¹ Cooper, Richard N.. The International Monetary System (Cambridge, MA, 1987), pp. 44–45. Similarly. Feavearyear argued that “England did not establish the gold standard by any conscious and deliberate act, and it is doubtful whether anyone foresaw that it would establish itself”Google Scholar; Sir Feavearyear, A.. The Pound Sterling (Oxford, 1963). p. 142.Google Scholar See also Kindleberger, Charles P., A Financial Histor of Western Europe (London, 1982). p. 59.Google Scholar

² It is not clear what people used in the absence of small-denomination coins. Various authorities discuss the manufacture of lightweight counterfeits of farthings and halfpennies (for example, see Seaby, Peter. The Story of British Coinage [London. 1985]). and presumably there was some demonetization of this part of the economy.Google Scholar For a discussion of these issues, see Redish, Angela, “The Monetary Economy of the Labouring Poor in England, 1500–1800” (Ms.. University of British Columbia. 1990).Google Scholar

³ Fetter, Frank W. and Gregory, Derek, Monetary and Financial Policy (Dublin, 1973). p. 16.Google Scholar

⁴ This is a view more recently espoused by Friedman, M., “Bimetallism Revisited”, Journal of Economic Perspectives (forthcoming).Google Scholar

⁵ Free coinage refers to the Mint being required to buy metal from all sellers, not to gratuitous minting. See further.Google Scholar

⁶ The quantity of gold and silver coin in circulation was determined by market forces. The Mint should be thought of as an agency that for a fee stamped out coins from metal brought to it. The exchange rate was determined by the numeraire values attached to silver and gold coins by individual nations. Such terms as “guaranteeing convertibility” or “maintaining the exchange rate” have no meaning in this context.Google Scholar

⁷ Brown, Henry Phelps and Hopkins, Sheila V., A Perspective of Wages and Prices (London, 1981), p. 11. The attempt to introduce a quarter-guinea coin weighing 2.09 gms failed in 1718: “A piece so tiny, and so readily lost, was entirely unacceptable to the British public”.Google ScholarCraig, J., The Mint (Cambridge, 1953), p. 21.Google Scholar Notwithstanding this small size, essayists in the mid-eighteenth century recommended minting such a coin to reduce the scarcity of small change (Gentlemans’ Magazine, 1761, p. 615); see also Waugh, J., “Reflections on Coins in General” (London, 1762)Google Scholar, reprinted in A Select Collection of Scarce and Valuable Tracts on Money (New York, 1966). The quarter guinea (worth 5/3) weighed less in 1718 than the 1616 crown (worth 5/-). because the price of gold rose by 16 percent between 1661 and 1717.Google Scholar

⁸ Although such a system was occasionally considered, notably in France in 1803, it was never officially implemented because of these costs. The costs of varying rates of exchange between two coins are very similar to those imposed today by the multiplicity of national monetary units. Under flexible exchange rates, agents who wish to use a foreign currency must bear both the costs of finding out the exchange rate and the risks of depreciation or appreciation. Of course today, forward markets reduce the latter costs.Google Scholar

⁹ This simplifying assumption obviates the need for dealing explicitly with mint prices and mint equivalents in other countries and implicitly assumes that the foreign buying and selling prices of gold and silver are the same.Google Scholar

¹⁰ The condition for profitable counterfeiting is more accurately stated as Pi + c_i < MEi (where Pi is the market price of the metal), but when ratings are correct, Pi equals MPi. When ratings are incorrect, for the relatively overvalued metal MP equals P. so that this condition constrains seignorage on the overvalued metal. Other factors affected the level of minting fees, particularly competition between national mints. From 1666 to 1816 such fees were zero for both gold and silver coins in England.Google Scholar

¹¹ The silver content of the pound would have fallen by 36 percent. This calculation uses Soetbeer’s annual data on the relative values of gold and silver and omits the initial depreciation necessary to bring the coin ratio up to the market ratio in 1687. Soetbeer’s data are reprinted in Laughlin, J. Laurence, The History of Bimetallism in the United States (New York, 1885).Google Scholar

¹² Friedman argues that bimetallic standards were far more stable than is conventionally believed. His only evidence for this argument is the experience of France between 1800 and 1875. I believe he overstates that evidence and that the experience of most European countries before and during the nineteenth century (and that of the United States) suggests that bimetallism typically resulted in a de facto monometallic standard with a “scarcity” of either gold or silver coins. Friedman, “Bimetallism Revisited”.Google Scholar

¹³ A monometallic silver standard with token gold coins would have many of the same advantages. If gold coins were tokens, however, they would by definition be worth less on the international market than domestically, so agents would either bear the costs of silver for international exchange or accept the losses from using gold. A monometallic gold standard with token silver would avoid these costs.Google Scholar

¹⁴ Fetter, Frank W., The Development of British Monetary Orthodoxy (Cambridge, MA, 1965), p. 3.Google Scholar

¹⁵ The corollary of course is that during the nineteenth century, as coins became dominated by notes and cheques in the stock of media of exchange, these properties became less important.Google Scholar

¹⁶ The monetary problems of the eighteenth century were induced in part by the monetary authority’s decision not to charge minting fees for coining either gold or silver. As equation 6 shows, this implies that from an initially correct rating even a small change in the relative price of gold and silver could trigger bimetallic arbitrage.Google Scholar

¹⁷ See Craig, The Mint, chap. 9.Google Scholar

¹⁸ Board of Trade, “Minutes of the Privy Council Committee on Coin.” vol.6 (henceforth BT6), 118, p. 108, 9/5/1798.

