WEBVTT NOTE The Private Supply of Money 1 00:00:00.000 --> 00:00:06.000 When Joe first asked me to give the Friedrich Hayek lecture, I was frankly a little bit worried. 2 00:00:06.000 --> 00:00:14.500 You see, I've been asked to do lectures in honor of famous economists who I admire on a number of occasions. 3 00:00:14.500 --> 00:00:23.000 And I have this bad habit, which is whenever I'm asked to do that, I inevitably give a lecture where I criticize the person I'm supposed to be honoring. 4 00:00:23.000 --> 00:00:33.000 So, for example, years ago, I gave a lecture commemorating the anniversary of human action in which I wrote an essay about Mises and the gold standard. 5 00:00:33.000 --> 00:00:40.000 And, of course, I criticized Mises. I pointed out that he had actually undermined his own case for a gold standard somewhat. 6 00:00:40.000 --> 00:00:52.000 And, as a result, somebody, a very prominent fan of von Mises, wanted to suppress the article, say, this is terrible, this is critical of Mises. 7 00:00:52.000 --> 00:00:59.000 And, of course, I love von Mises, I'm a great fan of him, but this is just my habit, and it's my way of expressing admiration, right? 8 00:00:59.000 --> 00:01:13.000 So, then, not long ago, I was asked to participate in a panel at the Cato Monetary Conference honoring Milton Friedman. 9 00:01:13.000 --> 00:01:17.000 And I'm very fond of Milton Friedman. 10 00:01:17.000 --> 00:01:26.120 and so I naturally gave a talk attacking him, not really, but saying that he had really 11 00:01:26.120 --> 00:01:33.520 failed to appreciate the case for getting rid of government monopolies and currency. 12 00:01:33.520 --> 00:01:40.360 And after that talk somebody came up to me who was a big Friedmanite and actually almost 13 00:01:40.360 --> 00:01:41.360 assaulted me. 14 00:01:41.360 --> 00:01:45.600 I thought he was going to punch me or something and he said I should be ashamed of myself 15 00:01:45.600 --> 00:01:50.540 and I looked at him dumbfounded and said, what for, you should be ashamed of yourself. 16 00:01:50.540 --> 00:01:56.080 It turned out that he was very upset that I had characterized Friedman as someone who 17 00:01:56.080 --> 00:02:00.160 didn't believe in the gold standard. 18 00:02:00.160 --> 00:02:10.300 Sorry, I couldn't help it. 19 00:02:10.300 --> 00:02:14.800 So when Joe asked me to do this lecture I thought, well, what am I going to do, I'm 20 00:02:14.800 --> 00:02:19.800 I'm going to talk about Hayek's work on money, of course, and privatization of money. 21 00:02:19.800 --> 00:02:25.800 And don't you know, I sat down and started to make a list of all the places where Hayek had screwed up. 22 00:02:25.800 --> 00:02:33.800 But then when I came here, I talked to Jeff Tucker. 23 00:02:33.800 --> 00:02:38.800 I said, now, Jeff, you know, I could give this talk about Hayek. 24 00:02:38.800 --> 00:02:42.800 And, you know, I'd probably make some critical remarks. 25 00:02:42.800 --> 00:02:48.200 No, no, no, no, no, I don't want you to do that. You should talk about your recent book. 26 00:02:48.200 --> 00:02:59.200 And I thought, okay, I can do that. You know, I think I can do that without being too critical. 27 00:02:59.200 --> 00:03:06.720 So here goes. But in fact, I can do better than that because I really do want to say 28 00:03:06.720 --> 00:03:10.120 some really nice things about Hayek. If it weren't for Hayek, first of all, this book 29 00:03:10.120 --> 00:03:11.120 This book wouldn't have been written. 30 00:03:11.120 --> 00:03:13.120 There's no question this book would not have been written. 31 00:03:13.120 --> 00:03:18.280 In fact, I wouldn't be speaking here about anything, because it was only thanks to Hayek's 32 00:03:18.280 --> 00:03:24.520 work on denationalization of money that I became interested in the subject of competitive 33 00:03:24.520 --> 00:03:26.040 supply of money. 