Face Value and Intrinsic Value

The stated value, the metal content, and the quantity of goods one can buy. We will consider these as separate measures of worth.

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Face Value vs. Real Value in 3 Minutes

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1 / 9

A coin has two values: the value of the metal inside, and the value written on its face.

Because these can be different, a 1-yen coin doesn't have to be made with 1 yen's worth of metal.

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Edo period

The value of the Nanryo Nishu-gin silver coin was not based on its silver content, but on the rule that '8 coins equal 1 ryo'.

An example where the difference was designed into the system.

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Reign of Louis XIV

He raised the face value to please the people, then secretly reduced the metal content.

It looked like a gain, but was actually a loss.

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When currency is debased, borrowers win and lenders lose.

Because you only have to pay back the same face value you borrowed.

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World War I

Great Britain won the war, and then became a borrower.

A nominal victory doesn't always mean a real gain.

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1866

Korea's Dang-100 coin. Its face value was 100 times higher, but its copper content was only 5 or 6 times higher.

Prices skyrocketed, and the economy fell into chaos.

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1960

The new 1 franc was equal to the old 100 francs. Two zeros were just dropped.

Redenomination changes the scale, not the actual value.

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Ansei 5

1 foreign silver coin became equal to 3 Ichibu-gin coins. A gap opened up between two sets of rules at the border.

The gap wasn't created by one person's bad intentions, but by the system itself.

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1971

The exchange of gold for dollars stopped, and all currencies became based on face value alone.

A nominal victory doesn't mean you're safe.

2In numbers

100times

Face value of Korea's Dang-100 coin compared to its copper content

Face value100 times

Copper content value5 or 6 times

311coins

Number of Ichibu-gin coins exchanged for 100 foreign silver coins

3What would you do?

One morning, an edict is issued: 'From today, the face value of this gold coin will be increased.' Has the value of your gold coin gone up? What do you check?

Pick one

The number of coins issued

There's something to check before the number of coins. Raising the face value often went hand-in-hand with reducing the contents.

The weight and the gold percentage

That's the key thing to check. A common trick was to have people bring their coins to the mint while they were celebrating, then re-mint them with less metal.

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Face Value and Intrinsic Value — course frontispiece

What you will understand after this course

You can explain the gap between nominal and real value using one concrete coin.
You can say what becomes possible when face value parts from the quantity of metal.
You can explain the aim and the side effects of moving face value by decree.

More about this course

Course number: B04

Supervised by: Mitsuru Hayama

Beyond the text: 10 exercises · 6 coins · 11 readings　How reading times are calculated

You will also understand

You can judge from the movement of money whether creditor or debtor gains.
Can explain examples of "face value inflation" (Tōhyaku-sen, Tenpō Tsūhō), including their consequences.
Can interpret redenomination, demonetization, and the establishment of legal tender in a unified way, as manipulations of the gap between nominal and real value.

You can start this course without reading any other course.

Also worth reading, to see the connections (optional)

Interpreting Coins from Weight and Purity
What you learn: From the weight and fineness of one coin you can calculate the metal actually present.

If you want to know more about checking sources (optional)

Is It Really True? Checking History
We re-examine the origins of money and famous anecdotes, comparing them with historical records and actual artifacts.

Assessment

10 exercises in this course (7 check, 0 compare, 3 written). Progress is recorded by self-assessment.

The 8 chapters of this course

Face value and content drift apartReal and nominal value can part. Because they can, small change is possible. The trouble is parting too far.
One decree, and the face value movesA rise in face value usually comes paired with a cut in content. See through the good news that wraps it.
Those who live on the real, and on the nominalWhen money thins, debtors gain and creditors lose. Debates about the system are debates about position.
The state itself moves between nominal and realNominal victory and real profit do not coincide. When you read "they won," go check the ledger.
A Hundredfold Face Value — Two Large Coins of East AsiaA face value can be increased a hundredfold by decree, but its intrinsic value cannot. The market will later charge for this discrepancy.
Erasing Zeros — The Surgical Procedure of RedenominationRedenomination does not change value, only the nominal scale. It is a surgical procedure to clean up after the scale has run out of control.
The Nominal Border — The Loophole in Article 5 of the TreatyThe single phrase "as equal kinds at equal weight" struck the fault line between the world of nominal value and the world of weight.
The Thousand-Year Victory of the NominalFrom merchants' paper to legal tender, and then to the closing of the gold window. The victory of nominal value was a long campaign that took a thousand years.

Readings (11)

The century of recoinage　Japan　1772　Edo
§1. A gold unit written on a silver coin. A design in which face value leaves the content.
The gold of the Sun King melts　France　1683–1715　The Paris mint
§2. The two-stage manoeuvre is written out plainly.
Kipper und Wipper　Germany　1619–1623　A town of soaring prices
§3. The scene where those paid in money collapse in real terms.
1914　Britain　1914–1918　Both shores of the Atlantic
§4. The victor becomes a debtor. The gap between nominal and real opens at the scale of a state.
Korea　Overview: the world　AD 1866　The Failure of the Dangbaekjeon
Section 5. Face value 100 times, intrinsic value five or six times. A paragraph that most concisely describes the arithmetic of this disparity.
The heavy franc and the hold of gold　France　1960　A French shop
Section 6. The day two zeros were removed. The practical and symbolic aspects of redenomination.
The black ships and the outflow of gold　Japan　1858　Shimoda, the American consulate
Section 7. "If you reduce the story to one person's malice, you won't see anything"—a model for a structural reading approach.
The Civil War　United States　1862　Washington, the federal Congress
Section 8. The article marking the second victory for the principle of enforcing circulation by the power of law.
A Recoinage　India　Circa 1329–1330　The King's Decision
This is a scene where a state that issued token money redeemed even privately made counterfeits with gold and silver, depleting the national treasury. Please read up to the line that says, 'The state decides the face value, but it is not the state that makes people believe in it.'
The invention of never changing　Italy　the 14th–15th centuries　The counting desk of a trading house
The gold coin in hand and the florin on the books begin to follow different paths. This explains the circumstances that required an ideal coin, rather than a physical one, to average out the difference between a piece used for twenty years and one struck yesterday.
The silver flows out　China　1820–1850　A shopfront counting copper coins
This is about a society where taxes were calculated in silver, but daily life was paid for with copper coins. Please grasp the mechanism by which the burden grew heavier without a single line of law being changed, through the sentence, 'the exchange rate itself becomes a tax.'