In addition, Charles II issued a warrant on Christmas Eve 1663 to create a new gold coin that would be produced entirely by the mechanized methods. This coin soon became identified as the guinea, because it was fabricated from gold imported from West Africa by the newly established Africa Company. Charles's warrant defined the new coin as equal to £1 (twenty shillings of silver). This was a substantial piece of gold-at about eight grams, or a quarter of an ounce, it weighed more than twice as much as a genoin or florin of the thirteenth century. Appropriately enough, the guinea was stamped with a little elephant, the sign of the Africa Company."' The edges were inscribed with a motto that read Decus et Tutamen, or Ornament and Safeguard, which is believed to have come from a clasp on the purse of Cardinal Richelieu, Blondeau's former patron. New issues of silver coins manufactured by these methods soon followed after the appearance of the guinea."
The handsome new coins, with their elegant designs and milled edges, were a vivid contrast to the coins that had been circulating in England for sixty years since the previous recoinage in 1601. Those were a tattered lot, repeatedly clipped and sadly worn from constant movement from hand to hand. Nevertheless, people continued to use the worn coins because anyone who brought them back to the mint to exchange for new full-weight coins would have received much less in face value than the face value that was stamped on them.
Although clippers were hanged "by the half-dozen," according to one contemporary authority, the gallows seem to have been an inadequate deterrent for such a simple and profitable means of getting rich. The clipping continued at a merry pace, especially on half-crowns (two shillings sixpence) and shilling coins that were larger and thicker than the smaller denominations.12 In 1652, Blondeau estimated that the weight of the average old coin was 20 to 30 percent below its original weight. Hopton Haynes, who served as Assay Master of the Mint, calculated that a bag of coins with a total face value of C 100 in 1695 had half the weight that the same bag would have had in 1686.13
In a way, the clippers performed a public service, for the coins over time had become unequal in weight and thickness as well as less than perfectly round. Haynes observed that the clippers would file with such skill that the coins became "as flat and as smooth as the blanks at the Mint are before they have been in the press."14 Samuel Pepys recounts an anecdote about a workman from the Mint who made a profit by stamping out counterfeit small-change groats that were as good or better than the true groats then circulating. Groats were small coins equal to four pennies; three groats made one shilling. The workman was caught, but "He was neither hanged nor burned [because] the cheat was so ingenious ... and so little hurt to any man in it, the money being as good as commonly goes.""
In addition to the difficulties over the quality of the coinage, problems had also developed in the ratio of gold prices to silver prices. The great silver mines of Mexico and Peru poured their output into Europe in such volume during the first half of the 1600s that the price of silver in Europe began to fall. Thus, a man who wanted to exchange silver for gold would have to offer increasing amounts of silver to obtain an unchanged quantity of gold-or, to put it the other way, an ounce of gold commanded increasing quantities of silver. Meanwhile, the price of silver in India during the first half of the 1600s was so high that only nine or ten ounces of it were needed to buy an ounce of gold, compared with fifteen ounces in England. The price of an ounce of silver in India, in fact, was far higher than the amount of coinage that an Englishman could obtain by bringing an ounce of silver to the Mint.
The economics of the business was irresistible. There was a great rise in exports of silver, with most of it shipped out by the East India Company. English merchants and manufacturers complained bitterly that the company was shortchanging English goods, especially woolen cloth, which had been called "the flower of the king's crown, the dowry of the kingdom, the chief revenue of the king ... the gold of our Ophir, the milk and honey of our Canaan, the Indies of England."16 The Indians, unfortunately, had no use for the woolens, but they certainly had a steady demand for silver.
Pressure built up to raise the price of silver at the Mint in order to keep more of it at home and to provide for a larger supply of silver coins. From January 1690 to December 1695, the coinage of silver had amounted to only L19,383.17 Money was so scarce that the government by proclamation raised the face values of foreign silver coins in order to discourage people from exporting them. Meanwhile, the demand for gold was surging, because it was so profitable to exchange gold for silver that would be exported to Asia. This was one of the forces that would push the price of guinea coins in the market above the officially declared value of twenty shillings.
