The Big Problem of Small Change
By Thomas J. Sargent, F. Velde. 2002
324 citations recorded by the source corpus.
The medieval money supply mechanism implemented a commodity standard throughout the denomination structure by imposing mint and melt points for each coin. Mints stood ready to sell (but not to buy) coins for metal. Seigniorage and brassage fees determined the spreads between mint points and melt points for each coin. Because it was cheaper to make a large coin than a smaller one, there were difficulties in aligning the mint-melt points for various coins, and these exposed the system to recurrent shortages, especially of small coins. The authors build a model of the medieval money supply system and modify a cash-in-advance model of demand to capture a preference for small change. They use the model to study the behavior of exchange rates between large and small denomination coins across periods of shortages. The authors also use the model to study how a standard formula of the nineteenth century could be used to supply small change without shortages. The standard formula displaced the medieval supply mechanism with a token currency for all coins but one.
Subfields: Economics and Econometrics, Political Science and International Relations
View Paper: https://www.semanticscholar.org/paper/09c0539082bcddb5c2920d4f1ce8815373fbe903
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Randall Wright
- Ricardo Lagos
- Guillaume Rocheteau
- Drew Fudenberg
- David K. Levine
- Richard H. Thaler
- Adair Morse
- Juan D. Carrillo
In Political Science and International Relations
Citations in the corpus
- The History and Economics of Safe Assets (2016, unknown): “Problems included the shortage of small change and the often bewildering numbers of different units of denomination, especially around ports where foreign coins entered via foreign sailors (see Carothers 1930, Sargent & Velde 1999).”
- Liquidity: A New Monetarist Perspective (2017, background): “Sargent and Velde (2003) argue that the first to see how money helps with a double-coincidence problem was the Roman jurist Paulus in the 2nd century, despite Schumpeter’s (1954) claim for Aristotle. ingredients are relevant for getting liquidity considerations into rigorous theory, and to show how…”
- Learning and Equilibrium (2009, methodology): “The narrower problem of commodity money and the melting of coins has also been studied using the tools of self-confirming equilibrium by Sargent and Velde (2002).”