n 1661, King Charles II of England issued an
Order-in-Council mandating the adoption of a revolutionary
innovation in the manufacture of coins-the use of machinery in
place of hammering out the coins by hand. The innovation in
question was not a gadget that someone invented one day and that
went into effect the next. Technological change is often disruptive
to established habits. The workers and officials in the national
mints who earned their living by doing things the old-fashioned way
fiercely resisted the introduction of any modification in the
manufacture of coins. Even with a King's Order-inCouncil to force
its introduction, a full installation of the new method had to wait
more than thirty years, and then came about only because a
financial crisis had forced the issue.
It was in the aftermath of that crisis that, quite without warning, the markets for the precious metals in Britain suddenly decided that silver was out and gold was in as the standard for the value of the pound sterling. Without anyone having planned this sequence of events, we shall see that they led, step-by-step, from Charles's Order of 1661 to the estab lishment of a set of hallowed institutions based on a central role for gold. These institutions would rule the world economy throughout most of the nineteenth and twentieth centuries. Thus, although the story here begins by focusing on silver, the golden threads are laced through it from start to finish.
The Lydians and ancient Greeks who first introduced coins into general use hammered their coins out by hand, one at a time. In view of the millions of coins produced over the next one thousand years all over Europe and in the East, it is astonishing that nobody succeeded in developing a faster method. But no one did. Indeed, more than speed of production should have motivated a change. From the very beginning of coinage, the smooth edges of hammered coins had encouraged people to clip or file off tiny pieces of metal that could be accumulated until the quantity was sufficient to be melted down into bullion, which the clippers then resold to the mint for a fresh supply of coins. The process was too profitable to be stifled by the severe punishments dealt to the clippers who were caught at their work. In the thirteenth century, Jews were often accused of clipping even when they were innocent. In 1270 alone, 280 Jews were beheaded for the crime.'
Despite the impact of clipping on the currency, the traditional methods of minting coins continued without any semblance of change until early in the reign of Queen Elizabeth of England, when a man named Eloy Mestrell experimented with using horses to power the coin-stamping machines and using this machinery to redesign the edge of the coins so that clipping would be immediately visible. Ingenious as he may have been, Mestrell generated little enthusiasm for his efforts and was fired in 1572. That was not the last to be heard of Mestrell, for he was hanged in 1578 for counterfeiting!'
Nevertheless, Mestrell's efforts encouraged others to keep trying. In the 1620s, the chief engraver at the Paris Mint, Nicholas Briot, succeeded in introducing a workable technique for frustrating the coin-clipper. Briot's approach was to edge the coin with either a kind of graining or with inscriptions that would make the clipper's efforts immediately visible, no matter how tiny the piece he clipped. No luck: the traditionalists in the Paris Mint refused to go along, leaving Briot instead of the coin-clippers in a state of frustration.3
Briot was not ready to give up. In 1625 he went to England, where he started producing what came to be known as milled coins at the Tower Mint in London. Again there was resistance from the hierarchy at the Mint. As the moneyers were paid by the number of pounds of coins they struck, they were not lightly going to relinquish much of their metal to a Frenchman and his new-fangled devices.4 Briot's total output in 1631-1632 amounted to around 26 pounds of gold coins and 211 pounds of silver coins, compared with more than four thousand pounds of gold and fifty thousand pounds of silver turned out by conventional methods; by 1638-1639, Briot's silver coin production was approaching one thousand pounds, but this was still a minor effort.' The evidence also suggests that Briot's coins were turned out by hand rather than by machine .6 Briiot temporarily faded from view from about 1640 to the 1660s.
In 1645, the French, thinking better of the matter, finally eliminated the hammer at the Paris Mint and replaced it with horse-drawn machines that performed the entire job from rolling out the metal to stamping out the designs on the faces and milling the edges to foil the clippers. That success led the English Commonwealth to invite Pierre Blondeau, the chief engineer at Paris, to follow in Briot's path to London.* The authorities at the Mint permitted Blondeau to produce milled coins, but from just a small portion of a huge silver treasure that the English had plundered from a captured Spanish galleon; the rest of the silver was transformed into coinage by way of the hammer.'
