«Ass. Charles Gide Justice & Economics Toulouse, June 16 &17 Locke, Newton and Monetary Justice Ludovic Desmedt 1 Cemf/Fargo/LEG (UMR 5118), ...»
Ass. Charles Gide Justice & Economics
Toulouse, June 16 &17
Locke, Newton and Monetary Justice
Ludovic Desmedt 1
Cemf/Fargo/LEG (UMR 5118),
Université de Bourgogne,
2 Bd Gabriel, 21 000 Dijon
Preliminary version – do not quote
Money is not only a collection of objects, but an institution based on the trust the members of a
society invest in it. During centuries, mistrust of the currency impeded the development of production
and investment on the long run. Hence, until the end of the 17th century, most debates concerned not so much the quantity of coins as their quality. It took the form of the so-called “Gresham‟s law”: in Europe, “good” (lawful) and “bad” coins (shaved, clipped, counterfeited) circulated. In England, after 1663, old (hammered) coins were used in everyday payments1 while new ones (machine-made) were hoarded or exported. „Light‟ money circulated freely and, at some periods, the money system was so confused that counterfeiters could issue better coins than Mints (see below)… hence anyone might accept counterfeit coins. As was emphasized by Locke, “bad” coins were accepted not only in ordinary commercial transactions, but also by the Exchequer in payment of taxes2. This situation can be analyzed in terms of a conventional pattern: “A medium of exchange – say, coin of the realm – has its special status by a convention among tradesmen to take it without question in return for goods and services. […] the inconvenience of accepting a bad medium of exchange is less than the inconvenience of refusing it when
others take it, or of taking what one can neither use nor spend.” (Lewis, 1969: 48). Up to a certain point:
when too many “bad” coins proliferated, public faith could totally vanish.
During the Glorious Revolution (1688), the “fiduciary power” of the English currency fell at a very low level. In his History of England, Macaulay insisted on this topic: “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 century by bad Kings, bad Ministers, bad Parliament, and bad Judges, was equal to the misery caused in a single year by bad crowns and bad shillings.” (Macaulay, vol.V, p.90). In the 1690‟s, trust in monetary instruments vanished almost completely. Indeed, while the war opposing Great Britain with France was prolonged3, a severe financial and monetary crisis burst. “In 1696, it was not clear that the financial demands of the war would be met. If they were not, if national bankruptcy ensued, the revolutionary settlement would undoubtedly collapse before a second Stuart restoration.” (Westfall, 1994, p.221). The new regime was in peril. In the monetary domain, clippers and counterfeiters committed illegal attacks on coin and Locke described a situation in which “…all the current Cash [was] light, clip‟d, and hazardous Money” (Locke, 1695, p.104/1991b, p.475) “some pieces contained a little more and some a little less that the just quantity of silver; few pieces were exactly round; and the rims were not marked. It was therefore in the course of years discovered that to clip the coin was one of the easiest and most profitable kinds of fraud.”, Macaulay, 1890, vol. V, p.85.
2 “I say, clip‟d Money, however bad it be, will always pass whilst the King‟s Receivers, the Bankers of any kind, and at last the Exchequer takes it.”, Locke, 1695, p.97/1995b, p.471. Locke maintains that the state‟s continued acceptance of lightweight coin was responsible for the deterioration of the confidence in the currency, see below.
3 “William III's accession to the throne not only plunged England into a general European war, it also signalled the beginning of a century of Anglo-French confrontations around the world.”, Appleby, 1978b, p.270
What could be the proper cure for this proliferation of bad, or „hazardous‟, currencies? This question was not confined to morals, since it was also a legal problem. Indeed, during centuries, the false money problem was not only technical (a matter of minting techniques); it was economical (a matter of economic troubles), political (a matter of sovereignty), moral (a matter of fairness) and legal (a matter of repression).
