The Power of Gold: The History of an Obsession

by Peter L. Bernstein

  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 perma
nent 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 Conveni
ence [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.