Saturday, December 23, 2006

coins and monetary history

You can read in the news, how coins are now more expensive to produce than their face value. The penny costs about $0.023 to make and the nickel $0.0573. The cause is a rise in commodity prices for copper, zinc (both used to make coins) and other commodities. Interestingly, it means that people have a monetary incentive to melt coins -- their components are worth more than the face value. As a result, the U.S. Mint has passed some regulations making it illegal to melt coins.

The English government had to face the same problem in the late 17th-century. At that time, silver coins were in short supply and the method used to manufacture them (workers hammering them out one-by-one) made them easy to clip. Clipping involved trimming off edges, melting down, and, when you had a sizable lump, selling the silver. The hammered coins came from the mint so uneven that new coins and clipped ones looked much alike. Since the clipped coins were exchanged at face value, unclipped coins gradually came to have more than face value. Astute money handlers carefully weighed the coins they obtained, hoarded them, and, as with clippings, melted them to sell.

The government dealt harshly with the coins melters when it caught them, but caught few. It also mechanized the manufacturing process to help solve the problem, giving the new coins a milled edge to make clipping obvious, but made too few of the news coins to make much of a difference and found, anyway, that they disappeared from circulation as people hoarded them.

This monetary problem was made worse by government expenditures on war with France. As one sources on the topic says,
England suffered through a monetary crisis in the 1690s. Under an onslaught of clipping induced by the Nine Years' War with France (1689-97), the nation's hammered silver coin rapidly dwindled in size, by 1695 falling on average to about 50% of its normal weight (from about 89% in 1686). At some point during that year, the general public lost confidence in hammered silver money. One result was a sharp rise in the price of the gold guinea to 30s. This attracted large quantities of gold from the continent and made it very attractive to melt down any remaining full-weight silver coin and export it to Europe to buy more gold for import into England. Uncertainty about the future value of guineas and hammered silver coin almost paralyzed England's fiscal system, which until then had relied very heavily upon these two types of coin. After a long and very tortured public debate, it was finally decided in 1696 to melt down all the remaining hammered silver and recoin it into new, full-weight milled specie. Though many had pressed for the official value of silver coin simultaneously to be raised (perhaps to as much as 8s or 9s per ounce), the government of William III opted to retain the existing rate. The actual recoinage operation that commenced in May 1696 resulted in a severe shortage of monies of all kinds, touching off a financial crisis that played a major role in inducing England the next year to sue for peace with France. {source}

I thought about all this when I saw the news article about nickels and pennies because it brought to mind Neal Stephenson's Baroque Cycle novels, a favorite of mine. In these books, one of his main themes is the emergence during the 17th century of paper money and letters of credit to augment precious-metal coins. He ties this (1) to the alchemists quest to turn base metal to gold: the bankers actually achieving this by making paper as valuable as gold, (2) to the emergence of stock exchanges, as credit instruments came to be bought and sold at discount, and (3) the transition from the turmoil of the 17th- to the relative stability of the 18th-century. He explained some of this in an interview about the second book of the cycle: Confusion:
Stephenson: To fuse means to melt; "con-fuse" means a melting together. When you say "I'm all mixed up" you're saying the same thing in simpler words. At least as far back as Chaucer, "confused" was being used in its current sense of being muddle-headed. The older, technical meaning of melting things together has become obsolete, but alchemists of the 17th century would have been comfortable with it.

Confusion de Confusiones is the title of a book written in 1688 by Joseph de la Vega about the Amsterdam stock market. It takes the form of a very long letter written by a Spanish Jew living in Amsterdam to his country cousins who are thinking about moving to the city. He describes the amazingly diverse tactics and schemes used by investors playing the market there. Even though there was only one stock being traded -- the Dutch East India Company -- they had bulls, bears, panics, bubbles and most of the other features of modern bourses. (There is a de la Vega family in The Baroque Cycle, but they are not meant as historical depictions of Joseph and his cousins. I just used the family name as a way of paying homage to this author.)

In The Baroque Cycle we have got confusion of a few different sorts: Not only alchemists melting things together, but also pandemonium in the markets, a re-coinage in England (which means gathering together and melting all the old coins) and the confusion of a war between France and her enemies.

Prior to the time I'm writing about -- let's say, 1618 to 1650 -- England and the Continent were in a Hobbesian state of war, chaotic and frozen at the same time. Starting around the mid-1650s, things settled down and there was a time of astonishing creativity and flux, which I attempted to capture in the first volume of this series, Quicksilver. What I'm trying to depict in The Confusion is its aftermath: a time when so much has changed, so fast, that things are all unsettled and out of whack, and settling, in a chaotic way, toward a new equilibrium.

Addendum: Reading the Baroque Cycle led indirectly to the research I'm now doing on John Collins, 17-century mathematician. Collins died in 1783 and therefore wasn't involved in the monetary crisis at century's end. But he held a number of government posts, one of them in the Farthing Office. While he was there, the government introduced a new version of this coin (worth a quarter of a penny -- farthing means fourth). There's a Wikipedia article on the farthing which explains.
copper farthing, 1674

Another addendum:

Another major theme of the Baroque Cycle is credit, not just credit in the sense conveyed by promisory notes, debtors and creditors, and the true value of coinage, but also credit in the sense of trust, confidence that promises made will be kept, honesty and fair dealing among individuals, institutions, and governments. Here is a prominent 19th-century British intellectual on the evils resulting when credit is undermined in this broad sense, when people lose this faith in the medium of exchange used for commercial transactions.