Religious authorities took part in the prosecution of counterfeiters, who introduced suspicion and confusion into the society. In 1123, by the council of Latran, counterfeiters and « circulators of base coins » were declared oppressors of the poor, disturbers of the state and, therefore, excommunicated (in 1583, the council of Tours reiterated these sanctions) (Ruding, 1819, I, p.167). These questions were still discussed in churches at the end of the 17th century, as evidenced by the Sermon against clipping by William Fleetwood in England. For the bishop of Ely, clipping was not only illegal, but also “sinful”, “as being a fraud upon every person” (Ruding, 1840, II:35).
“The tradition of Roman law saw the right to mint as a royal prerogative and treated any infringement of this regalian privilege as a form of lese majesty or high treason.” (Sargent and Velde, 2003:65) At this critical moment, Houghton evoked « an universal Murmur and Discontent amongst Multitudes of [His Majesty‟s] Subjects which may give the Government more Disturbance than all the Enemies thereof dare pretend to”, (Houghton, 1695, p.17). Two solutions to the problem were proposed: either to devalue the currency, or to maintain the standard (recalling coins from circulation and re-minting them at full weight). Opposed to Lowndes‟ (and many others) proposals, Locke‟s bullionist position proposing a general recoinage became „almost a gospel for „„sound money‟‟ men‟, (Feavearyear, p.147). The philosopher attempted to introduce an unvarying standard, but without serious monetary surveillance, his proposal could fail. John Locke and Isaac Newton succeeded in gaining and keeping high official position in the Glorious Revolution‟s new regime. Both men were friends4, close to the Royal Society and to the Whig junto (Newton stood briefly in the Parliament just after the Revolution). They also shared a common interest with alchemy5. Locke and Newton mobilized specific theoretical and practical grounds in order to solve the problem of counterfeiting. Locke‟s arguments against debasement constituted a landmark for the English monetary history. But Newton‟s policy as Warden of the Mint was crucial to put Locke‟s principles into practice. The most influential political thinker and the greatest scientist of the time had been united by a common goal, the stabilization of English coinage. Hence, Lockean politicks (a sound currency should act as an anchor) and Newtonian principles (an empirical precision in the definition of monetary instruments) converged on the theme of monetary justice. To use the vocabulary of the day, the “world politick” and the “world natural” were set in coherence6.
In this text, we will first present the main characteristics of the English currency system and of the legal (and moral) aspects of monetary justice; we will then explain the controversies over the currency (Locke versus the „devaluationists‟). Finally, we will explain how, by the means of the stabilization of the English currency, Locke and Newton heralded what has been considered as a monetary revolution7.
« Each recognized in the other an intellectual peer.”, Westfall, 1994, p.199.
See Westfall. Newton published the Principia in 1687, Locke his Essay on human understanding in 1690.
6 See Jacob, 1976.
7 “it must be stressed that during precisely the same period in which the Bank of England was established and the full transferability of debt was made legally enforceable, the precious metal coinage was greatly strenghtened. [...] As credit-money became the most common means of transacting business, England also moved towards the creation of the strongest metallic currency in history.”, Ingham, 2004, p.129.
Second Treatise, pp 319 (?) “And thus came in the use of Money, some lasting thing that Men might keep without spoiling, and that by mutual consent Men would take in exchange for the truly useful, but perishable Supports of Life.” An anchor of the new system in nature I The English currency system (at the end of the XVIIth century) Locke‟s major works upon the theory and practice of the political power (his Treatises of Government) greatly influenced the new English regime. In 1689, after James II had to flee to France and was replaced by William of Orange, England embarked on the War of the Grand Alliance against France (which lasted until 1697). The experience proved a ruinous one, especially as trade with the Continent became difficult and the agricultural sector recorded a series of poor harvests. The English army stationed in Flanders at expensive costs. The debt increased considerably8. While the war opposing Great Britain with France was prolonged, a severe monetary crisis burst. “The currency troubles, also largely a consequence of war, had first come to the attention of Parliament in 1689, and were to loom increasingly large over the next seven years as England‟s commitments on the Continent grew. By 1695 the whole monetary system seemed in danger of collapse” (Kelly, 1991, p.17). Hence, during the Glorious Revolution, the “fiduciary power” of the English currency fell at a very low level, and trust in monetary instruments vanished almost completely. During the crisis, the connection between money of account and real money was at the centre of debate.
1.1) “The Ill State of the Coin of the Kingdom” 9 An official coin under the metallic monetary system of the early modern period is made of a piece of metal, the mark of the sovereign, and a legal value expressed in the official unit of account. The system was based on two forms of money, real (metallic coins) and imaginery (unit of accounts). Coins bore images and symbols, but their value in unit of accounts wasn‟t indicated (hence the power for the king to manipulate their value): people counted in pounds, shillings, pennies, but paid in local (or foreign) coins (crowns, farthings, guineas...).
Coins circulating in England at the end of the XVIIth century Silver : crown, halfcrown, shilling, six pence… Gold : Guinea (1 guinea = 1£ since 1670), unite … Copper : farthing, half penny… Foreign coins : French and Spanish pistoles, flemish ducatoons, portuguese crusados … England was under an official silver standard. “In England at the time of the accession of William III, the mint-price of an ounce of silver was 5s. 2d., that is 1/62 of an ounce of silver was called a penny and 12 of these pence were called a shilling.” (Marx, 1859). During the 1690‟s, officers of the mint coined five shillings from an ounce of silver.
Locke presented the Invention of Money as an agreement that „a little piece of yellow Metal, which would keep without wasting or decay should be worth a great piece of flesh or a whole leap of corn‟ (Locke, ST, V of property, 37, p.20), but in fact, some coins circulated for more than a century, hence “underweight coins, many with less than half the worth by weight of the value they represented, had circulated more or About the war and its consequences, Macaulay wrote : “Such was the origin of the debt which has since become the greatest prodigy that ever perplexed the sagacity and confounded the pride of statesmen and philosophers.”, Macaulay, 1890, vol. IV, p.396.
9 A phrase often used in official reports, see for example, Fay, 1935. The King used it, see Horsefield, p.48.
less freely in England for decades.” (O‟Brien, 2007, p.686). Degradation resulted from inevitable wear and tear of coins in their daily use, a situation which obviously did not involve fraudulent manipulation. But individuals could degrade coins in order to collect the metal and, consequently, either bring it to the Mint (and get coins corresponding to the weight of the metal), or sell it, or mint counterfeit coins by themselves. Some people found a profitable business in „clipping‟ coins, slicing off silver from the edges and melting down the shavings10. According to some writers, “it was clip‟d almost to the innermost Ring, and the Border of Letters either wholly take, away, or very much dimished.” (An., 1696, p.2) The counterfeiter‟s gain was due to the discrepancy already existing between the legal value and the metallic content of the degraded circulating coins. If one Crown should officially contain 1,25 oz. of silver, since there was a general clipping, the counterfeiter could -for example- produce two Crowns with this quantity of silver.
After 1663, a mill was introduced in the London Mint. As a result, people started to distinguish hammered coins (struck before 1663) and milled money (coins with milled edge). “Bad” coins varied in weight while new ones were more homogeneous. Moreover, in England, the official rating of silver was undervalued, while gold was overvalued. This created an incentive to melt down English silver coin and export it as bullion to Europe.
“By Isaac Newton‟s estimate, at the start of the war silver accounted for 72.3 percent of the total stock of English coin, and of this 78.1 percent was hammered money”. Kleer, p.535 The clipped coins drove the milled coins (opposed to hammered ones) out of circulation.
For all these reasons (wear and tear, clipping, counterfeiting), the discrepancy between the silver content and the official value of the coins grew significantly. The last general recoinage was implemented in 1601.
Some officials (see below) estimated that the currency in circulation contained only half of the value (by weight) of its precious metal content. “A trial showed that £57,200 in silver coins, whose weight ought to have been 220,000 ounces, weighed only 141,000 ounces.” (Marx, 1859). All observers blamed the sorry state of metallic currency. In 1689 the Commons appointed a committee “to consider of the great Abuses committed in the impairing the Coins of the Kingdom”, but with little results.