11th June 2022 > > Inflation.

tl;dr

We do need to understand inflation better.

Market Snap (at time of writing)

Market Wrap

Perpetual futures funding rates for most coins across most exchanges are a sea of green, in response to yesterdays at times brutal stock-market sell-off. This week has seen the most carnage in stocks since January as inflationary concerns decimate the long end of the yield curve.

Those super-cheap and lengthy mortgages are disappearing fast.

Curious Cryptos’ Commentary – How did we invent inflation?

There is an interesting debate to be had regarding the monetary phenomenon known as inflation.

Back before medieval times various Anglo-Saxon kings minted their own currencies within their own regions of influence.

Archaeological finds of coins continue to provide today detailed information about both the geographical source of those coins and the dates they were minted.

We can be very sure that coins showing the face of Aethelberht (King of Kent sometime in the late 6th to early 7th century AD) had very differing purchasing power to those of King Aethelstan (King of the Angles, and possibly of England in the late 10th century AD).

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But to understand what that means, we need to look at the invention of coinage, as opposed to more primitive forms of value transfer.

This extraordinary event, which has enabled our digitally connected lifestyle today to exist, occurred much earlier in other parts of the world as compared to the UK.

It seems to be commonly acknowledged that around 7th century BC, merchants in Ancient Greece started to produce an efficient and widely accepted means of transfer of wealth for commercial transactions using pure gold and pure silver coins.

Clearly such a development could not escape the attention and clutches of those in legislative power for long. The production and quality control of coinage was rapidly, and seemingly irreversibly (until now) subsumed by those who ruled over the masses.

Left to their own devices, those innovative merchants wishing to standardise and efficiently process commercial transactions would have ensured that coins (absenting scams of course) remained as being pure in gold and silver.

Guess what? That didn’t happen.

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We are very lucky in the UK, from the historians’ perspective, that we have many finds of coinage from ancient Britons, spanning the Roman invasion and suppression of Celtic tribes, through the Anglo-Saxon insurgence against the slavery and pillage wrought by Scandinavian oppressors, and the final capitulation to the Norman invaders - the leader of whom, William the Conqueror, launched the Plantagenet dynasty, whose enduring legacy on the world can only be admired and applauded.

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The quality of coinage throughout the dark ages can be measured in a gross manner by the workmanship, and in a detailed manner by the content of precious metals within each coin.

There are some fascinating studies of how the quality of the coinage corresponds to how external events (painful and fatal plague decimating towns and villages as far as the Humber was a frequent visitor to our shores long before Black Death was a thing) would inevitably have had a material impact on the economic activities of a relatively small population. A population whose means of communication was based largely on the speed of a good horse rider.

And this is how inflation came about.

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Our documentary evidence of those times is sparse and much of the written material is partial.

But charters show intent. Religious records of marriages, births, and deaths can mostly be relied upon. Stuff dug out of the ground may need to be interpreted but will not lie.

It isn’t difficult to correlate our admittedly limited knowledge of the “quality” of coinage to its purchasing power.

In the early 5th century, as Rome retreated from its far borders when internal strife began to destroy its domination of the world, Roman coins in circulation in the UK started to diminish in size due to “clipping”. Fragments of the original became useful in the bartering process, but also devalued the remainder of the coin.

In the 8th century King Offa revived the practice of reliable coinage, embossed not only with his face, but also that of his queen, Cynethryth, cementing forever more the UK’s leadership in equal rights regardless of sex, ethnicity, or sexuality, ever since.

Though I suspect he did not see it in those terms himself.

In the mid-870s the currencies of both Mercia and Wessex had a remarkable transformation, in which their silver content multiplied 6-fold.

Just prior to this time, the various Anglo-Saxon kings led by Alfred had begun to come to an accommodation with the Viking invaders. They may have been (willingly) fooled by Guthrum’s fake conversion to Christianity and his baptism, but the unsettled peace between Alfred and Guthrum allowed people to get on with the daily business of growing crops and living their lives, for quite some period of time.

No doubt this cessation of violence, carnage, and bloodletting – however temporary – was good for the economy.

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I think the key point I am trying to make is that whatever form of currency one uses (and there will always be many choices) they are all a strong reflection of current mores, issues, events, and prevailing economic orthodoxy.

I leave you today to contemplate this graphic in the context of my ill-structured comments above: