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Nicholas Oresme and the First Monetary Treatise

The practical offshoot of the Austrian theory of money is that the production of money should best be left to the free market. Government interventionism does not improve monetary exchanges; it merely enriches a select few at the expense of all other money users. And on the aesthetic side, the disaster is of course complete: rather than deal with beautiful silver and gold coins, the citizens are compelled by law to hold unbecoming paper notes.

Present-day Austrian economists are not the first to point out that interventionism makes money unsightly and unreliable. Rather, they uphold a tradition of many centuries that includes illustrious economists such as Murray Rothbard, Ludwig von Mises, Carl Menger, Frédéric Bastiat, William Gouge, John Wheatley, Etienne de Condillac, and Thomas de Azpilcueta. In fact, this tradition can be traced back right to the very founding father of monetary economics, the great Nicholas Oresme.

Oresme was born around 1320 near Caen in France. After a distinguished career as a scholar and confessor of king Charles V, he became Bishop in 1377 and died in Lisieux in 1382. Oresme was a brilliant mathematician, physicist, and economist. At some point before 1355, he wrote a treatise on the ethics and economics of money production. The book had the title Treatise on the Origin, Nature, Law, and Alterations of Monies, and it established his fame as an economist for all times.

The most adequate modern rendering of the title would be “Treatise on Inflation.” Indeed, Oresme pioneered the political economy of inflation; he set standards that would not be surpassed for many centuries, and which in certain respects have not been surpassed at all. A closer look at the book reveals that monetary thinking has been sound at its inception and that present-day Austrians are the heirs of monetary orthodoxy in the true meaning of the word.

Against the State Theory of Money

The very first question of monetary theory is of course: what is money? Oresme answers that money is a commodity; more precisely, it is 1) a quantity of precious metal with 2) a stamp that certifies the metallic fine content. The certification can be provided by a private person or private organization, but it can of course also be provided by some government agency.

By the time Oresme wrote, government had invaded the money certification business for more than 1,500 years, but Oresme insisted that such government involvement did not belong to the nature of money. He thereby rejected the influential state theory of money, according to which it was the state rather than the market who decided what money was.1

The state theory of money had been championed in the writings of Plato and Aristotle. It was in fact embodied in the very language in which these philosophers wrote. The Greek word for money was “noumisma”—from “nomos,” the Greek word for “law.”

Now in the 14th century, Oresme stressed that the Latin word for money—”moneta”—had a different etymological root. It had nothing to do with the law and the state, but with information and certification. Its root was “moneo” (I inform) “because it informs us that there is fraud neither in the metal nor in the weight.” The production of money was therefore not, in its essence, an act of officialdom. It was a market activity. The money producer rendered a certification service. He informed the prospective users of his coins about the metallic fine content. This information was useful because it reduced uncertainty and measuring costs. In the words of Oresme:

When men first began to trade, or to purchase goods with money, the money had no stamp or image, but a quantity of silver or bronze was exchanged for meat and drink and was measured by weight. And since it was tiresome constantly to resort to the scales and difficult to determine the exact equivalent by weighing, and since the seller could not be certain of the metal offered or of its degree of purity, it was wisely ordained by the sages of that time that pieces of money should be made of a given metal and of definite weight and that they should be stamped with a design, known to everybody, to indicate the quality and true weight of the coin, so that suspicion should be averted and the value readily recognized.2

Notice that he did not say that the government wisely ordained the creation of coins, but that “the sages”—natural elites in a free society—did this. So where does government come into play? Oresme makes the case for some very minimal form of government involvement in money. His point is that the prince enjoys the citizens’ trust; after all, they follow his judgement in matters of war and peace and therefore are likely to trust his stamp on their coins. Yet Oresme hastens to point out that the princes do not own any coin just because it bears their stamp, and that the princely prerogative to stamp money is really just a matter of expediency. It is a prerogative derived from the fact that money “is essentially established and devised for the good of the community.”

Present-day Austrian economists can, by and large, agree with these considerations. They would merely add that competition is the best-known way to identify trustworthy certifiers. And they would also point out that, today, the Oresmian case for the minimal state in money does not hold because it does not apply to any of our political leaders. Public trust in politicians is at an all-time low, and this is not only (but also) because none of them personally leads us into battle anymore.

As we shall see below, there are good reasons to assume that Oresme would concur with this assessment. Were he to live in our day, he would probably qualify our monetary system as tyrannical and urge its reform.

The Case for Parallel Monies

Even though Oresme did not quite see the virtues of competitive money production, he certainly was no starry-eyed constructivist. He did not advocate any one-size-fits-all monetary scheme. He recognized that the precious metals were superior monies because of their physical characteristics, and thus he focused his considerations on metallic monies. But he was far from believing that an optimal monetary system could or should be devised once and for all. In particular, it was for him the most normal thing that gold coins, silver coins, copper coins, and various tokens be in parallel use, and that the exchange rates between these media of exchange should be determined on the market.

