s consider what will result
if the government begins to issue money in this way, when, as in the
preceding case, 100,000 units of full-weight money are in circulation.
This action might be taken most simply by recoining all the
full-weight pieces that came into the treasury, making them contain
1/10 less precious metal, and paying out 1111 pieces for every 1000
received. Every time this was done there would be an excess of 111
pieces above the normal money-demand, and 111 full-weight pieces would
be exported or melted (Gresham's law). The process (in strict theory)
may be repeated 90 times, at which point 90,000 full-weight coins have
been received, 100,000 light-weight coins have been issued to take
their place and 10,000 full-weight coins have gone out of circulation.
The total seigniorage charge would be 1-10 of 90,000, or 9000 units.
No depreciation has taken place, and the pieces, by reason of their
limitation, bear a money value in excess of the bullion that is in
them.

Now the government, with the next 1000 pieces collected by taxation,
could buy enough bullion (in the open market) to make another 1111.
The excess of 111 pieces could not now be promptly removed by the
melting down or exporting of 111 coins, for all those remaining in
circulation have a bullion value 1/10 below their money value. As this
process is repeated the excess must continue to grow from 100,000 to
111,111, and the value of the money piece in terms of bullion continue
to fall from 10 to 9. At this point the 111,111 pieces would contain
just the same amount of bullion and have just the same value as the
100,000 pieces did before. Thereafter no further profit would accrue
to the government from issuing coins of that weight. To make a further
profit it must again reduce the amount of pure metal in the coin.

This process was often repeated in the Middle Ages. A ruler, either by
making a higher seigniorage charge or by coining on his own account,
debased the quality or reduced the weight of the money of his realm.
For a time the new coins, having the same monetary use, circulated at
par with the old coins. The ruler, pleased with this almost magical
power of getting a revenue with little trouble, continued to issue
coins until suddenly the heavier coins began to be exported or melted,
and the value of the other money fell, to the mystification alike of
the prince and of his people. The reason is now perfectly plain: the
number of coins was n