34 00:03:26.040 --> 00:03:33.320 And it was moreover a particular passage in denationalization of money, a very brief 35 00:03:33.320 --> 00:03:41.800 passage that I think rested in the back of my mind for all the years between when that 36 00:03:41.800 --> 00:03:47.020 book came out and I read it in 78 and the beginning of my research on this book that 37 00:03:47.020 --> 00:03:53.440 sponsored this new project because Hayek refers very briefly to an exchange between Herbert 38 00:03:53.440 --> 00:04:01.720 Spencer the great Victorian polymath and William Stanley Jevons the great Victorian economist 39 00:04:01.720 --> 00:04:07.720 Concerning the Matter of Private Production of Coins 40 00:04:07.720 --> 00:04:11.720 Now let me step back a bit and tell you why I think coins are important. 41 00:04:11.720 --> 00:04:17.720 Coins, of course, are small change today in more than one sense. 42 00:04:17.720 --> 00:04:22.720 They're small change, obviously, in the literal sense of being small denomination money. 43 00:04:22.720 --> 00:04:30.720 But they're also small change, let's face it, in representing a very miniscule component of national money supplies. 44 00:04:30.720 --> 00:04:37.840 And so it's easy to dismiss coinage as being of trivial importance, but I think that that's a mistake for two reasons. 45 00:04:37.840 --> 00:04:44.400 First of all, because historically coins were not so unimportant and indeed in the Industrial Revolution, 46 00:04:44.400 --> 00:04:51.240 not only coins generally, but the smaller denomination coins really provided the mass of the exchange media 47 00:04:51.240 --> 00:04:55.640 that allowed those economies in those days to function. 48 00:04:55.640 --> 00:05:01.520 There is another reason why coinage is important because it was with the monopolization of 49 00:05:01.520 --> 00:05:10.120 mints that governments first usurped control of money and established the so-called prerogative 50 00:05:10.120 --> 00:05:16.360 of money that is the foundation for the entire apparatus of state control of money to this 51 00:05:16.360 --> 00:05:23.160 day and it is myths that have been promulgated since ancient times concerning how only governments 52 00:05:23.160 --> 00:05:27.560 can be relied on to mint coins and how the private production of coins will result in 53 00:05:27.560 --> 00:05:34.840 bad money driving out good that formed the basis for the precedent for modern state control 54 00:05:34.840 --> 00:05:35.840 of money. 55 00:05:35.840 --> 00:05:41.600 Now if the myth of coinage can be exploded, if we can show that it is not in fact and 56 00:05:41.600 --> 00:05:46.480 never has been true that coins have to be supplied by the state or best supplied by 57 00:05:46.480 --> 00:06:01.480 by the State, then that in turn cuts the ground from the most ancient beliefs that underlie the present existence of central banks and monetary regulation by the state. 58 00:06:01.480 --> 00:06:15.480 Anyway, Spencer was one of the few prominent thinkers to ever question the idea that only governments, kings, princes could supply money. 59 00:06:15.480 --> 00:06:21.880 And here is a statement from him that is the exception to the usual beliefs. 60 00:06:21.880 --> 00:06:26.780 I'll read it to you because it's very important for those of you in the back. 61 00:06:26.780 --> 00:06:31.380 So constantly have the ideas of currency and government been associated, 62 00:06:31.380 --> 00:06:36.680 so universal has been the control exercised by lawgivers over monetary systems, 63 00:06:36.680 --> 00:06:41.880 and so completely have men come to regard this control as a matter of course, 64 00:06:41.880 --> 00:06:48.960 that scarcely anyone seems to inquire what would result if it were abolished. 65 00:06:48.960 --> 00:06:54.000 Perhaps in no case is the necessity of state supervision so generally assumed, 66 00:06:54.000 --> 00:06:58.640 and in no case will the denial of that necessity cause so much surprise. 