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Table 5.2 The coinages of Henry VIII and Edward VI: Silver Source: Gould Table I Note: 1 Expressed in modern decimal £ THE GREAT DEBASEMENT OF HENRY VIII’S REIGN 55 Table 5.3 The coinages of Henry VIII and Edward VI: Gold Source: Gould Table II Note: ¹ Expressed in modern decimal £ 56 A HISTORY OF MONEY Table 5.4 Quantities of silver and gold coins issued during the reigns of Henry VIII and Edward VI Source: Gould table V. Note: The table needs to be read with Gould’s qualifications. He gives information by mint. 1 The profit figures may not be reliable (see text) THE GREAT DEBASEMENT OF HENRY VIII’S REIGN 57 Table 5.5 The coinages of Henry VIII and Edward VI: bimetallic ratios Sources: Gould, Table IV and some calculations from Tables 5.2 and 5.3. Gould’s figures (his Table IV) are based on de facto mint equivalent o f best gold coins. 58 A HISTORY OF MONEY 6 THE RECOINAGE OF 1696 —LOCKE, LOWNDES AND NEWTON BACKGROUND In the century after Elizabeth I and Sir Thomas Gresham had engineered the restoration of the coinage following Henry VIII’s debasements, there were no formal changes in the weight standards of English coins. The country was preoccupied with politics and religion, rather than with money. Following the death of Elizabeth in 1603 James VI of Scotland became James I of England, making a single kingdom whose currencies were unified on the basis of the shilling Scottish equalling the penny English. This tells us something about previous monetary policy, but there is little to guide us about modern problems of monetary union. The actual ratio was about 13, and the convenient rounding gave a very small benefit to the smaller partner. The Civil War between Charles I and Parliament led to the reign of the Stuarts being interrupted by Cromwell’s ‘Commonwealth’ (1649–60). The restoration of Charles II and the end of the Puritan dictatorship ushered in a lively period of literature, theatre and music. After his death the nation’s stability was again threatened as James II tried to bring it back within the fold of the Catholic church: the traditional Tory (and Anglican) doctrine of ‘divine right’ collapsed under the strain. James’s staunchly Protestant daughter, Mary, was married to her cousin, William of Orange, a grandson of Charles I and in 1688 he landed in England and quickly defeated James, who fled the country. William and Mary were proclaimed co-sovereigns on 13 February 1689. In 1690 James landed in Ireland, with French support, but was defeated at the Battle of the Boyne. The death of the Queen from smallpox in December 1694 weakened the position of the surviving co-sovereign, and led to fears that James II might be restored to the throne. William was already at war with Louis XIV of France, regarded, after the decline of Spain, as the greatest threat to Protestant Europe. Money once more became an issue again at the end of the century. From 1660 until about 1688, prices actually fell and there is some evidence that there was a trade recession caused by the shortage of coins. Certainly the coinage was in a bad state, and the exchange rate deteriorated in 1695. On the Gresham principle, good silver coins were melted down and exported. There was an expensive war with France which marks the beginning of the national debt (not recognised as such) and, in 1699, a run on the recently founded Bank of England. William Lowndes, newly appointed Secretary to the Treasury, published his famous ‘Essay for the amendment of the silver coin’ on 12 September 1695. It was rebutted by John Locke, in what is perhaps the most famous currency dispute in history. All the great and the good joined in the battle: the spate of pamphlets and proposals included one by Sir Christopher Wren, while the practical problems with recoinage were such that Sir Isaac Newton himself was called in first as Warden, and later as Master, of the Mint. THE STATE OF THE COINAGE There was definitely a shortage of silver as a circulating medium and the arguments about the reasons were to some extent a rehearsal of those that were to be deployed before the Bullion Committee of 1810. The main opinion was that it was either a balance of trade deficit arising from the war or the activities of wicked speculators. There was surprisingly little discussion about what seems to us to be the obvious explanation: simply that the bimetallic ratio in the United Kingdom was out of line. If an ounce of gold was worth 11.5 ounces of silver in Antwerp and 11 ounces in London there was obviously a profit to be made, even allowing for the then high cost of transportation and risk. In 1662 the Roelters mill and screw press replaced the earlier ‘hammered’ process for manufacturing coins. These were (fairly) proof against clipping and the edge of the larger coins carried the inscription ‘DECUS ET TUTAMEN’ reintroduced in 1983 on the first of the modern pound coins. The ‘milled’ coins circulated (or not as the case may be) alongside the old hammered coinage. Examining the figures of the silver shortage, Li (1963: 29) draws a striking comparison between the periods before and after the establishment of the Commonwealth in 1649. The total silver coined in the period was £19.7 million, of which Hopton Haynes, Assay Master of the Mint, reckoned that about £10 million was still in circulation in 1695, most of the balance having been melted down or exported. Of the total of £15 million gold coined in the period, only between £3 million and £5 million was still in circulation. Two problems follow from these figures. First, there was a shortage of coins in circulation. Second, £7 million Table 6.1 Annual average coinage: 1558 to 1694 (£) 60 1696 RECOINAGE—LOCKE, LOWNDES AND NEWTON out of the £10 million of silver coins were pre-1649, and were badly worn and clipped. Fleetwood’s attack on clipping William Fleetwood, the Royal chaplain, preached his ‘Sermon against Clipping’ in the Guildhall chapel on 16 December 1694. He took his text from Genesis 23:16—the passage where Abraham weighed out the silver to pay for a burial field. The first part of the sermon reads as a lecture in monetary economics. Money, he said, should be portable, durable and beautiful. In the days of Abraham, silver …was valued both by Buyer and Seller according to its weight… but because it was too troublesome, and took up too much time, to carry Scales…Men found it convenient to have a Stamp or Mark set upon every piece, to signify its weight and value…. Yet something was still needed to secure the truth of Payments: Men might be fraudulent and false… (Fleetwood 1694) The second part is more in the good old hell-fire sermon tradition, and denounced the sin and evil of clipping. Several times did he deny the argument ‘Who is hereby wronged?’—just because the clipper did not know by name who he was defrauding. The convicted ‘can be sorry for their great misfortune, but they know not how to repent…the sense of these offences affects them little or nothing’. He described the punishments of former times—cutting off the right hand, or —a man of the cloth must choose his words carefully—some ‘who were found to Adulterate the King’s Coin, were so punished as if the Laws intended to prevent Adultery itself’. With a rather wistful glance backward at the good old days, he concluded that his age was merciful in letting clippers off lightly with a Modern Execution—‘a short and easy Death’. Shortly afterwards, on 3 May 1695 Parliament passed the ‘Act for Preventing, Counterfeiting and Clipping’ (text bound in with my copy of the Sermon) but had little effect. But did this prohibition, tho by Act of Parliament, cure the evil? Alas no. The forbidden Fruit was of too luscious a relish to be so easily relinquished. It was not in the power of any Paper-spell to stop the spreading Gangrene. (Anon ‘Universal Remedy’ 1696:18–19) Certainly Newton was second to none in his determination to catch and hang counterfeiters. A HISTORY OF MONEY 61 The Lowndes proposals Against this background, Lowndes proposed a formal devaluation which would have left the clipped old coins substantially at par with full weight new ones: the obvious, civilised and honest solution adopted in every century or so in the past. Specifically he suggested that a new piece having the same weight and fineness as the old crown (five shillings) would be called the Sceptre, or silver Unite, which would pass for six shillings and three pence. In the case of the shilling the old name would be kept but the weight of the new shilling would be 80 per cent of that of the old. He began by examining the historical evidence looking, as we have already done, at the experiences of Henry II, Edward I and Queen Elizabeth. He concluded, correctly, that there were precedents in other reigns, and put forward nine specific arguments. 1. The market price of silver had risen to 6s. 5d. per ounce and the value suggested would defend the coins from being melted down. 2. Unless the value of silver was raised by 25 per cent none of the silver would have been brought to them for coinage. 3. The higher the denominative value of the coins, the greater would be the amount of money in tale, which would then be sufficient to satisfy the needs of trade. 4. The market value of the unclipped coins was already at least 25 per cent higher than the clipped ones, so the coins of equal quantities of silver should have the same denominative value. 5. The proposed value of 6s. 3d. (i.e. 75 pennies) for the crown was divisible into a great number of integral parts. 6. Although new names would be given to new coins, the denominations of Pound, Shilling and Penny would remain, so that there would be no confusion in computing accounts. 