Thomas Babington Macaulay was a British reformer, politician, author, and all-round intellectual of the 19th-century. He wrote an extremely popular History of England in which he made little effort at scholarly detachment. In fact, he glories in celebrating favorites and in denigrating those he saw as selfish, illiberal, and opposed to progress. His prose is energetic and compelling. Here are a couple of paragraphs on the monetary crisis of 1695. Macaulay has described the practice of clipping and has given reasons why the government could not prevent it. Note the vigorous rhetoric: "But when the great instrument of exchange became thoroughly deranged, all trade, all industry, were smitten as with a palsy. The evil was felt daily and hourly in almost every place and by almost every class, in the dairy and on the threshing floor, by the anvil and by the loom, on the billows of the ocean and in the depths of the mine."
Great masses were melted down; great masses exported; great masses hoarded; but scarcely one new piece was to be found in the till of a shop, or in the leathern bag which the farmer carried home from the cattle fair. ... The evil proceeded with constantly accelerating velocity. At length in the autumn of 1695 it could hardly be said that the country possessed, for practical purposes, any measure of the value of commodities. It was a mere chance whether what was called a shilling was really tenpence, sixpence or a groat. ... There were, indeed, some northern districts into which the clipped money had only begun to find its way. An honest Quaker, who lived in one of these districts, recorded, in some notes which are still extant, the amazement with which, when he travelled southward, shopkeepers and innkeepers stared at the broad and heavy halfcrowns with which he paid his way. They asked whence he came, and where such money was to be found. The guinea which he purchased for twenty-two shillings at Lancaster bore a different value at every stage of his journey. When he reached London it was worth thirty shillings, and would indeed have been worth more had not the government fixed that rate as the highest at which gold should be received in the payment of taxes.

The evils produced by this state of the currency were not such as have generally been thought worthy to occupy a prominent place in history. Yet it may well be doubted whether all the misery which had been inflicted on the English nation in a quarter of a century by bad Kings, bad Ministers, bad Parliaments and bad judges, was equal to the misery caused in a single year by bad crowns and bad shillings. Those events which furnish the best themes for pathetic or indignant eloquence are not always those which most affect the happiness of the great body of the people. The misgovernment of Charles and James, gross as it had been, had not prevented the common business of life from going steadily and prosperously on. While the honour and independence of the State were sold to a foreign power, while chartered rights were invaded, while fundamental laws were violated, hundreds of thousands of quiet, honest and industrious families laboured and traded, ate their meals and lay down to rest, in comfort and security. Whether Whigs or Tories, Protestants or Jesuits were uppermost, the grazier drove his beasts to market; the grocer weighed out his currants; the draper measured out his broadcloth; the hum of buyers and sellers was as loud as ever in the towns; the harvest home was celebrated as joyously as ever in the hamlets; the cream overflowed the pails of Cheshire; the apple juice foamed in the presses of Herefordshire; the piles of crockery glowed in the furnaces of the Trent; and the barrows of coal rolled fast along the timber railways of the Tyne. But when the great instrument of exchange became thoroughly deranged, all trade, all industry, were smitten as with a palsy. The evil was felt daily and hourly in almost every place and by almost every class, in the dairy and on the threshing floor, by the anvil and by the loom, on the billows of the ocean and in the depths of the mine. Nothing could be purchased without a dispute. Over every counter there was wrangling from morning to night. The workman and his employer had a quarrel as regularly as the Saturday came round. On a fair day or a market day the clamours, the reproaches, the taunts, the curses, were incessant; and it was well if no booth was overturned and no head broken. No merchant would contract to deliver goods without making some stipulation about the quality of the coin in which he was to be paid. Even men of business were often bewildered by the confusion into which all pecuniary transactions were thrown. The simple and the careless were pillaged without mercy by extortioners whose demands grew even more rapidly than the money shrank. The price of the necessaries of life, of shoes, of ale, of oatmeal, rose fast. The labourer found that the bit of metal which when he received it was called a shilling would hardly, when he wanted to purchase a pot of beer or a loaf of rye bread, go as far as sixpence. Where artisans of more than usual intelligence were collected together in great numbers, as in the dockyard at Chatham, they were able to make their complaints heard and to obtain some redress. But the ignorant and helpless peasant was cruelly ground between one class which would give money only by tale and another which would take it only by weight. Yet his sufferings hardly exceeded those of the unfortunate race of authors. Of the way in which obscure writers were treated we may easily form a judgment from the letters, still extant, of Dryden to his bookseller Tonson. One day Tonson sends forty brass shillings, to say nothing of clipped money. Another day he pays a debt with pieces so bad that none of them will go. The great poet sends them all back, and demands in their place guineas at twenty-nine shillings each. "I expect," he says in one letter, "good silver, not such as I have had formerly." "If you have any silver that will go," he says in another letter, "my wife will be glad of it. I lost thirty shillings or more by the last payment of fifty pounds." These complaints and demands, which have been preserved from destruction only by the eminence of the writer, are doubtless merely a fair sample of the correspondence which filled all the mail bags of England during several months.
source: The History of England from the Accession of James the Second, Volume IV, by Thomas Babington Macaulay, CHAPTER XVII.

1948 farthing

British Isles in 1686

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