67 00:06:58.640 --> 00:07:00.960 Yet must the denial be made. 68 00:07:00.960 --> 00:07:04.040 And Spencer went on to say that, in fact, 69 00:07:04.040 --> 00:07:08.440 private firms could do a better job supplying coins than governments do. 70 00:07:08.440 --> 00:07:19.480 Well, this brought about the following reaction from William Stanley Jevons, the great Victorian economist, and he was a great monetary economist, incidentally, despite this, 71 00:07:19.480 --> 00:07:33.600 quote, Though I must always deeply respect the opinions of so profound a thinker as Mr. Spencer, I hold in this instance that he has pushed a general principle into an exceptional case where it quite fails. 72 00:07:33.600 --> 00:07:39.600 He has overlooked the important law of Gresham that better money cannot drive out worse. 73 00:07:39.600 --> 00:07:45.600 In matters of currency, self-interest acts in the opposite direction to what it does in other affairs. 74 00:07:45.600 --> 00:07:52.600 And if coining were left free, those who sold light coins at reduced prices would drive the best trade. 75 00:07:52.600 --> 00:08:00.600 In my opinion, there's nothing less fit to be left to the action of competition than money. 76 00:08:00.600 --> 00:08:08.600 Jevons went on, moreover, to point to an empirical episode which he implied proved his position to be correct. 77 00:08:30.600 --> 00:08:33.600 and the Anglesey Company, which wear a full weight. 78 00:08:33.600 --> 00:08:41.600 This shows, if proof were needed, that the separate action of self-interest was inoperative in keeping bad coin out of circulation. 79 00:08:41.600 --> 00:08:46.600 I want you to remember this quote and that reference to the Stockport Resolution 80 00:08:46.600 --> 00:08:50.600 and the mysterious reference to the Anglesey pennies. 81 00:08:50.600 --> 00:08:54.600 We'll see just how wrong Jevons was. 82 00:08:54.600 --> 00:08:59.600 Anyway, it was this quote, this exchange, that sparked my interest 83 00:08:59.600 --> 00:09:03.180 because of course here we had someone pointing to 84 00:09:03.180 --> 00:09:07.260 what appeared to be an actual episode of private coinage. 85 00:09:08.320 --> 00:09:11.940 Admittedly, the person was saying that it was a disaster 86 00:09:11.940 --> 00:09:14.320 but not wishing to take his word for it, 87 00:09:14.320 --> 00:09:16.400 I thought I would investigate. 88 00:09:16.400 --> 00:09:19.720 Well, it turns out that the setting for the episode 89 00:09:19.720 --> 00:09:23.640 in question was of course the, 90 00:09:23.640 --> 00:09:28.640 it was the late last half of the 19th, 18th century 91 00:09:28.640 --> 00:09:37.640 And that was a time when Great Britain faced a very severe shortage of money, particularly small change. 92 00:09:37.640 --> 00:09:43.640 Now, since I know we have many fans of deflation here who don't believe there can be money shortages, 93 00:09:43.640 --> 00:09:51.640 even if you don't believe there can be a general shortage of money, there is a shortage of specific denominations. 94 00:09:51.640 --> 00:09:57.640 This is the problem in England. It isn't a general shortage of money. It's that there's no small change. 95 00:09:57.640 --> 00:10:02.800 Small Change. There's no small change and by small change I mean pretty much anything 96 00:10:02.800 --> 00:10:08.920 under five pounds. If you want an equivalent, imagine that we had nothing less than hundred 97 00:10:08.920 --> 00:10:14.480 dollar bills today, there were no checks and the average worker is lucky to make fifty 98 00:10:14.480 --> 00:10:20.240 dollars a week and you have some idea of the severity of the chain shortage that Great 99 00:10:20.240 --> 00:10:24.760 Britain faced. And that's what it faced on the eve of the industrial revolution which 100 00:10:24.760 --> 00:10:27.160 which began around 1760. 101 00:10:27.160 --> 00:10:33.880 Which revolution was going to require a massive increase in small change to meet the growing 102 00:10:33.880 --> 00:10:39.460 demands of industry to pay workers and of retailers to make change? 103 00:10:39.460 --> 00:10:45.480 This chart shows the total production of small denomination money in England in the entire 104 00:10:45.480 --> 00:10:47.320 18th century. 105 00:10:47.320 --> 00:10:53.720 The red bars are copper, the silver bars are silver, gray bars anyway. 