7. The raising of the denominative value had to be sufficient to bring out the hoarded milled coins and to make it unnecessary to recoin them. 8. The cost of recoinage would be much less if the denominative value of the new coins were raised by 25 per cent. 9. Unless the devaluation was sufficient it might be necessary to devalue again should the price of silver continue to rise. (Li 1963:96–7) Locke’s views John Locke the greatest philosopher of his age but perhaps a rather muddled economist, took up the cudgels against Lowndes. He argued that it was a mistake to assume that ‘standard silver can be priced in respect of itself’ and ‘that standard bullion is now for whatever it was worth sold to the traders in it for 6s. 5d. of lawful money of England’. (Silver was no more valuable than it 62 1696 RECOINAGE—LOCKE, LOWNDES AND NEWTON had ever been—it was simply that the coins passing ‘in tail’ were lighter.) He argued in effect that the denominative value of the coins was irrelevant. What mattered was the quantity of silver in circulation. Whether you call the piece coyn’d a 12d. or 15d., or 60d. or 75d., a Crown or a Ducatoon, it will buy no more Silk, Salt or Bread than it would before, that therefore cannot Tempt the people to bring it to the Mint… .For bullion cannot [be] bought hither to stay here, whilst the Balance of Our Trade require all the Bullion to be Exported again and more Silver out of the former Stock with it to answer our Exigencies beyond the Seas. (Locke 1691) Newton argued that ‘it seems reasonable that an ounce of bullion should be by Parliament enacted of the same value with the crown piece of milled money’. There were no penalties and this he argued was ‘the only sure means to make milled money constantly of the same intrinsic and extrinsic value there ought to be and thereby to prevent them melting or exporting of it’. Of the two ways of achieving this end Newton appears in 1696 to have favoured devaluation. It seems more reasonable to alter the Extrinsick rather than the Intrinsick Value of Milled Money, that is, to raise a Crown Piece to the Value of an Ounce of Bullion which at present is at least 6s. 3d. than to Depress Bullion to the present Value of Milled Money. (Li 1963:217) His third argument in favour was that this would lessen the cost of recoining all the unmilled money. On the ‘contract’ point, he argued:- If it be said that by raising the Extrinsick value of Milled Money the King in receiving Excise, Customs and Taxes, and all persons in receiving Annuitys, Rents and other debts must be content with the Crown-Piece instead of 6s. 3d. and so lose 1s. 3d. which is one fifth of his Money: I answer that if the Loss be computed in the Extrinsick value of the Money, it will be none at all because a Crown-Piece after it is raised, will be of the same Extrinsick value with 6s. 3d., and go just as far in a Market or in buying land. But if it be Computed in the Intrinsick Value it will be no New Loss because Taxes, Rents, Annuitys & all other Debts are payable by law in Unmilled Money which has already lost at least 2/5 parts of its Intrinsick value by Clipping and Adulteration. (Li 1963:218) Newton (1696) also made a point about the gold/silver ratio. A HISTORY OF MONEY 63 …care should be taken that they bear nearly the same proportion to one another at home and abroad, and this Affords another reason for raising the value of Milled Money to that of Bullion. For if Gold in proportion to Silver be of much more value at home than abroad the Bullion and Milled money will be Exported to buy up Foreign Gold, and the contrary would happen by raising the Value of Milled Money and Bullion too much without raising Gold in due proportion. (Li 1963:218) This is exactly what happened. The issues It seems to us nowadays that much of the argument was about names rather than realities. Locke was in error in assuming that silver was the only measure of value. In any case, given that the crown pieces actually in circulation contained only 4 shillings worth of silver the necessary recoinage could be carried out in one of two ways. The first, which Lowndes proposed, would have been to recoin to the lighter standard. Old full weight coins would have emerged from hoards and could have circulated at a stated premium, or be accepted by the mint by weight as bullion. The second alternative, in fact adopted, was to recoin to substantially the old standards and to call in the old coins. The two strategies would have very different effects on the level of prices. If coins circulate in tale, that is at face value, and the silver content of a coin falls then the debtor will have to deliver to the creditor a smaller amount of silver to settle an existing debt. It does not matter whether the reduction in the weight of the coin was the result of clipping or by devaluation (which Locke described as ‘a clipping done by public authority, a public crime’). The Lowndes proposal would recognise a fait accompli, but looked at from another point of view would perpetuate the ‘robbery’. Political action Parliament passed an ‘Act for Remedying the Ill State of the Crown of the Kingdom’, on 17 January 1696, omitting three extra clauses inserted by the Lords, but deferred for later consideration by the Commons. This was the first formal act of the recoinage. For reasons obvious with hindsight guineas rose in price in terms of the silver coinage. One problem was the now familiar one of the cost of uncertainty. This profited the goldsmiths and indeed anyone who chose to make a speciality of currency markets at the expense of the ordinary trader or citizen. These definitely lost out: they had, typically, to accept guineas at 30 shillings and part with them to the bankers for only 29 shillings. On 15 64 1696 RECOINAGE—LOCKE, LOWNDES AND NEWTON [...]