From 1756, Ephraimiten were the inferior coins which dominated the economy of the kingdom of Prussia during the Seven Years' War. They were traded by normal citizens at the value of coins with the pre-war precious metal content, but they were in fact inferior to them in fineness.
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Financing the cost of war
Frederic the Great used them to finance the Seven Years' War which started in 1756. By producing and issuing such coins of low value the royal treasure could make a considerable profit. This was mainly the task of the banker and court Jew Veitel Heine Ephraim (1703–1775) from Berlin who produced these "fake coins" named after him "Ephraimiten".
"In Leipzig the entrepreneurs Ephraim, Itzig and company produced vast masses of low-valued money, in Tympfs, six-, three- and most often in eight groschen pieces. At first they used Saxon stamps found in 1753 and later on newly produced indentors of the Saxon type.“Emil Bahrfeldt: Brandenburgisch-preußische Münzstudien"; Berlin: Verlag der Berliner Münzblätter, 1913 (Reprint: Transpress 1986). (reference and footnote missing)
The financial gain was that the content of gold and silver was significantly lower than legally ordered, and large amounts of silver were replaced by inferior copper, for example.
However, the coins were initially put in circulation with their full value and accordingly yielded big profits.
The older but original coin stamps which were mainly used came from other countries, preferably from Saxony. These Saxon coin stamps mainly dated back before 1756 and could be confiscated in the Duchy of Saxony which was under Prussian occupation at that time.
Ordinary citizens could not identify the inferior value of the coin at first sight, as coin stamps were in use that had produced full-value coins before the war. Citizens initially accepted the "Ephraimiten" still according to the (pre-war) face value just to find out at the next occasion that the better informed merchants and, shortly after that, also the other tradesmen, artisans and innkeepers would not accept this money at its full face value (=old price of goods and services) any more.
From 1757, however, even Prussian 1/6 thaler coins were significantly reduced in fineness by Prussia without official announcement. There are Prussian full copper counterfeits of the 1/6 thaler piece from this time which were silver-coated only on the outside. This leads to the possible assumption that in the chaos of war there were also private counterfeiters at work.
The Saxon-Polish eight groschen coin, the Polish 18 groschen coin (Tympf) and the golden five thaler piece, also called August d'or, or, in German "goldener August", were reduced in fineness frequently. See also Friedrich d'or.
These coins were copied in Prussia or the mint in Leipzig, respectively. Afterwards they were reimported to Saxony as "trade coins" by the military. The coins were still negotiable in Prussia with reduced value until 1820. By law this was published in so called "Valvationstabellen" (=tables on coin value) and at the same time they were called in for definite change and elimination.
Examples for the "real value" of two pieces of five thaler coins (August d'or) from 1758 and the Tympf according to a Prussian value table from 1820:
The fake five thaler coins differed from the real ones in their size and colour: they were thicker and had a reddish colour. As the weight had to be correct in the era of coinbalances and copper has a more than 50% lower specific weight, this led to the unusual thickness of the coins to reach the "mandatory" weight.
The fraud was not as easy to identify by thickness in the case of the silver coins, since the specific weight of copper is only 15% lower than that of silver.
The "Ephraimiten" with fine metal content can be at best called a value-reduced currency coin, because they were not accepted at their full nominal value as were the billon coins ("Scheidemünzen" - literally: sheath money).
Fraud unmasked and resulting devaluation
(...)
Coins reduced in fineness can easily be tested for their fineness. (...)
The real value of the "Ephraimiten" could be hence be detected by the gross weight. The fraud thus worked for only three years. Through the low number of experts who were qualified enough the fraud could last longer in rural than in urban areas.
A contemporary saying about the coins went like this:
„Von außen schön, von innen schlimm, von außen Fritz, von innen Ephraim!" "Nice on the outside, bad inside, Fritz on the outside, Ephraim inside"Imitations
After that several smaller treasurers produced their own coins with less value, too. This was very obvious in the case of the Groschen and half-Groschen coins. These often were silvered on the outside only, e.g.- the coins of the Anhaltian principalities.