This story has a happy ending. With the restoration of Charles II to the throne of England in 1660, the process of change accelerated. Briot was recalled to London, Blondeau was given a 21-year contract, and Charles's Order-in-Council of 1661 declared that "All coin [was] to be struck as soon as possible by machinery, with grained or lettered edges."' Blondeau died in 1672, before he could complete his contract, but during his employment at the Mint he had the moneyers fully subordinate to him and sworn to secrecy about what they learned from him.'
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 and 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."'
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 well. 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."
There were riots, petitions, and instructions to justices to "administer the poor law, but above all to keep the peace."3S Edward Bohun wrote from Ipswich on July 31, 1696, that "Our tenants can pay no rent. Our corn factors can pay nothing for what they have had and will trade no more.... Many self murders happen in small families for want, and all things look very black, and should the least accident put the mob in motion no man can tell where it would end."36
In November, "An Act For Further Remedying The Ill State Of The Coin" (my italics) established July 1, 1697, as the final cutoff, after which no more old coins could be brought in for exchange. By the time the long process had come to an end, three years after its commencement, £6.8 million pounds of new milled silver coins had been issued, almost all of them in exchange for clipped money and relatively little in exchange for bullion or plate. The experts estimate that another million of clipped coins owned by poor people never came in for exchange .17
When it was all over, the Great Recoinage had restored the weight of English money to what it had been before the Great Debasement, some 150 years in the past (Haynes's analysis of the coinage data indicates that the clipped coins amounted to only half of their original weights and face values)."' The achievement is impressive despite all the blunders and botches, because the English carried it out while the country was involved in a major war against a powerful enemy, the kind of environment in which preserving the sanctity of the currency is usually among the lowest of national priorities. In the more distant past, sound money had been almost a religion with the English: "the ancient right standard of England" had been respected with few alterations from the Conquest to the onset of the Hundred Years' War. From Edward III to Henry VIII, however, most people believed it was the king's currency to do with as he preferred.
Even so, the depreciation in the pound over the centuries was much more limited than in all other countries-indeed, the uninterrupted history of the pound sterling from the end of the eighth century, when 240 of Offa's pennies were called a pound, to modern times is unique among the currencies of the world. The position that Locke took in 1695 was an effort to restore the older tradition of the sanctity of the weight of the currency. He caught the spirit of the occasion when he took issue with Lowndes's proposed method of recoinage, declaring, "It will weaken, if not totally destroy, the public faith when all that have trusted the public and assisted our present necessities upon Acts of Parliament ... shall be defrauded of 20 per cent of what those Acts of Parliament were security for."39
Lowndes was hardly out to defraud the public or use the government to rob their pocketbooks. Rather, he was reluctant to accept the notion that any particular metallic weight was sacred. Greater flexibility in managing the currency, he maintained, might cause less damage in the long run than clinging to some arbitrary number established in the distant past. The Great Recoinage ultimately cost the taxpayers a lot of money, because the new coinage required so much more silver than the silver the Exchequer received from the old coins that were turned in for exchange. Furthermore, the immediate impact of the recoinage on the English economy was deflationary, which may have helped the bankers and the rich who had applauded Locke's position but was painful indeed to anyone who owed money.
Locke's arguments had the great attraction of being cloaked in virtue, prudence, stability, and tradition. Resisting them took more sophistication than his opponents could muster in that day and age. The dispute, however, was a basic one with broad social and political implications beyond the purely economic. It would still be resonating in 1821, when Britain officially established the gold standard; it was at the root of William Jennings Bryan's famous cry of defiance about crucifying labor on a cross of gold; it would come back to haunt Winston Churchill as Chancellor of the Exchequer in the 1920s; and it would continue to stir controversy over expansionary versus contractionary economic policies throughout the rest of the twentieth century. Nor can we expect these kinds of disputes to vanish in the twenty-first century.
At this point, an unexpected character appears on center stage: the most distinguished scientist of his age, and surely among the most influential scientists who ever lived, Sir Isaac Newton. In March 1696, just a few months into the turbulence of the Great Recoinage, Newton took on the post of Warden of the Mint at the invitation of his good friend Charles Montagu, Chancellor of the Exchequer.
What could possibly have been the Chancellor's motivation in choosing Newton for such a task? Newton had spent most of his life as a total nerd, uncommunicative, introverted, unapproachable, and far removed from the chaotic realities of politics and finance. Yet he was also a passionate believer in the pseudo-science of alchemy, to which he ascribed profound religious as well as chemical significance. Consider this descrip tion of him by the famous English economist John Maynard Keynes in 1942-exactly three hundred years after Newton's birth:
In the eighteenth century and since, Newton came to be thought of as the first and greatest of the modern age of scientists ... one who taught us to think on the lines of cold and untinctured reason. I do not see him in this light.... Newton was not the first of the age of reason. He was the last of the magicians, the last of the Babylonians and Sumerians, the last great mind which looked out on the visible and intellectual world with the same eyes as those who began to build our intellectual inheritance rather less than 10,000 years ago.... [He was] the last wonder-child to whom the Magi could do sincere and appropriate homage."'
Newton's progress from nerd to active politician and prominent civil servant was roundabout, to say the least, but when Newton broke out of his shell and joined the world at the age of 55, the new man was as different from the old as a butterfly is to the caterpillar from which it originates.41
An only child, Newton was born on Christmas Day 1642 to the wife of a farmer who had died soon after Mrs. Newton had become pregnant. The baby was so small that neighbors commented he would have fitted into a quart pot. Three years later, Newton's mother remarried and left him in the care of her parents for most of his boyhood-a rift that scarred his personality for life.
His talents, however, were visible early. The headmaster of the local school was convinced that Newton should go to Cambridge immediately after graduating, but his mother kept him working on the family farm for two years before she relented. Consequently, when he entered Cambridge in 1661, he was older than most of his classmates, which only added to his sense of loneliness and isolation. He also entered on the lowest social rung as a subsizar, which meant that he paid his way by cleaning the rooms and emptying the bedpans of his wealthier classmates.
Somewhere along the line, Newton had become deeply religious, Puritan in orientation, violently anti-Catholic, obsessed with sin, and meticulous about religious observance. There is little doubt that his beliefs contributed to his egocentric personality, but they also inspired his unflagging dedication to hard work and his passion for discovering nature's truths as a reflection of the greater glory of God. However, his poverty dominated his religious motivations when it came to money. He earned extra cash by becoming a moneylender-scruples kept him from ever lending more than £1 to any individual at a time-which did nothing to overcome his lack of popularity among the other students. One confession in his notebooks echoed job when he wrote that he had been "Setting my heart on money more than God."`32
During his second year at Cambridge, Newton encountered a classmate named John Wickens, an equally solitary and high-minded young man. They became roommates and shared quarters for twenty years. Newton had no relationships with women or any intimate friendships with anyone other than Wickens until much later in his life. Wickens did most of Newton's dirty work in all his many experiments but especially in the frenetically conducted, elaborate, and ecologically perilous experiments in alchemy that they carried out for many years in Newton's apartment. Nevertheless, at the end of those twenty years, the two men separated and never had any further contact with each other. The cause of this abrupt and permanent rupture remains a mystery.
When Newton graduated from Cambridge, he had already determined that his life's work would be to unravel the laws that governed God's universe. He saw no conflict between his immediate scientific ambitions and his intense concentration on the arts of alchemy. According to the fascinating intellectual biography of Newton, The Janus Faces of Genius: The Role of Alchemy in Newton's Thought, by the late Newtonian scholar Betty Jo Dobbs Teeter, Newton believed that the whole truth is made up of many parts. The parts can be found everywhere, not just in mathematics and physics but in alchemy, light, and even in ancient theology and prophecy. He was an ardent explorer of many such areas, but always with the discipline and rigor of the theoretical scientist. He never did produce gold from his alchemical experiments, but he learned a great deal of value about chemistry in the process.
Newton progressed rapidly up the academic ladder at Cambridge and received a full professorship in 1669 at the young age of 27 in recognition of achievements that had already earned him the reputation as the most advanced mathematician of his age. His first lecture to students, in 1670, was a pathbreaking exploration into optics. It must have been hard going for students, for no one showed up at his second lecture. In fact, no one showed up for just about all of the lectures Newton gave at Cambridge over the next seventeen years. In time, he cut the length of his talks from half an hour to fifteen minutes, but he was punctilious about appearing for each scheduled class.
The circumstances that changed Newton's career were totally unexpected. He had moved out into the real world to some degree by becoming involved with the Royal Society, a group organized for the exchange of scientific ideas and research, but his spiritual residence was in the ivory tower until 1685. In that year, James II, the new king and a Catholic, determined that he would attack the rigidly Protestant Cambridge Establishment by forcing them to admit Father Alban Francis, a Benedictine monk, to Magdelene College "without requiring him to perform the exercises requisite thereunto ... and without administering unto him any oath or oaths whatsoever."43 The master of Magdelene, John Peachell, was a weak man, an alcoholic, and ill-equipped to deal with a situation that was distasteful to the entire university, especially when the king warned him, "Disobey at your peril. "44
This was just the moment when Newton's Principia was about to be published and he was approaching the peak of his scientific achievements. But when he heard of the affair of Father Alban, Newton's antiCatholic sentiments boiled over and he became deeply involved in the struggle. Despite his efforts, he was little help: the king's intimidation of the scholars at Cambridge was merciless, Peachell was dismissed from his post, Newton's own position hung by a thread, and Father Alban took up residence at Cambridge. The victory was short-lived, however. Before the monk had received his degree, James had been overthrown by William and Mary, who were Protestants. The traditional antiCatholic religious barriers at Cambridge remained unchanged, while Father Alban departed the premises.
Newton was never quite the same again. The episode suddenly whetted his appetite for public life at a time when he was already world-famous for his scientific discoveries. He ran for Parliament and won. He began to function as a man about town, for the first time including a lot of female companionship. He renewed his acquaintance with Montagu, whom he had met when the latter was a Fellow at Trinity College in Cambridge. Then he met John Locke, who refers to Newton as "the incomparable Mr. Newton." Newton instructed Locke in mathematics and physics, while Locke exposed Newton to political theories and practice. Newton was an apt pupil, for Locke even consulted with him prior to presenting his original report on the recoinage to Montagu in 1695.
Although he brushed off the rumors that were beginning to circulate around Cambridge about his imminent departure, by the end of the 1680s Newton was eager to obtain a post in government. The opportunity finally came along in March 1696, when Montagu informed him that the position of Warden of the Mint, at five hundred or six hundred pounds per annum, "has not too much business to require more attendance than you can spare."45 In addition to the salary, the post received a royalty on every ounce of gold and silver issued by the Mint. Most Wardens of the Mint before Newton looked upon the job much as Montagu described it.
Four days later, Newton broke abruptly with his past studies and experiments, packed up his belongings in Cambridge, and moved to London. On May 2, he started work at the Tower, the home of the Mint since 1300. In a single moment, he ceased his career as an introverted, secretive, mysterious scientist-the last of the magicians-and transformed himself into the first of the policy wonks. The break was astonishing in itself, but the choice of new career appears even stranger: imagine Albert Einstein leaving Princeton to become second-incommand at the Bureau of Printing and Engraving in Washington-or even as an Assistant Secretary in the Treasury Department.
When Newton took up his responsibilities at the Mint, the Master, or chief of the organization, at that time was Thomas Neale, a lazy man with a strong taste for drink. Neale and the Mint staff hardly knew what hit them upon Newton's arrival. Even Montagu himself had no idea that this theoretical academic would turn out to be a motivated, skillful, energetic, and demanding administrator who would devote himself not just full-time, but overtime, to the task at hand.
For the first few weeks on the job, Newton took up residence in a tiny dank room that was right next door to the clanking presses being worked by three hundred men and scores of horses (remember the k700-worth of manure produced there). He was on the scene when work began at 4 AM and when the night shift took over, six days a week. He studied the entire process in great detail and continuously discovered methods to accelerate the output of coins. Later on, he bought himself a nice house in London and began to live like a gentleman, but his fiendish attachment to his work at the Mint persisted.
Despite sixteen-hour days, Newton was also educating himself into an economist. He spent as much time as he could with such people as Locke, Montagu, and Lowndes and read everything he could find on the subject. Then he started writing-voluminously-on the history of economics, commerce, and currency systems. Lacking a photocopying machine, he even employed young men to make duplicate copies of everything he wrote. Through it all, he was maneuvering to displace Neale and become the Master of the Mint. He made himself as visible as possible, clashing with government contractors over the prices they charged the Mint and then lustily entering into conflict with the Governor of the Tower, where the Mint was located. He was tireless in overcoming bureaucratic inertia (a physical principle that was integral to his scientific work) and went so far as to use secret agents around the countryside to root out the villains who continued to clip the coinage. This once puritanical introvert began to frequent the lowest public houses in the city to arrange secret meetings with informants from the brothels and gin houses. He carried out interrogations and attended hangings, always keeping detailed accounts of everything.
In December 1699, Thomas Neale died and Newton at long last achieved the promotion he had desired for so long. He became Master of the Mint.
We must now briefly retrace our steps. During the Great Recoinage of 1695-1696, the government attempted to bring down the bloated price of the guinea by refusing to accept guineas in payment for taxes at a price higher than 22 shillings. Nevertheless, at 22 shillings it was still profitable to import gold to be coined into guineas, exchange them for silver coins, and melt the silver into bullion for export to the East. As the basic day-to-day coinage of England was silver, and as silver was the standard that defined the pound sterling, this process could not be allowed to continue indefinitely. The difference between the two metals as coins and as bullion was unsustainable.
Something had to give. There was no doubt that it was the price of gold that was going to have to back down. As a special Report by the Council of Trade put it on September 22, 1698, "For it be impossible, that more than one Metal should be the true Measure of Commerce; and the world by common Consent and Convenience [has] settled that Measure in Silver; Gold, as well as other Metals, is to be looked upon as a Commodity ... its value will always be changeable.""
In February 1699, the Treasury reduced the acceptable price of guineas to 21s 6d, hoping thereby to halt the process.* The gold imports fell off slightly, but then a record import of C1.5 million came into England in 1701, and silver continued sailing off toward Asia. Newton in his position of Master of the Mint issued reports on the problem in both 1701 and 1702, pointing out that, at current rates of exchange, a guinea's weight of gold was worth from nine pence to a full shilling (twelve pence) higher than in the other countries of Europe. His strong recommendation was to reduce the guinea further to 21 shillings. Renewed fighting with France cut off the imports of gold for a while and made any further changes in the coinage unnecessary until the Treaty of Utrecht was signed in 1713. At that point, the flood of gold imports gathered renewed strength. Over £4 million came in over the next three years. When the East India Company exported three million ounces of silver in 1717, the authorities once again turned hopefully to the wisdoms of Sir Isaac Newton.
Newton's "Representation to the Right Honourable the Lords Commissioners of His Majesty's Revenue" has become a famous document in the history of money. The reading of it is a tedious business, and the essence of the content is no more than simple arithmetic reciting the values of various weights of gold and silver in different countries. A great scientist's mind was hardly necessary for this particular task. Nevertheless, his words have earned their immortality from the timing of their appearance and the recommendations with which Newton finishes his essay.
As an example of the literary tone of the "Representation," here are the opening phrases of the substance of the document:
I humbly represent, That a Pound Weight Troy of Gold, 11 Ounces fine, and 1 Ounce Allay, is cut into 44 Guineas and Half, and a Pound Weight of Silver, 11 Ounces, 2 Penny Weight fine, and 18 Penny Weight Allay, is cut into 62 Shillings; and according to this Rate, a Pound Weight of fine Gold is worth 15 Pounds Weight 6 Ounces, 17 Penny Weight and 5 Grains of fine Silver, reckoning a Guinea at 11. 1s. 6d. in Silver Money.47
Newton then proceeds to carry out similar kinds of calculations for Spanish pistoles, French lewidors (Louis d'Or), and Dutch and Hungarian ducats, as well as examining the situation in Italy, Germany, Poland, Denmark, Sweden, China, and Japan. He confirms that the demand for silver for export "hath raised the Price of exportable Silver about 2d. or 3d. above that of Silver in Coin, and hath thereby created a Temptation to export or Melt down the Silver Coin, rather than give 2d. or 3d. more for foreign silver. "41
Newton's argument ends up with the observation that "There seems nothing more requisite, than to take off about 10d. or 12d. from the Guinea, so that Gold may bear the same Proportion to the Silver Money in England which it ought to do by the Course of Trade and Exchange in Europe. 1149 On the basis of Newton's advice, the Treasury issued a proclamation on December 22, 1717, prohibiting anyone to pay or receive the gold guinea coins at a value different from precisely 21 shillings. The outcome was not the expected outcome. Newton had it wrong on two scores.
First, as matters turned out, 21 shillings was still too high a value for the guinea: defying Newton's predictions, the imports of gold and exports of silver continued, even though at a reduced rate. The process persisted, in fact, for about thirty years, beyond 1717, by which time full-weight silver coins had disappeared from circulation.