106 00:10:53.720 --> 00:10:59.380 And to make a long story short, there's essentially no production. 107 00:10:59.380 --> 00:11:03.100 After 1775, the last of the copper coins are produced. 108 00:11:03.100 --> 00:11:07.060 For the rest of the century, there's essentially no copper money. 109 00:11:07.060 --> 00:11:13.600 There are little blips that are Maundy money for ceremonial purposes. 110 00:11:13.600 --> 00:11:15.140 And silver is hardly produced. 111 00:11:15.140 --> 00:11:19.640 There are a couple of occasions where substantial quantities are produced for very special reasons 112 00:11:19.640 --> 00:11:21.820 on order by the Bank of England. 113 00:11:21.820 --> 00:11:27.260 Let me just explain briefly the reason for this lack of production of silver and copper. 114 00:11:27.260 --> 00:11:34.340 In the case of silver, it was a simple example of the operation of bimetallic legislation. 115 00:11:34.340 --> 00:11:38.900 Most of you, I think, are familiar with the problem there, where you have two metals defining 116 00:11:38.900 --> 00:11:42.780 the standard unit, in this case, the British pound sterling. 117 00:11:42.780 --> 00:11:47.840 Then the mint essentially prices each metal in terms of the same unit. 118 00:11:47.840 --> 00:11:54.200 That sets up an effective official exchange rate between the two metals. 119 00:11:54.200 --> 00:11:59.320 Well, if that exchange rate differs from the world or market exchange rate, whichever metal 120 00:11:59.320 --> 00:12:04.380 is relatively undervalued at the mint will no longer be brought to it to be coined. 121 00:12:04.380 --> 00:12:09.560 And in the case of 18th century England, the metal that was undervalued was silver. 122 00:12:09.560 --> 00:12:15.600 So essentially, with a couple of rare exceptions, no silver comes to the mint to be coined. 123 00:12:15.600 --> 00:12:18.720 As for copper, that was coined on government account. 124 00:12:18.720 --> 00:12:23.440 That is, the government arranged to buy the copper and have it minted, if it wanted to. 125 00:12:23.440 --> 00:12:32.440 But after 1775, it didn't mint anymore, despite a very large demand for small change, made 126 00:12:32.440 --> 00:12:37.380 larger still by the lack of silver money so that copper would be needed as a substitute. 127 00:12:37.380 --> 00:12:43.640 The reason, though, for the suspension of copper coinage was that copper coinage was 128 00:12:43.640 --> 00:12:59.640 The copper coinage that was struck was so aggressively counterfeited that the mint felt that in striking any new copper coins it was merely effectively supplying raw material for counterfeiters. 129 00:12:59.640 --> 00:13:11.640 This illustration gives you some sense. Here are some George II half pennies of the kind that would have still been current at the end of the century and that supplied most of the official pennies. 130 00:13:11.640 --> 00:13:18.640 On the left is an official coin, a penny, half penny in relatively good condition. 131 00:13:18.640 --> 00:13:23.640 In the middle is what most of them actually looked like by the 1780s. 132 00:13:23.640 --> 00:13:26.640 And then finally on the right is a counterfeit. 133 00:13:26.640 --> 00:13:29.640 I think. 134 00:13:29.640 --> 00:13:33.640 Anyway, you could hardly ever tell the difference and nobody much bothered to 135 00:13:33.640 --> 00:13:35.640 and the mint thought, what's the point? 136 00:13:35.640 --> 00:13:39.640 The other problem was that just as, even though there were severe shortages 137 00:13:39.640 --> 00:14:09.640 In the years of small change in the countryside, there could be vast surpluses in London, because the money would be issued at the Tower of London, then maybe it would make its way to the industrial areas in the north mainly, but then it would trickle back to London through retail payments and then wholesale payments, most of it would end up at the breweries, because most of these pennies were spent on beer. That's absolutely true, by the way. Copper, by the way, was legal tender up to six pence. 