The monetary disorder of the period offered a good deal of food for thought. Its origin was prevalently fiscal. Right from the early days of coinage, governments had seen seigniorage as a useful source of income when hard times struck. As Galiani points out (Della moneta, book III, chap. VI), following the first Punic War the weight of the as was reduced to one sixth of the original in order to pay off the public debt.
But the interference of sovereigns in the monetary system was, according to Keynes (Tract on Monetary Reform, 1923, pp. 161-63), also due to the modus operandi of the method of adjustment in the commodity standard. In the presence of fixed prices and wages, a movement of gold price reflected negatively on incomes and employment. Any intervention on the part of the sovereign regarding the quantity of money could therefore be interpreted as a means of opposing the deflationary effects of such a process.
Independently of its origin, this kind of intervention has an accumulative effect over time and ends up by compromising the functions of currency and, in particular, that of the unit of account. The importance of Scaruffi's treatise lies in his attempt, perhaps the first, to eliminate the greater costs of transactions generated by monetary manipulation, which weaken the essential role of currency in producing information.
Scaruffi, a merchant and a practical man, encountered this problem in his business as a merchant and proposed standardization. The metal system, respect for the fundamental rules, fixing the unit of account and maintaining freedom of coinage, led to a de facto monetary union.
It is for this reason that John Stuart Mill (Principles, book III, chap. XX) stigmatized the use of national currencies, defining this as «barbarism». This is a classical view founded on the hypothesis of balance. In a commodity standard, the quantity of money is determined on the market by the goods-money and, if the rules are not broken, its progress eludes the control of the authorities.
In the course of monetary history, however, these conditions seldom came about, if not for relatively brief periods and in particularly favourable circumstances, precisely because they were hard to sustain.
Even in periods before the development of post World War I modern monetary policy, the monetary authority intervened to reduce the costs of wellbeing deriving from overly rigid rules. In this regard, there is a great deal of interest in the document presented by Alfredo Santini, which illustrates the opinion of Scaruffi's reform held by the experts nominated by the duca d'Este.
Stressing the different characteristics of monetary systems, these experts suggested that monetary union could be achieved only if each participating state adopted the new, more stringent, rules and was able to sustain their impact, «but not to anticipate others in the making of rules that lead to serious damage in trade with larger, more powerful, cities that do not have or do not wish to accept these teachings. And this can be done by those able to support themselves, such as the Signoria of Venice, Milan, Tuscany, the Church, Spain, Germany and the like, but not by those who cannot support themselves on their own».
This review of Scaruffi's contribution stimulates a series of reflections that are useful if we are to have a clearer picture of current aspects of the theme in question. The analysis of monetary union in the distinct contexts of commodity money and fiat money makes it possible to explain the crucial aspects of these problems, such as the counterbalancing of the economic system and the efficacy of monetary policy, thus confirming the important benefits to be drawn from a reading of the classics even for contemporary economists.
(Antonio Fazio is the Governor of the Bank of Italy)