8 - Prussia’s Debasement during the Seven Years War: the Role of the Bank

Summary

This chapter offers an example of the role of the Bank in European state finance. The kingdom of Prussia made heavy use of the Bank during the Seven Years War (1756—1763). Public finance in Prussia during this period was primitive, lacking basic features such as a bond market or central bank. Under heavy financial pressure, Prussian King Frederick II chose to finance much of the war through the production of debased coinage. The task of minting debased coins was outsourced to private contractors (“mint entrepreneurs”), who purchased much of the necessary silver in Amsterdam, making use of credit which was abundant in the Amsterdam market. Details of these transactions are revealed in the Bank’s ledgers. Frederick also relied on gold subsidies from Great Britain, which were paid via Amsterdam and can also be matched to Bank records. Finally, at the end of the war, Frederick called upon his entrepreneurs to engineer a reverse debasement (reinforcement). This activity once again relied heavily on Dutch resources, including remote smelting furnaces, Amsterdam credit, and Bank money. Traces of the entrepreneurs’ activity can again be seen in the Bank’s records.