138 00:14:09.640 --> 00:14:39.640 and it couldn't do a thing with it. The mint wouldn't take it back, the government wouldn't take it back, banks wouldn't deal with it, so they would have sometimes hundreds of pounds of idle pennies, and in the countryside it would be starving for them, but the mint would be getting petitions, right, from one source saying, please, we need more copper, and the other saying, please, don't mint any more copper, we're stuck with it all. By the way, copper was, transport was such that it wasn't effective to make side payments for industrialists in the north to arrange to have coins shipped from London. 139 00:14:39.640 --> 00:14:46.000 the cost of transport alone would have been more than the value of the money, you see. 140 00:14:46.000 --> 00:14:55.200 So what happens in the mid-1780s is that some British industrialists decide to try and prompt 141 00:14:55.200 --> 00:15:00.600 the government to reform the copper coinage particularly, and the two industrialists who 142 00:15:00.600 --> 00:15:09.120 are playing a key role here are first, Matthew Bolton, famous as the partner of James Watt 143 00:15:09.120 --> 00:15:13.840 not in the steam engine enterprise, but also the biggest factory owner, the owner of the 144 00:15:13.840 --> 00:15:18.840 biggest factory in the world, and Thomas Williams, the copper king, who owned the biggest copper 145 00:15:18.840 --> 00:15:23.600 mine in the world at the time. 146 00:15:23.600 --> 00:15:28.320 This is a picture of the Anglesey mines, Anglesey, remember Anglesey? 147 00:15:28.320 --> 00:15:32.640 Mentioned in Gevin's quote, the biggest copper mine in the world, an open pit mine for the 148 00:15:32.640 --> 00:15:38.840 most part, located on the island of Anglesey off the north coast of Wales. 149 00:15:38.840 --> 00:15:53.840 And it employed something like a thousand workers and produced copper at an extraordinarily low cost, much less expensive, it was much less costly to produce copper in Anglesey than in Cornwall, the other major source of English copper. 150 00:15:53.840 --> 00:16:01.840 So Williams has all this copper, but he doesn't have anything to pay his workers with. He offers to coin for the government for free. 151 00:16:01.840 --> 00:16:08.240 The government says, no thanks. So, he coins for himself. 152 00:16:08.240 --> 00:16:13.200 And these were the first of the private coins. These are the Anglesey mine or Paris mine druids. 153 00:16:13.200 --> 00:16:16.320 This happens to be a penny. Later, they would produce half pennies. 154 00:16:16.320 --> 00:16:20.000 And if you look at the coin, you can see an important feature of these coins. 155 00:16:20.000 --> 00:16:27.040 This is not full-bodied money. These are token money. They circulated approximately twice the 156 00:16:27.040 --> 00:16:35.040 and the value of the copper they contain. They are claims or IOUs or fiduciary media, fractionally backed. 157 00:16:35.040 --> 00:16:42.040 And it says, and it's very explicit, right? We promise to pay the bear on one penny. 158 00:16:42.040 --> 00:16:48.040 And then if you were to look at the edges of these coins, you would see the legend continue. 159 00:16:48.040 --> 00:16:53.040 On demand in London, Liverpool or Anglesey. 160 00:16:53.040 --> 00:17:11.040 Now what that actually meant in practice was you'd have to get 250 of them, 250, right, 252 of them together and you would get yourself a gold guinea or a larger number for a five pound Bank of England note. 161 00:17:11.040 --> 00:17:41.040 Williams set up a mint, first in Anglosie itself and then eventually in Birmingham, England which would be the headquarters for the private coinage from then on, where he ended up striking 300 tons of these coins, which is fully half of the coins produced during the private coinage episode, in tons anyway, and they were wildly popular actually, wildly popular. Remember the Jevons quote again, 162 00:17:41.040 --> 00:17:44.080 Jebbins refusing to accept anything but Anglesey coins, right? 