France. These were revolutionary republics in name only, frequently existing only on the sufferance of the Republique Française as puppet states. The ultimate purpose of the Sister Republics was generally to provide financial milch cows to support the perpetually embarrassed Revolutionary Government. In communist style, however, the stated object was liberating people who often didn't particularly want to be liberated.

The Sister Republic revolutionary governments usually succeeded in overthrowing not only the existing political regime, but often the entire economy as well. In many cases the local currency reverted to pre-revolutionary standards after the Congress of Vienna of 1815 attempted to restore the pre-1789 status quo (and, in many respects, failed completely). The new currency, however, was firmly established in France itself.

Coinage during the actual revolutionary period was sporadic. It was not until Napoleon changed France and its revolutionary conquests from a Republic into an Empire that the coinage program was put on a sound and regular basis. Part of the Little Corporal's program was in conscious imitation of Roman history, and an attempt to out-do Charlemagne in restoring the glory that was Rome. This would have resulted in making Paris the "Fifth Rome," after Constantinople, Moscow and Aix La Chappelle, of course. Most of the impetus behind the coinage program and other reforms was due to Napoleon's all-encompassing vision of a "Franco-Roman" civilization, and an attention to detail that would have driven a lesser man insane. There was also the need, like Alexander, to finance a program of conquest with a sound currency.

Napoleon's efforts resulted in the first full range of coinage since before the Revolution. Some denominations were issued only sporadically, or dropped as their lack of utility became apparent, such as the 5 Centimes. For the most part, however, Napoleon as "First Consul" and, later, as Emperor, provided an adequate supply of sound circulating media. This obviated one of the more hated aspects of the Revolution, the inflationary issues of paper money.

Regular minor issues consisted of a billon 10 Centimes, and Quarter and Demi (Half) Francs in .900 fine silver. The 10 Centimes displayed the famous wreathed and crowned N of the Man of Destiny on the obverse, with the denomination and date on the reverse. The Quart- and Demi-Franc were standard monarchical-style portrait issues, although France remained officially a republic for some time, even after Napoleon became Emperor.

The remaining silver issues consisted of the 1, 2 and 5 Francs. While the silver 5 Franc was the official legal tender coin, the best known, most popular, and longest-lasting item to come out of the reformed coinage was the gold 20 Francs, the "Napoleon," a term also applied to brandy and pastries. Containing .1867 ounces of .900 fine gold, this standard continues to be minted today as a bullion item, usually in the form of "official restrikes," but often, in some countries, as a special commemorative. A gold double Napoleon, 40 Francs, was also minted.

All Napoleonic regular issue coins are popular with collectors and historians. Particularly popular are the large silver 5 Francs. These illustrate graphically the changes in France from Revolutionary Republic (the "Hercules" issues of "L'An 10-11"), to Consulate (Napoleon as dictator or "First Consul" in L'An 11-12), to Early Republican Empire ("Bare Head" of Napoleon and identification of France as "Republique Française" in L'An 12-14 and 1806-1807 of the resurrected Gregorian calendar), and, finally, to Late Monarchical Empire (Laureate head of Napoleon, and identification of France as "Empire Française" in 1809-1814), not forgetting the various transitional types and "The Hundred Days" issue along the way.

The Revolution Spreads

The influence of the French Revolution and the subsequent career of Napoleon were pervasive throughout the world. Many countries far outside the direct French sphere of influence adopted the basic French standard for their currency, at least for a while. The new republics in Central and South America were particularly susceptible to the spirit of ça ira. Much of this, ironically, resulted from the revolutionary fervor that swept through the western hemisphere after Napoleon effectively dismantled the Spanish Empire by forcing the abdication of the Spanish king and putting his own relative on the throne. The Spanish-American revolutions of 1810-1820 were started largely in support of the Spanish crown against the usurping Bonapartes. It was only later that the revolutions became wars of liberation. Many current historians and politicians generally ignore this fact.

The new republics frequently adopted the French standard once they got their treasuries and exchequers in order, either by choice or by force. There may have been some idea of eventually establishing a world revolutionary state, as the French had originally set out to do, and as internationalists such as America's Dr. Benjamin Franklin is said to have envisioned. There was, however, no formal process of adopting the French system as a proto standard for the world.