Inflation is Unnecessary

The most important practical question in the theory of money is whether there is any case to be made for the political manipulation of the money supply. Are the supplies of gold and silver coins that are spontaneously produced on the free market sufficient? Or should we expect some sort of market failure in the production of money, so that government should step in to improve on market outcomes?

The Austrian position is well known: in money as in any other field production, the competitive cooperation of market participants achieves incomparably better results than the government. Government meddling with money boils down to increasing the money supply beyond the level it would have reached on the free market; that is, it boils down to inflation. This policy is truly anti-social: it does not serve the community of money users as a whole; rather it benefits some members of this community at the expense of all others, thus pitting them against one another. Inflation invariably entails exploitation and social strife. But this is not all. Inflation is not merely a zero-sum exploitation scheme in which some gain what others lose. It actually generates net losses because it deteriorates the very vehicle of social cooperation. Inflation makes money worse and thus people exchange less, which means they cooperate less, which means they are not as productive as they could otherwise have been.

All of these insights can be found in Oresme’s treatise. The author does not use the word inflation, but he most certainly deals with the phenomenon of inflation. In his day, the alteration of coins was the only known inflation technique. Governments did not yet control fractional-reserve banking and paper money, but they could change the certificates stamped on the coins, or change the contents of the coins without changing the certificate. Suppose a monetary economy predominantly uses one-ounce copper coins that feature imprints saying “this coin contains one ounce of fine copper.” Now a government bent on inflation could step in and change the imprint to “this coin contains two ounces of fine copper.” Thus it would increase the nominal money supply beyond the level it would have attained on the free market. Usually the point of this scheme was to allow the government to pay back its debts according to the letter in nominal terms, but in fact defrauding on its creditors in real terms. In Oresme’s day, governments had to be that crude. Today they have paper money.

Now Oresme stressed that such manipulations serve no good purpose. A mere change of the nominal money supply does not help the economy at all. It merely changes all money prices. The nominal money supply per se was irrelevant for monetary exchanges. Changes of the nominal money supply—the “alteration of names”—did not make money more suitable to be used in indirect exchanges, nor less; such changes merely affected the terms of deferred payments (credit contracts):

And if no other change were made, it would be necessary for goods to be bought or priced at proportionately higher rates. But such a change would be to no purpose, and must not be made, because it would be scandalous and a false denomination. . . . But no other impropriety would ensue, except where pensions or rents were appointed in terms of money.

Thus Oresme clearly grasped the important truth that the nominal money supply is by and large unimportant. The economy can operate with virtually any nominal money supply. At a higher supply, the prices are higher; at a lower supply, they are lower.

Inflation Entails Exploitation and Tyranny

If inflation is wholly unnecessary, the question is of course: why is the nominal money supply being inflated after all? In our day, most people and even most economists have no clue. But in the 14th century, Oresme anticipated the Austrian answer: Inflation benefits those who create the inflation. It does not affect all money users at the same time, but at different points in time. It therefore creates winners and losers. Politically induced changes of the nominal money supply enrich the government at the expense of the citizenry. Oresme stressed that the government stood ready to gain from inflation; that the greed of governments was in fact the root cause of inflation; and that, once governments gave in to that temptation, they willy-nilly turned themselves into tyrants. In an immortal passage of the Treatise he wrote:

I am of the opinion that the main and final cause why the prince pretends to the power of altering the coinage is the profit or gain which he can get from it; it would otherwise be vain to make so many and so great changes. I propose therefore to give fuller proof that such gain is unjust. For every change of money, except in the very rare cases which I have mentioned, involves forgery and deceit, and cannot be the right of the prince, as has previously been shown. Therefore, from the moment when the prince unjustly usurps this essentially unjust privilege, it is impossible that he can justly take profit from it. Besides, the amount of the prince’s profit is necessarily that of the community’s loss. But whatever loss the prince inflicts on the community is injustice and the act of a tyrant and not of a king, as Aristotle says. And if he should tell the tyrants’ usual lie, that he applies that profit to the public advantage, he must not be believed, because he might as well take my coat and say he needed it for the public service. And Saint Paul says that we are not to do evil that good may come. Nothing should therefore be extorted on the pretence that it will be used for good purposes afterwards. Again, if the prince has the right to make a simple alteration in the coinage and draw some profit from it, he must also have the right to make a greater alteration and draw more profit, and to do this more than once and make still more. . . . And it is probably that he or his successors would go on doing this either of their own motion or by the advice of their council as soon as this was permitted, because human nature is inclined and prone to heap up riches when it can do so with ease. And so the prince would be at length able to draw to himself almost all the money or riches of his subjects and reduce them to slavery. And this would be tyrannical, indeed true and absolute tyranny, as it is represented by philosophers and in ancient history.