Second, Newton was confident that the laws of supply and demand would solve the matter so that the problem would simply go away with the passage of time. He was confident that the continued increase in the supply of gold would bring down the price of guineas as denominated by silver shillings. "If things be let alone," he wrote, "till silver money be a little scarcer, the gold will fall of it self.... And so the Question is, Whether Gold shall be lowered by the Government, or let alone `till it falls of it self, by the Want of Silver Money?""'
That is not what occurred at all. Newton's forecast turned out to be wrong on a more fundamental level than merely expecting the laws of supply and demand to bring everything to rights. He was correct that in the end gold would have to decline in value relative to silver. But, like many economists since then, he went astray in assuming that the future would look like the past. Economics is evidently a lot more difficult than physics, even for a genius like Newton.
The unexpected happened: the price of gold did not "fall of itself." In fact, it did not fall at all. Instead, the guinea held steady at 21 shillings, while silver coins began to exchange at more than face value. Gold still lost value relative to silver, but the price that moved to accomplish that shift was the price of silver, not the price of gold. Although the ultimate outcome was the same either way, the markets themselves, without any Acts or Orders-in-Council or Representations, had silently but decisively established gold in place of silver as the standard for the pound.
As so often happens, the markets were way ahead of the officials. As late as 1730, John Conduitt, Newton's successor at the Mint, was still reciting the old story that "Gold is only looked on as a commodity, and so should rise or fall as occasion requires. An ounce of fine silver is, and always has been, and ought to be, the standing and invariable measure between nation and nation"51 (italics added). Reality, however, had moved strongly and decisively in the opposite direction since 1717. For more than two hundred years, the price of gold in Britain would remain set at _3 17s 10% d while the price of silver would succumb to violent fluctuations.* Until the official devaluation of the pound in the terrible crisis of 1931, £3 17s 10%d became a kind of magic and worshipful combination of numbers that governed English monetary policy.
This unanticipated outcome was a direct reflection of the increasing popularity of the guinea. The guinea's consistent weight and fineness made such a vivid contrast with the rotten state of the silver coinage up to the Great Recoinage that people preferred to accept the guinea wherever possible. Bankers held it as reserves, tax collectors welcomed it in order to avoid the arguments about what a worn silver piece might be worth, and economic activity in England at that time had developed to a point where a large-denomination coin such as the guinea was no longer just an inconvenient curiosity.
From the moment when Elizabeth I ascended to the throne in 1558 to the foundation of the Bank of England in 1694, a period of 136 years, the Mint had issued no more than £15 million in gold coinage, of which half was in guineas that appeared after 1663. During the 45 years from 1695 to 1740, the Mint produced £17 million gold coins. The story on silver is precisely the opposite: L20 million in the earlier period versus rl million in the latter.52
Isaac Newton is the anti-hero of this chapter of our story. Quite aside from his scientific achievements, he deserves heroic status as the first civil servant in history bold enough to employ the laws of supply and demand to make an economic forecast that would determine public policy. He is the anti-hero, nevertheless, because he inaugurated a tradition that will haunt future chapters of this history: economic forecasts by policymakers that turn out to be wrong! Newton did a lot better predicting the future movement of an apple than of the price of gold.
The real hero of this chapter, the guinea, came to a strange end. A direct descendant of Croesus's stater, Constantine's bezant, the ducat, the genoin, and the florin, the guinea remained the basic gold coin of England for another one hundred years after the events just described. In 1821, under George IV, the guinea came to an official demise when it was replaced by the sovereign, which was set equal to precisely 'Cl instead of the awkward 21 shillings of the guinea.
The guinea lingered on not as a coin but as a denomination or offbeat unit of account. Prices quoted in guineas had snob appeal and served as reminders of a great past. Doctors on Harley Street quoted their fees in guineas, and fine jewelry and clothing were priced in the same fashion. But 21 shillings no longer made sense as a denomination when Britain joined the rest of the world and abandoned their historic shillings and pence for the metric system in 1969. The guinea finally vanished, remaining as a romantic memory or, on occasion, as a precious Christmas gift to children from doting grandparents who still owned a few of the beautiful coins stamped with the little elephant.
Nevertheless, the process that the guinea began would stretch far into the future. From the moment that the markets established the supremacy of gold as the standard in 1717, the English never looked back. Over the next two hundred years, most of the rest of the world followed in their footsteps, though not always willingly. Silver never quite lost its charm and gold never quite performed its task without difficulty. The next chapter tells about one of the biggest bumps that the English encountered in trying to manage their currency with gold as the standard.