Among the South and Central American countries that adopted the French standard in some degree in the early nineteenth century (usually for the major coin, based on the 5 Franc of .7234 ounces of silver, .900 fine) were Bolivia, Chile, Columbia, Ecuador, Guatemala, Honduras, and Venezuela. Bolivia was the latest addition to this group, and may have adopted the standard in 1864 in anticipation of the French-sponsored Latin Monetary Union of 1865. Latecomers to this informal French monetary community in the Americas were the Dominican Republic, Haiti and Puerto Rico (through Spain's adherence to the provisions of the Latin Monetary Union, although never an official member).

One of the most unexpected members of this quasi-union were the Danish West Indies. Before their purchase by the United States, the islands adopted a kind of hybrid "Franco-American" standard in preference over the currency of the Scandinavian Monetary Union of 1873, in which the parent country Denmark participated. Peru also had a unique situation, where the standard silver currency, the Sol (Sun), was based on the French standard, while the gold currency, the Libra (pound) was, naturally enough from the name, equal to the weight and fineness of the British sovereign, .2354 ounces of gold, .917 pure. Even the United States changed the basic weights of its coinage to metric equivalents in 1873 to conform to prevalent international weights and measures.

A Formal Arrangement

It was not until 1865, however, that a formal currency union was adopted among a number of the nations of Western Europe. The basic idea was to facilitate trade among the countries in the French Common Market. With, however, the adoption of a uniform currency throughout the German states in 1857, there was also a need to counter the economic might of the Prussian-sponsored Zollverein, the German Customs Union established in 1819. In 1865, therefore, France, Belgium, Switzerland, Italy and, eventually, Greece formed the "Latin Monetary Union." The French standard was adopted for the Union. The basic coin was to be the silver 5 Francs, or whatever its equivalent was in the local currency, such as Lire or Drachma.

Provisions of the Union were straightforward. Each country was to take steps to ensure that its currency did not deviate in value from the standards of the Union. As no central bank for the Union was established, this left the decision as to whether to comply with the treaty purely local and voluntary, although it was clearly in the best interest of the members to keep their currencies at par.

Gold coins and the standard silver 5 Francs (or Lire or Drachma) were considered "Union Currency." These were to pass at par anywhere within the Union, regardless of the issuer. Subsidiary silver (i.e., less than 5 Francs or its local equivalent) and bank notes were considered "national" and not "union." Members of the Union did not have to accept them, although they usually passed without difficulty everywhere in the Union, anyway.

The basic 5 Francs coin was to consist of 1/200 of a kilogram of silver, the equivalent of 1/3,100 of a kilogram of gold. The fineness for the legal tender silver coin was set at .900, while that of subsidiary silver (less than 5 Francs) was established as .835. In 1873, owing to the massive depreciation of silver, all formal members of the Latin Monetary Union agreed to limit the coinage of the silver 5 Francs or its local equivalent. The effect of this was to take the Union off the bimetallic standard and put it on the gold standard, regardless of the official provisions of the treaty.

A sizable number of other countries, although not formally members of the Latin Monetary Union, adopted the same standards for their national currency. This, of course, would facilitate trade with the economic powerhouses of industrialized Western Europe. It would probably come as a kind of quasi-political statement aligning them with the West, and not with the increasingly intimidating Prussian-dominated Zollverein of Middle Europe. Luxembourg (through Belgium), Spain, the Papal States, Montenegro, Serbia, San Marino, Romania and Bulgaria based their domestic currencies on that of the Union. Later, Austria, Hungary, Albania and Liechtenstein (through Switzerland) were to reform their currencies along the same lines.

A Standard Product

The Latin Monetary Union presents collectors with a virtual wonderland of opportunity. Because the basic silver coin was the 5 Francs or its local equivalent, the vast majority of all crown-sized coins outside the German states in the nineteenth and twentieth centuries are of exactly the same standard, and every country that belonged to the Union or based its currency on it issued a large silver coin of exactly the same size.

The Latin Monetary Union lasted for over half a century, from 1865 until World War I destroyed the basic economies and currencies of most of Europe and the United States as well. While this is, perhaps, a surprising statement to make, considering the great strides in economic development and commercial advances that have been made since then, the fact is that most world currencies are now backed by nothing more than a government's promise to pay as a direct result of the Great War.

To finance the hideous cost of total war, governments turned to what seemed a money machine, open market operations of their central banks, eschewing the discount mechanism designed to provide liquidity to the private sector. This has resulted in currencies that are intrinsically inflationary, and only as sound as the taxing power of the government that backs them, instead of the underlying strength of the economy.

The Scandinavian Monetary Union

Of course, the German and the Latin monetary unions were not the only efforts to achieve a stable international currency system before World War I, although the effect of the Latin Monetary Union was the most widespread, to the chagrin of Bismarck, the Prussian Chancellor. When the Prussian prince wasn't trying to make certain of Prussia's ascendancy over Austria, there was always France to worry about — at least until 1870.