¹⁹ , p. 166. 10/7/1798.Google Scholar

²⁰ , p. 107, 9/5/1798.Google Scholar

²¹ , p. 110, 9/5/1798.Google Scholar

²² , p. 157. 5/7/1798.Google Scholar

²³ , p. 159. 10/7/1798.Google Scholar

²⁴ Bank of England, “Minutes of the Committee of the Treasury” (henceforth MCT), G8/18, p. 121, 17/5/1816. During the Napoleonic Wars, the Bank of England had attempted to alleviate the inconvenience caused by the lack of a small-denomination medium of exchange by issuing stamped dollars. The dollars were valued at 5/- until 1811 and 5/6d after 1811. After 1811 the Bank also provided tokens valued at 1/6d and 3/-. (They were not permitted to coin tokens that were aliquot parts of the official coinage.) These coins, struck by both the Royal Mint and a private mint owned by Matthew Boulton. were all overvalued (that is. the value of their silver content was less than the value at which the bank accepted them), and they were withdrawn after 1817. It is possible that the experience with token coins during the war was influential in the introduction of the token coinage in 1816. It is clear, however, that Lord Liverpool’s recommendations preceded that experience and that he expected his proposals to be accepted. In Feb. 1798 Bank of England officials returned from a meeting with the SCC saying that a coining of silver at a new standard was imminent. Bank of England, “Minutes of the Court Directors” (henceforth MCD). vol. Z. G4/27. p. 351, 22/2/1798.Google Scholar

²⁵ The Committee’s recommendations are in the Mint Records, “Privy Council on Coin Papers–Miscellaneous”, vols. 1–54 (henceforth Ml–54), 3rd head, pp. 156–59, 10/5/1816.Google Scholar

²⁶ 56 Geo. 111 c. 68.Google Scholar

²⁷ The exchange was fraught with difficulties. The banks, which had promised to assist, avoided the “odium and responsibility” (MCT. G8/18, p. 178, 6/2/1817) of allowing the exchange to take place on their premises, as it would mean throwing open their buildings to “all Ranks of the Community” and “their Property would be endangered” (Ml–54; 6th head, p. 418, 21/2/1817). This attitude stands in contrast to their cooperation with the gold exchange in 1774. doubtless because gold coin was not held by “all ranks of the community”. A second difficulty in implementing the recoinage concerned whether or not to accept the counterfeit coin and indeed how to distinguish it from the Royal Mint coin. The Master of the Mint suggested that if a teller were uncertain a coin was good, he should call in an intelligent shopkeeper: “such a person probably would be a better judge upon such a subject than a more scientific man” (Ml–54: 6th head. p. 351). The Master of the Mint (W. W. Pole) also recommended that tellers be given instructions to give those bringing in coin the benefit of the doubt, with the proviso that “you will be very careful not to divulge the nature of your instructions. Were the full extent of the indulgence to be granted known it is to be feared that many attempts would be made to pass large Counterfeits in the exchange”. Nicholas Vansittart, the Chancellor of the Exchequer, commented on these instructions that “it is vain to expect that a secret entrusted to so many will be kept” and suggested that giving express authority to be indulgent was “quite unnecessary and liable to abuse” (M1–54. 6th head. p. 373. 23/9/1816). Lord Liverpool agreed with Vansittart: “it would be by no means expedient to give as great a latitude as Pole proposes”; the final instructions reflected these views.Google Scholar

²⁸ BT6–127, pp. 1–12, 7/2/1798. Lord Liverpool subsequently expanded these ideas and, after a four-year illness, published them. Jenkinson, Charles, A Treatise on the Coins of the Realm (1805, reprinted in New York, 1968).Google Scholar

²⁹ M1–54, 6th head, pp. 594–95. 3/5/1819.Google Scholar

³⁰ Treasury Papers (henceforth T1). 3141/6277: 3/3/1831.Google Scholar

³¹ MCT, G8/26, p. 55, 6/3/1833.Google Scholar

³² MCD, Eb G4/56, p. 258, 2/1/1834.Google Scholar

³³ TI 3141/6277; 3/3/1831.Google Scholar

³⁴ MCD, Eb G4/56, p. 218, 5/12/1833.Google Scholar

³⁵ MCT, G8/26, p. 55, 6/3/1833. Their Lordships had replied to the bank’s threat by stating that they could not give the bank special privileges with respect to the price at which they bought and sold silver; that they thought that the renewal of the Bank Charter had “cancelled all former claims”; and that if a proposal of the kind the bank suggested were put to Parliament, “the proposition would be rejected” because the melting of the silver coin [in 1831] was adopted at the suggestion and for the convenience of the Bank;-as it was effected at the expense of the public, and as it now appears that this measure was decided upon an erroneous view of what were to be the permanent wants of the public; at least in the extent to which the operation was carried it would not be just to saddle the country with the expense consequent upon this transaction. (MCD, Eb G4/56, p. 255, 2/1/1834) The bank agreed that “so long as the Mint continues to issue silver coin at a seignorage, and the publick are allowed to pay an unlimited amount of that Coin into the Bank at its current value in exchange for Notes or gold; So long will common justice require that the Bank should be allowed to throw back upon the Mint at the same value any excess beyond the fair wants of the publick” (MCD, Eb G4/56, p. 257, 2/1/1834). In 1834 a tentative agreement was reached. The Mint would coin £600,000 without charging the bank seignorage, but the bank would pay the expenses of coining. The bank agreed so long as it had the right to send in any excess over £250,000 (MCD, Eb G4/56, p. 281, 18/1/1834). Finally the bank accepted the terms and in Jan. 1836 sent the Mint £600,000 to be coined. The bank would bear the costs of coining, of loss from wear and tear, and the interest on the deficiency of silver (MCD. Gb G4/58. p. 328, 7/1/1836).Google Scholar