Inflation in the Seven Year War under Frederick the Great

The inflation in the period of the Seven Year War in Prussia was committed by its king Frederick the Great. It is notable for the many ways the debased coins were spread out far beyond the country of origin.

Before the war

When Frederick the II came to power in 1740, Prussia was very far from a united country. The currency was silver, as in the rest of German lands, but Prussia did not have any significant silver mines, it relied on imports from America. The prices of gold and silver changed from 1701 to 1710 from about 1:15,27, to 1:14,93 in 1740-50. In Germany has the Reichstag in Regensburg (1737-38) set the ratio to 1:15,1.

After complaints about the lack of coin has Frederick decided to reform the currency. The 10-Reichsthaler piece (a "double-Friedrischdor") should be made 17 1/2 pieces on a mark* of gold, the 5-Reichsthaler (a "Friedrischdor") 35 on a mark, and the 2 1/2 thaler coins at 70. The silver thaler should be fixed againts gold, with 5 Thaler equal to one Friedrischdor. From 1 mark silver should be made 10 1/2 thaler; half-thaler coins 21 on the mark and quarter-thalers 42 on a mark. The ratio of gold to silver was seen as too high and set to 1:13.793 for Prussia. The name Reichsthaler reflected Frederick's expectations and it indeed became the first step towards a unified German coinage.

_{*) In Germany became the Cologne mark standard, with 233,856 g. The English mark was 233,275, the Spanish 230,348, the Portugese mark 229,50 g.}

War and inflation

Frederick, who foresaw the upcoming war, had to change his monetary policy and rented his mints to capable Jewish money traders, who were able to make them profitable. Most coins were in the contracts exactly defined in weight and purity, but some token coins circulating outside of Prussia were wildly inflated. In Poland were no coins made throughout the 18th century and it became an ideal target for devalued coins. When the 18-groschen pieces ("tympfs") from Königsberg became popular, the Polish king and Saxon Kurfürst decided to make more of them in Saxony. Since it and Poland were separated, they had to be transported through Prussia, and would be a competition for his minters, Frederick forbade the transport. In response were his coins from Königsberg banned. Frederick has responded by coining money with the seal and all marks of Saxon coins.

And it was Saxony, that was captured first in the Seven Years' War, not least because of its wealthy silver mines. The coins were minted as before, but were not allowed in Prussian lands. Their small silver content showed after some use, and the new coins were dubbed Ephraimiten, according to their minter. Silver-white at first, the copper shone after a while through, as in the verse "From outside Frederick, from inside Ephraim."

The suggestion to make money with such a low content in Prussia in 1757 was strongly rejected by the king, the "infamous coins" should not circulate in his own lands. The king went as far as to destroy the records of his inflation, so not much is known about its magnitude - except for the mint in Dresden, which was briefly occupied by the enemy.

In 1758 was all coinage, even in Prussia, unified on 19 3/4 thalers per mark. In December 1758 were the Friedrichsdors devalued by 41%. In 1760 was the content set down to 30 thalers on a mark, only the Prussian 'Kurantgeld' (coins used to pay taxes) were left on the older standard. The new devalued coins were intentionally minted with the year 1753 to hide their true nature.

The situation in the war forced the king to look for more sources of income. The golden Saxon Augustdor was minted with old years, on the beginning of 1761 at 11 carat, later that year 7 carat. Since 1759 are in the contracts with minters also "other coins." Frederick's devalued coins were an inspiration to many other German nobles, who inflated their currencies as well. Frederick used the opportunity to mint copies of these coins for more profit. By 1760 was the war going badly for Prussia. That was noticeable in the exchange rates as well - the price of silver that had to be bought from Netherlands rose from 19 to 28 Reichsthaler per mark. The war money became harder to deploy, the armies to spend it were separated from homeland, in many places were Saxon coins forbidden and in some was their mere possession reason for imprisonment. It was decided to mint Saxon and "foreign" coins at 40 Reichsthaler per mark, the "Tympfs" were to be made in any amount desired. The mints in Anhalt and Schwerin were forcibly closed as undesired competition.

By end of 1762 was a return to normality possible, for a start was the money improved to 19 3/4 Reichsthaler per mark. The old money was being withdrawn, the Saxon 1/3 thalers were accepted at a discount of 70%, the groschen at 117,50%. A lack of new money was noticeable until the end of 1763. In 1764 was the standard finally returned to 14 Reichsthaler per mark for the thaler and its parts . The golden Friedrichsdor was again coined by the standard from 1750. The mints were again run by the Prussian state.

Consequences of the inflation

In the Seven-Years' War Frederick faced the forces of Austria, France and Russia, allied only with England. Wars were typically financed by taxes, loans or inflation. Frederick chose not to take out loans. War taxes were used, especially in occupied territories (Saxony alone paid 50 million thaler). Subsidies from England were paid in gold and silver, and they too pointed the way to reliable currency devaluation. And never before found inflation so many new ways. The money streamed in all directions, whether to hostile or neutral lands. The years on coins were often faked. The Austrian army paid its troops with Saxon war money. Even the French army used them. A large number of German mints have also depreciated their currency, including those run by religious leaders. These currencies were then copied by Frederick's minters. Poland, that gave up minting some time ago, became an ideal target for devalued coins, and the trouble this caused suited the king's long-term plans well (the First Separation of Poland in 1772 was being justified by the economical disorder).

How many coins were actually minted and what the total income from this inflation was, is unknown. Documents exist only for the mint in Dresden from 1758 to 1759. In a year and three months were made over 8 million coins. The treasure paid by the mints totaled almost 30 million Reichsthaler. An estimated 50 million went to the Prussian crown for the privilege of making war money (note that these payments were made in good coin). The profit of the minters was estimated at 25 million. The losses of Prussian holders of money, judged by the conversion criteria after war, were on average 67%.

Frederick came out of the war as a winner and his disconnected lands could be united by keeping the wealthy Silesia. Since a long period of peace followed, the Prussian economy recovered rather fast.