It is not too difficult to guess that Bishop Oresme would dismiss our present-day monetary system as the most monstrous (or rather: diabolical) scheme ever concocted to impoverish the “subjects and reduce them to slavery.” And most certainly this would not be altogether wrong. It is of course a very different question whether his voice would be pondered by our contemporary ruling classes as much as it was pondered by Charles V and others in the dark ages of the 14th century. Unfortunately it is not farfetched to assume that, if Oresme were to write today, the usual experts on government payrolls would dismiss him as someone from the lunatic fringe—thus testifying to the improved relationships between intellectuals and rulers in our enlightened age.

Inflation is Destructive

Oresme grasped that inflation was not just a zero-sum game between the government and its subjects, but that it entailed net losses. He stressed four reasons: Gresham’s Law, increased counterfeiting, disruptions of trade, and deception-induced waste. Let us briefly deal with them in turn. First of all, here is Oresme’s formulation of Gresham’s Law:

. . . such alterations and debasements diminish the amount of gold and silver in the realm, since these metals, despite any embargo, are carried abroad, where they command a higher value. For men try to take their money to the places where they believe it to be worth most. And this reduces the material for money in the realm.3

Notice that Oresme correctly points out that “bad money drives out good money” only under the impact of government price fixing: the citizens are obliged by law to accept the new bad coins on equal footing with the old good coins. Without such legal tender laws, the money market would behave just like any other market. In a free economy, the better products always drive out inferior competitors.

Oresme also observed that official debasement would invite foreign counterfeiters to seize the opportunity presented by the general confusion over the debased coinage “and thus rob the king of the profit which he thinks he is making.” But the largest destruction is likely to be wrought by the disruption of trade. Says Oresme:

Again, because of these alterations, good merchandise or natural riches cease to be brought into a kingdom in which money is so changed, since merchants, other things being equal, prefer to pass over to those places in which they receive sound and good money. Furthermore, in such a kingdom internal trade is disturbed and hindered in many ways by such changes, and while they last, money rents, yearly pensions, rates of hire, cesses and the like, cannot be well and justly taxed or valued, as is well known. Neither can money safely be lent or credit given. Indeed many refuse to give that charitable help on account of such alterations. And yet a sufficiency of metal for coin, merchants and all these other things mentioned are either necessary or highly useful to humanity, and their opposites are prejudicial and hurtful to the whole civil community.

He even anticipated the core idea of the modern Austrian theory of the business cycle.

. . . the prince could thus draw to himself almost all the money of the community and unduly impoverish his subjects. And as some chronic sicknesses are more dangerous than others because they are less perceptible, so such an exaction is the more dangerous the less obvious it is, because its oppression is less quickly felt by the people than it would be in any other form of contribution. And yet no tallage can be heavier, more general or more severe.

To sum up, Oresme realized that increases of the nominal money supply would enrich the princes at the expense of the community. But except for very rare and exceptional emergency situations, this was not the price to be paid for some benefit that could not otherwise be obtained.

Inflation is Worse Than Usury

Economic considerations, important as they may be, were for Oresme only the background story. His true interest was in the morals of money production. He argued that counterfeiting was a far more serious moral offence than the sins that are most frequently associated with the use of money, namely, money changing and usury. Money changing and usury might be tolerable under certain special circumstances. But counterfeiting was inherently unjust and therefore never permissible. He held that a “change of names” (debasement) was scandalous and should never be done. An alteration of the weight without changing the name was similarly “a foul lie and a fraudulent cheat.” Alterations of legal-tender money were “quite specially against nature.” They are far worse than usury, because usury, at least, springs from the voluntary agreement between a debtor and a creditor, whereas alterations are done without such an agreement and entail the interdiction of the previous money. Said Oresme:

The usurer has lent his money to one who takes it of his own free will, and can then enjoy the use of it and relieve his own necessity with it, and what he repays in excess of the principal is determined by free contract between the parties. But a prince, by unnecessary change in the coinage, plainly takes the money of his subjects against their will, because he forbids the older money to pass current, though it is better, and anyone would prefer it to the bad; and then unnecessarily and without any possible advantage to his subjects, he will give them back worse money. . . . In so far then as he receives more money than he gives, against and beyond the natural use of money, such gain is equivalent to usury; but is worse than usury because it is less voluntary and more against the will of his subjects, incapable of profiting them, and utterly unnecessary. And since the usurer’s interest is not so excessive, or so generally injurious to the many, as this impost, levied tyrannically and fraudulently, against the interest and against the will of the whole community, I doubt whether it should not rather be termed robbery with violence or fraudulent extortion.