The result was that Charles II's impressive revolution in minting methods and associated innovations in currency administration ended up by serving little purpose. Most of the new silver coins disappeared into hoards or were shipped to Asia for fancy prices instead of functioning as English money. Meanwhile, the currency was further reduced by the continued prevalence of clipping, so an increasing number of coins was becoming unacceptable in trade or in payment of debts. If England were to have a proper currency for daily use as well as for accumulated wealth, a major reform would be unavoidable.
The big obstacle to a total recoinage was the uncertainty as to who would bear the cost of the difference between the face value on the coins and their true value based on their shrunken weight. Blondeau had warned that the longer the authorities waited, the more the coins would be clipped and the more costly the ultimate outcome would be. Nevertheless, the government diddled with the problem for so long that the Stuarts had been overthrown and William and Mary were occupying the throne by the time the monarchy finally got around to the task in 1696.
Important events immediately preceded the decision to inaugurate a recoinage. As usual, those events revolved around a war, this time a mighty effort to defeat or at least contain Louis XIV of France, the most aggressive European leader since the Romans and up to the time of Napoleon. Hostilities had broken out in 1689 and immediately took their toll on the Exchequer. By 1697, William III was over k20 million in debt. Taxation, personal loans, and lotteries helped to raise revenue, but not enough. The result of the shortfall was the establishment of the Bank of England, an unusual deal between the government and the men of "quality" who were shareholders of the Bank (that uppercase letter B for ever after identified that bank as the Bank). Under this arrangement, the Bank would lend the government f 1.2 million at the moderate interest rate of 8 percent, in return for which the institution would be established as the first private company to do business as a limited-liability corporation, or so-called joint stock company-in the rapidly growing field of banking just like the institutions of our own time.'"
The founding of the Bank would turn out to be a momentous step in the history of Britain, as the institution over time would steadily increase its influence-even its power-over the banking system and the general economy, the gold stock, and Britain's financial relations with the rest of the world. In later years, the Bank came to be known familiarly as the Old Lady of Threadneedle Street, an expression whose meaning varied from a friendly nickname to a bitter expression of disdain, depending upon the circumstances.
This was, however, just one step in a broad advance in economic growth and increasing financial sophistication in England, unleashed after the Glorious Revolution of 1688 had resolved, once and for all, the religious uncertainties surrounding the monarchy and permitting the country finally to get down to business.t As credit throughout the English economy expanded at a rapid rate, the inevitable price inflation soon took over, affecting all commodities, then the precious metals, and finally a wave of speculation in the youthful stock market. As always happens in such environments, countless fraudulent issues were uncritically gobbled up by a greedy public in a market where losing money appeared to be an impossible outcome. The economic historian Charles Kindleberger cites "a proposal by several ladies ... to make, print and paint a
nd stain callicoes." 9 (Subscribers must be women dressed in calico.) Daniel Defoe, the author of Robinson Crusoe, issued a tract that described the "Scandalous Trade" as one in which "There is not a man but will own 'tis a compleat System of Knavery ... founded in Fraud, born of Deceit, and nourished by Trick, Cheat, Wheedle, Forgeris, Falsehoods, and Delusions ... preying on the Weakness of those whose Imaginations they have ever elevated or depres'd."2o
Circumstances were ripe for the speculative fever to spread to the guinea, originally coined with gold that was worth twenty silver shillings. With the silver currency continuing to deteriorate, the rumor mills were busy churning out the news that the recoinage was finally about to happen-but under terms that were still uncertain. Just as in our own times, the uncertainty led to a "flight to quality"; people began to shift from silver coins into guineas, even if they had to pay a premium to protect the value of their assets.