... extreme instance which has ever occurred At the time of the 1858 treaty, European traders discovered that the ratio in Japan was 4 to 1 Great profits were made—for a short time…At the time of the treaty of 1858 between Great Britain, the United States and Japan a very curious system of currency existed in Japan The most valuable Japanese coin was the kobang a thin oval disc of gold… It was passing currency…for... (Chapter 9) Austria-Hungary adopted the gold standard in 1892 (by when Portugal had abandoned it) followed by Russia and Japan in 1897 The system broke apart in 1914 with a short lived revival between the wars For most of the nineteenth century there was no internationally accepted standard: Germany, the Netherlands, Scandinavia, India, China and most of Latin America were on silver The United States... there were major problems in France, America, India and elsewhere The gold standard was now to become formalised, under the leadership of the second Earl of Liverpool, son of the first Earl who had taken a prominent role in the earlier debates As Lord Hawksebury, he had served as Master of the Mint in 1799–1801 His predecessors had received a salary of £500 plus a share of coinage fees, but he agreed to... amount of the metal less a small deduction for expenses, seigniorage Full legal tender status meant that the offer of coins of the appropriate value had to be accepted as good legal discharge of a debt of any amount: the creditor was not entitled to demand (although he could agree to accept) payment in any other form As explained in Chapter 2, if gold was valued eleven times as highly as silver in France... cut and defaced, and in effect to be surrendered to the Bank of England at bullion value The small customary charge was waived The official weight of a newly minted guinea was 129. 438 grains: coins were acceptable at face value down to a weight of 128 for recent coins; 126 or 1 23 for older ones The stimulus for this came from Charles Jenkinson, first Earl of Liverpool and a keen amateur of money Later... 83 Bavaria, Saxony, Hanover, Wurtemburg, Baden, Electoral Hesse, Ducal Hesse, Ducal Saxony, Oldenburg, Saxe-Meiningen, Saxe-Coburg Gotha, SaxeAnhalt-Bemburg, Schwartzburg-Sondenhausen, Schwartzburg-Rudolstadt, Waldeck, Pyrmont, the Reusses, the Lippes, Landgraviate Hesse and the City of Frankfurt See Del Mar 1895 :39 5.) In pursuance of a provision of the Treaty of Carlsruhe, 19 July 18 53, the Vienna... the rival systems of Prussia and Austria The basis was the ‘pound’ of 500 grams, with 30 thalers being struck from a pound of fine silver The Convention thaler was made equal to 1.5 florins Austrian or 1.75 florins (gulden) South German Although the intention was simply to facilitate regional trade, the question of the gold/ silver ratio was already a serious one, even though the market ratio had yet... France and, eventually, her Latin Monetary Union partners, were bimetallic, while some countries, Russia, Austria-Hungary and Greece (Chapter 28) had inconvertible paper money for much of the century (Panic 1992:20) The United Kingdom had officially been on a silver standard at least since Newton’s recoinage of 1696 With the growth of trade, the country had been on a de facto gold standard for many... remind the populace that clipping…was a crime…set off the latent mistrust’ of the guinea, and bank notes actually went to a premium (Craig 19 53: ch xiv) Bank notes, and foreign gold coins, formed an increasing part of the circulating medium, and the period saw the introduction of an official copper coinage and of private ‘token’ coinages FORMALISING THE UK GOLD STANDARD 67 An Act of 17 73 required below... much of Europe, particularly France, the United States and India Gresham’s Law applies only if the bad money has effective fiat value Economists use various more precise statements of the Law This is one: ‘Where by legal enactment a government assigns the same nominal value to two or more forms of circulatory medium whose intrinsic values differ, payment will always, as far as possible, be made in that . seigniorage. Full legal tender status meant that the offer of coins of the appropriate value had to be accepted as good legal discharge of a debt of any amount: the creditor was not entitled to demand. keep money out. An exception was made for The Royal Africa Company of England, whose main trade was gold mining in West Africa. The Act also provided that certain import taxes should be applied. Clipping and Adulteration. (Li 19 63: 218) Newton (1696) also made a point about the gold/silver ratio. A HISTORY OF MONEY 63 …care should be taken that they bear nearly the same proportion to one another