Academic journal article Asian Social Science

Examining the Value of Money in Turkey over the Long Term (1469-2009)

Academic journal article Asian Social Science

Examining the Value of Money in Turkey over the Long Term (1469-2009)

Article excerpt


This paper aims to examine the tremendous loss of value of money over the long term during the Ottoman Empire and the Republic of Turkey between 1469-2009. By 1844, 1.1 Ottoman lira exchanged for one English pound, but in 2005, 1.5 million Turkish lira exchanged for one U.S. dollar. By critically examining the value and purchasing power of money in Ottoman-Turkey, this paper compares empirical evidence and statistics through long term analysis of silver and commodity price indices, as to which medium of exchange provides for the best store of value. This paper discovers that monetary policy should not target stable prices, by managing the quantity or purchasing power of money, but instead adopt a monetary theory of value involving a stable currency, free of monetary management, permitting a stable purchasing power and thus stable prices.

Keywords: silver price, commodity prices, value of money, purchasing power of money

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1. Introduction

This paper investigates the store of value function of money, by analyzing the value of money over the long term during the Ottoman Empire and the Republic of Turkey between 1469-2009. Whilst the purchasing power of money (PPM) is the inverse of the price level, and measures decline in the real value of money due to inflation (Rothbard, 1983, p.30), it would not tell us what is the cause of inflation. There is a difference between the value of money (VM) or the rate of exchange between a currency for a fixed amount of precious metal being the price of gold (PG) or silver (PS), from the PPM in terms of what money can buy at a particular point in time, reflecting the ratio of exchange between commodities and money (Ricardo, 2004, p. 90). By analyzing indices for the VM, the PPM and wholesale commodity prices (WPI) in Ottoman-Turkey, we find that a monetary theory of value, rather the a quantity theory or mercantilist Keynesian purchasing power theory, provides for a satisfactory interpretation of their causal significance and indeed their inter-relationships. Whilst, changes in the general level of commodity prices, reveals the relative value of money (Warren, 1935, p. 10), price movements are statistically defined by a price index and its reciprocal is the PPM (Fisher, 1911, p. 184). Since the Ottomans primarily used silver as their medium of exchange, the purchasing power of silver (PPS) involves how many commodities can be bought with the proceeds of a given amount of silver. This involves the construction of an index comprising a unified series of the PS, divided by an index of a unified series of wholesale commodity prices (WPI), and requires discussion on the construction of indices for the PS and WPI, including the compilation of relevant price data, the type of mean to be adopted, the types of commodities and the treatment of missing values. Beveridge stipulated that the analysis of long terms prices involves "a study not of isolated facts but of relations; comparison is its essence" (Beveridge, 1965, p. xxvi), and in determining how the VM effects the PPM, we can convert nominal prices into bullion equivalents "for the special purposes of relating prices to urrency policy" (Beveridge, 1965, p. xlvii). Whatever the decrease in the bullion content of specie or devaluation of paper, Ottoman silver coinage followed by Turkish paper money, have remained over the long term as a medium of exchange, a unit of account, a standard of deferred payment, but any changes in the store of value function of money can be measured by changes in the VM, which affects the PPM and this in turn affects WPI.

Jastram (1977, 1981) studied gold and silver over the long term in England and the U.S. from 1560-1979. He argued that both gold and silver had become manipulated and de-monetized commodities, and concluded that whilst a monetary system should be managed, gold is not money and there would be no return to a gold standard (Jastram, 1977, pp. …

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