Inflation and the Decline of Civilization

Thus inflation is morally repugnant, economically destructive, and entails exploitation and tyranny. And this is not the price to be paid for any social benefit whatever. Inflation is wholly unnecessary. The nominal alteration of the coinage, said Oresme

. . . does not avoid scandal, but begets it . . . and it has many awkward consequences, some of which have already been mentioned, while others will appear later, nor is there any necessity or convenience in doing it, nor can it advantage the commonwealth.

The only beneficiary of inflation seems to be government. Yet Oresme went on to point out that, in the longer run, government does not thrive on inflation either. He observes that in his day, the alteration of coinage was a recent phenomenon; it “was never done in [Christian] cities or kingdoms formerly or now well governed.” But the end result of this recent evolution was likely to be the same as in the case of the Roman Empire. Said Oresme:

If the Italians or Romans did in the end make such alterations, as appears from bad ancient money sometimes to be found in the country, this was probably the reason why their noble empire came to nothing. It appears therefore that these changes are so bad that they are essentially impermissible.

Thus Oresme arrived at essentially the same conclusion about the critical role that inflation had played in the decline of ancient civilization as Ludwig von Mises in his “Observations on the Causes of the Decline of Ancient Civilization.”4 And it is likely that our own civilization, which cherishes learning by doing more than learning, will take the same course.

The Remedy: No Government Meddling With Money

Oresme’s devastating analysis of inflation leads to a straightforward policy question: What can be done to curb inflation? How can it be prevented? Oresme’s answer is foreshadowed in the title of his book: the alteration of coinage. Because such alterations were unnecessary and harmful, he argued that they should not be allowed at all (the introduction of a new type of coins was in his eyes not an alteration, if it did not go in hand with outlawing the old coin). More precisely, Oresme charged that the government should never alter money.

Neither the government nor any other single group or individual could rightfully change the coinage. To be licit, such alterations needed the consent of the entire community of money users because money was the property of the commonwealth. Yet Oresme did not champion unbridled democracy. A mere agreement of the entire community would not automatically provide legitimacy to the policy (for example, he argued that money should never be debased for regular revenue purposes). Only if the alteration provided the only means to deal with a great emergency, such as a sudden attack by an overwhelming enemy, could it be licit. In any case, the government did not have the right to alter the coins at all, unless it acted as a mere agent of the citizens. The entire community, not just the government, would have to give its consent.

Very similarly, Ludwig von Mises argued that inflation by its very nature contradicted the principle of popular sovereignty. The only way for the people to keep their government in check was to control the government’s resources. If the government needed more money, therefore, it should approach the citizens to pay higher taxes. Inflating the money supply provided it with more resources than the citizens were ready to contribute.5


To the superficial reader, Oresme’s analysis does not appear to be directly applicable to present-day conditions. It is true that our present-day forms of inflation are very different from those of his day. But his analysis of the causes and effects of inflation, and of its moral and political nature, still holds water. Oresme’s successors have refined and extended this analysis in the past 700 years, but they have most of all confirmed his six basic insights:

1) Inflation is predominantly a creature of governments.

2) It harms commerce and the economy, and it entails the decline of civilization.

3) It is not necessary from any larger social point of view—it serves no useful social function. Rather:

4) It creates illegitimate winners and losers. Typically it benefits the government and its allies at the expense of the citizenry.

5) It therefore paves the way to tyranny.

6) The way to get rid of it is to bar government from meddling with money at all.

It is not surprising that Oresme’s work has met with hostility on the part of those who paved the way to our present inflationary regime. They derided it as a manifesto of “metallism” whereas in fact it was a monument to common sense. They put it in “historical context” thus insinuating that its message was dated. But the Treatise on the Alteration of Monies is a milestone in the science of money, a science of universal laws. Nineteenth century champions of sound money such as Léon Wolowski and Wilhelm Roscher were entirely on the mark when they celebrated it for its lasting value. And all friends of liberty should celebrate it today.

Available in the Mises Institute bookstore and Mises Library.

  • 1. The readers of Ludwig von Mises’s Theory of Money and Credit will be familiar with the name of the most important twentieth century champion of the state theory of money, Georg Friedrich Knapp.
  • 2. He went on: “And that the stamp on coins was instituted as a guarantee of fineness and weight, is clearly proved by the ancient names of coins distinguishable by their stamp or design, such as pound, shilling, penny, halfpenny, as, sextula, and the like, which are names of weights applied to coins . . .”
  • 3. Gresham’s Law received its name forom a nineteenth century British economist, who falsely ascribed its discovery to Thomas Gresham, a sixteenth century financial agent of the English Crown in the city of Antwerp. Oresme was not the first discoverer either. The oldest known version can be found in Aristophanes’s poem “The Frogs.”
  • 4. Mises, Human Action, pp. 761–63.
  • 5. Mises, Theory of Money and Credit, pp.466–69.

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