In March 1694, guineas were trading at 22 shillings, but a year later they were trading at over 25 shillings. The guinea hit thirty shillings in June 1695, creating a rush to bring gold to the Mint for coining into guineas, which in turn drove the price of gold from eighty shillings up to 109 shillings. At that point, the swollen supply of guineas was tempering the rise in their price-X750,000 of gold was coined in 1695, compared with only £65,000 the year before-at the same time that the leap in the price of gold made the other side of the transaction too expensive to justify its continuance.21 The government had another weapon to throw at the speculators: the tax collectors announced that they would not accept guineas as payment of taxes at a value as high as thirty shillings.
The speculation in the guinea finally persuaded the authorities that they could no longer postpone the recoinage. Matters had progressed to a point where no old silver coins were coming into the Mint for coining, because they weighed so little that the quantity of new silver coins given out in exchange would be too far below the face value of the old coins to make the exchange practicable. As Sir Dudley North, a contemporary expert, saw the matter, "There is a great fear that if clipped money be not taken there will be no money at all."22
Although recoinage occupied the attention of the politicians for most of the 1690s, a long series of parliamentary reports and committees had managed to produce a large volume of words but no legislation. The shift from words to deeds finally began in September 1695 following the publication of An Essay for the Amendment of the Silver Coins by William Lowndes, a veteran civil servant and Secretary of the Treasury.* The Essay was a remarkable document in which Lowndes traced in great detail the entire history of English coinage over the 629 years since the Norman Conquest.
On the basis of this analysis, Lowndes recommended replacing the clipped money with new milled silver coins. These new coins would reflect the diminished value of the silver in the clipped money handed in: the new silver shilling coins would have only 80 percent as much silver as the old shilling coins they were replacing. This step was the equivalent of raising the price of silver at the Mint, because anyone bringing a given amount of silver to the Mint for coinage would now receive 25 percent more shilling coins than formerly.
The harm was already done, Lowndes argued, and this step would simply confirm what everyone recognized.23 Why not acknowledge the reality of the situation? Indeed, without this change, no silver would be brought to the mint for coining. If there was to be a shortage of coins to pay for merchandise or to repay debts, business would be depressed and production would be curtailed. There was no dishonor in this process: the great Queen Elizabeth herself had taken essentially the same step in the 43rd year of her reign. Lowndes was also emphatic that the recoinage should not wait until the end of the war, because such a step "does but postpone the Cure of a Disease which may destroy us before such remedy can take effect."24
Lowndes's recommendations immediately ran into the opposition of Charles Montagu, the Chancellor of the Exchequer, the cabinet member under whom Lowndes worked. Montagu enjoyed the vigorous support of the distinguished philosopher John Locke. Locke had been deeply involved in political activities for many years and was one of the original subscribers to the Bank of England, but he also became one of the most articulate proponents of the Age of Reason; his reputation in this area was launched when he was 58 years old, by his essay of 1690, Essay Concerning Human Understanding. His position in the controversy over the recoinage, however, though cloaked in what appeared to be cold logic, was heavily colored by emotion.