A monetary union that probably didn't cause Bismarck any problems was the Scandinavian Monetary Union established in 1873. As far as most of Europe was concerned, the hey-day of the Scandinavian countries had passed with the empire of Gustavus Adolphus and the subsequent bankruptcy of Sweden after the Great Northern War of 1700-1721. There appeared to be little to fear from expansionism from that quarter. The northern countries couldn't even hold on to what they had. Sweden, for example, gained Norway in 1814, but only at Denmark's expense. The Schleswig-Holstein affair demonstrated to Bismarck's satisfaction the complete inability of Denmark to defend herself and her interests without the help of powerful allies, as well as the apparent lack of solidarity among the former Scandinavian empire.

With little outside interest in their affairs, it is no wonder than the Scandinavian countries largely turned inward for most of the nineteenth century and concentrated on internal and domestic development. The formation of a monetary union in 1873 among Sweden, Denmark and Norway two years later was a natural move in response to the almost worldwide demonetization of silver and the change to the gold standard. The problems associated with linking discrete regional economies to the larger international economy with very different interests through association with, for example, the Latin Monetary Union, could be avoided. In addition, the benefits of a common currency could be fully realized by forming a common market among countries with similar economic goals and interests. This would avoid the "balkanization" of the local economies by tying them to something that took the larger picture into consideration.

The inclusion of Norway as a formal partner in the union in 1875 was more of a courtesy than a necessity. Norway was under the rule of Sweden until a peaceful separation was arranged in 1905 by the two parliaments. As far as the rest of the world was concerned, the union was effectively between Sweden and Denmark.

The Scandinavian Monetary Union brought about fundamental changes in the partners' currency systems. Sweden had been using a reformed quasi-decimal system. Denmark had a reformed, but still archaic and very complex system ultimately derived from the one current in Medieval Scandinavia. For its part, Norway had been saddled with a hybrid Swedish and Danish system due to its political realignment in 1814. Decimalization and uniformity was not the least of the benefits associated with the treaty.

A New Currency

Instead of selecting the currency of the dominant partner in the Union, as had been the case with the Latin Monetary Union, an entirely new currency was introduced. The basic unit of currency was the Krone (Denmark and Norway) or the Krona (Sweden), divided into 100 Øre. The weights and standards of the subsidiary coinage were similar. There was some minor variation in silver content in the billon coinage, but even the designs were close enough to appear the same to casual scrutiny. Variations in silver weight were unimportant because of the change to the gold standard. The actual value of silver in the coinage was far below the face value in any event.

The similarity of even the minor coinage was the result of the provisions of the treaty, which went much farther than those of the German unions or even the Latin Monetary Union. Subsidiary coinage was included as Union currency, which meant that minor coinage would pass at par anywhere within the Union, regardless of the issuer. The banks of issue of each country agreed to open non-interest charging accounts for the other partners in the Union. Eventually bank notes were included as Union currency, by agreement between Sweden and Norway in 1894 and Denmark in 1900, making for a much more convenient and uniform system.

When Norway officially became independent in 1905, she retained membership in the Union. The Scandinavian Monetary Union, although not officially terminated until later, was effectively abolished with the financial chaos precipitated by World War I. This was largely as the result of the reparations provisions of the Treaty of Versailles, which had repercussions far beyond the borders of Germany.

The standard denominations were the 1, 2 and 5 Øre in bronze, the 10 Øre in billon (.400) silver, the 25 and 50 Øre in .600 silver, and the 1 and 2 Krone(r) in .800 silver. Sweden was the only country during the treaty period to issue a 5 Kroner, in gold. All three countries issued gold 10 and 20 Krone(r).

Most Union numismatic specimens from 1873 to the beginning of World War I can be readily and inexpensively obtained. The only real difficulty would be among the gold and silver Norwegian portrait issues. Possibly this is because Norway was under Sweden during this period. Portrait issues displayed the same king with minor differences in the order of the obverse legends. Since the currencies passed at par, anyway, why produce more than a token amount?

The important point to understand about the Scandinavian Monetary Union, however, is not that it provides coin collectors with some interesting opportunities. It does that, of course, but it also provides a model of a trade union that did not give in to the usual temptation. It did not simply follow the most powerful member of the union, and was not the precursor of external domination. The flaw, of course, was that there was no acknowledgement of the necessity of widespread direct ownership of the means of production.