Locke presented himself as a so-called hard-money man who would tolerate no tinkering with the traditional official weights and standards of the English coinage, regardless of the physical damage that the coinage might have suffered in the interim. To Locke, a coin that read "one shilling" on it was a one-shilling coin; that the coin had been clipped down to a shadow of its former self was irrelevant. One shilling stood for a specific weight of silver and should continue to stand for that same specific weight to eternity. To require the holder to exchange old shilling coins for new coins equal to less than one shilling was the equivalent of government appropriation of private property; Locke satirically referred to this possibility as "public clipping."25 In 1844, Prime Minister Robert Peel would draw directly on Locke's position, when he defined a pound as "a certain definite quantity of gold, with a mark upon it to determine its weight and fineness ... the engagement to pay a pound means nothing else than the promise to pay to the holder ... that definite quantity of gold. "26
Locke argued further that if Britain was losing silver to foreign countries, the proper solution should be to reduce the demand for imports, even though the country was at war. He personified the issue with a "Country Farmer who lives within Compass, increases his Stock by diligence and frugality, is never in debt at the year's end but has a balance always to receive at the foot of his accounts. 1121
Here, once again, Locke was anticipating future disputes in these matters. His view that austerity is the preferred cure for an outflow of precious metals would be invoked in the course of the Napoleonic Wars and was destined to become the standard response under the nineteenthcentury gold standard. Indeed, this doctrine motivated both British and American policy decisions at the depths of the Great Depression in 1931 and was one of the dominant causes of the shattering worldwide deflation of the 1930s. Finally, Locke felt most strongly that accepting a devaluation of the currency in the form advocated by Lowndes would simply provide justification for committing this dreaded deed over and over again in the years ahead, or even "next week. 112,1 Locke's view echoed an earlier seventeenth-century statement against devaluation, in a marvelous metaphor by Sir Robert Cotton: "That the enfeebling of coin is but a shift for a while, as drink to one in a dropsy, to make him swell the more. 1129
Locke's logic for his case was weaker than his zeal, but the zeal was eloquent and persuasive.* Montagu and Locke won the day. The battered shillings would be exchanged at their original face value for the new shillings, with the loss to be borne by the Treasury-and ultimately by the taxpayer. The stage was now set for the recoinage to begin."'
The English of the sixteenth and seventeenth centuries were inordinately fond of calling major events the Great "Whatever." Henry VIII's attack on the integrity of the currency came to be known as the Great Debasement. When the members of Parliament in 1641 decided to tell King Charles I what they thought of his reign, they called their resolution the Grand Remonstrance; the battle to overthrow him that began the following year was known at the time as the Great Rebellion (today as the Civil War). The plague that hit England in 1665 and killed one hundred thousand people, just before the beginning of this chapter in our story, was dubbed the Great Plague. The terrible fire that destroyed most of London in the following year is referred to as the Great Fire. And the recoinage that began at the end of 1695 has come to be known as the Great Recoinage.t
Carrying out a great recoinage of the currency is an extremely complicated process, but in this instance it turned out to be extremely messy as w
ell. The king's first proclamation appeared on December 19, 1695, citing that "The Lords Spiritual and Temporal, and the Knights, Citizens, and Burgesses in Parliament assembled, having taken into consideration the great Mischiefs which this our Kingdom lies under, by reason that the Coin, which Passes in Payment is generally clipped.... the most Effectual Way to put a stop to this Evil, is to prevent the currency thereof "I' The proclamation then proceeds to specify a series of dates after which no clipped coins could be offered in payment to anybody except in payment of taxes or loans to the king. By April 2, 1696, "No such Money Clipped ... shall Pass in any Payment whatsoever. "32
The immediate result was panic. Nobody wanted to take clipped coins in payment, so business ground to a halt, and in any case most people did not pay all their taxes during the short span of time before the stated dates. On January 21, 1696, a month after the original proclamation, Parliament relented by passing "An Act For Remedying The Ill State Of The Coin," which extended the process into the latter part of June and restored a semblance of order.
Nevertheless, turbulence bubbled up from time to time over the details of the arrangements. Although £4.7 million (containing no more than £2.5 million in silver by weight) had been received at the Exchequer by the final cutoff date of June 24, well over £2 million more remained in the hands of the public, especially among the little people who had been unable to get to the Exchequer in time.33 The government losses between what they received and what they had committed to pay out were to be covered by a tax on windows, but the losses had been underestimated by a wide margin, forcing the government to borrow to cover the deficit. The Mint, meanwhile, was so overwhelmed by receipts of clipped money that people who brought coins in for exchange had to depart empty-handed with only a promissory document. The resulting shortage of metallic money disrupted retail trade. At the same time, the market price for silver remained above the face value of the silver in the coins, so many of the new coins disappeared from circulation. It was November before the job was complete, by which time the horses that powered the presses of the Mint had been so busy that £700 had to be paid out just to haul away their manure."
The Power of Gold: The History of an Obsession Page 21