163 00:17:44.080 --> 00:17:51.080 Now Jebbins wants you to believe that it's because all the other private coins were lousy. 164 00:17:51.080 --> 00:17:56.080 But in fact, the Stockport Resolution was issued when these were the only private coins around. 165 00:17:56.080 --> 00:18:06.320 It was a resolution to accept them and not official English coins from the Royal Mint. 166 00:18:06.320 --> 00:18:11.280 Matthew Bolton was, as I mentioned, the owner of the biggest factory in the world. 167 00:18:11.280 --> 00:18:16.240 He got into copper coinage also in an effort at first to get the government to let him 168 00:18:16.240 --> 00:18:18.920 coin for it. 169 00:18:18.920 --> 00:18:26.020 In anticipation of a government contract, remember this is 1787, he built the most technologically 170 00:18:26.020 --> 00:18:30.680 advanced, largest capacity mint in the world. 171 00:18:30.680 --> 00:18:36.080 This shows the mint actually as it was rebuilt later on in the 1790s, no need to go into 172 00:18:36.080 --> 00:18:43.080 to that. But here's the main Soho building, Soho factory. Steam engines are made in one 173 00:18:43.360 --> 00:18:50.360 of these yards here. And up here is the Soho mint, as it was at the end of the 18th century. 174 00:18:53.240 --> 00:18:59.240 The mint was a remarkable achievement, though not an easy one, and not one that always worked 175 00:18:59.240 --> 00:19:05.560 the way it was supposed to. This is the coining press, and it was steam driven. So this is 176 00:19:05.560 --> 00:19:35.560 This is a shaft here, there would be a steam engine, a rotary motion engine, and that would turn the shaft, come here, and there would be this bevel gear, and this armature would go around like a merry-go-round, and trigger each of these presses, and each time it would go around, each press would strike a coin, and then they would pop out, and this is the press right here, the dies would be upper and lower right there, 177 00:19:35.560 --> 00:19:48.560 The first automated coin striking apparatus, but one whose role in the reform and improvement of modern coinage has been very much misunderstood, but quite a showpiece. 178 00:19:48.560 --> 00:19:51.560 Here's one of the first steam-struck coins. 179 00:19:51.560 --> 00:20:01.560 Now, I showed you the official regal coins, and of course I showed them in the worn condition that most of them were in, 180 00:20:01.560 --> 00:20:14.560 But I should also mention that the general standard of engraving on private coins was far superior to almost anything from the Royal Mint, and that's because in Birmingham you had the best metal engravers in the world, bar none. 181 00:20:14.560 --> 00:20:20.560 Most of whom started out engraving buttons, coat buttons, livery coat buttons. 182 00:20:20.560 --> 00:20:27.560 Now if you think a button is a lousy little thing that doesn't warrant having great engraving, you have to remember who's wearing these livery coats, right? 183 00:20:27.560 --> 00:20:43.560 They were very, very prestigious things, and it was part of the way of showing that you had a good servant, if you dressed him up in a livery coat, and you can go see some of these livery buttons in museums, extremely valuable. 184 00:20:43.560 --> 00:20:51.560 In fact, a lot of them are worth a lot more than any coin could fetch containing the same metal, anyway. 185 00:20:51.560 --> 00:21:02.560 Notice the coins tend to have industrial illustrations and we'll see some more prominent examples of that. 186 00:21:02.560 --> 00:21:06.560 Why did Bolton get into coinage? 187 00:21:06.560 --> 00:21:10.560 The standard story is that he really just was a reformer. 188 00:21:10.560 --> 00:21:13.560 He wanted to do something to help eliminate counterfeiting. 189 00:21:13.560 --> 00:21:18.560 He felt sorry for these counterfeiters who would be strung up on Hensworth Heath. 190 00:21:18.560 --> 00:21:25.560 And in fact, the story that it was all about being public spirited is quite wrong. 191 00:21:25.560 --> 00:21:33.560 And there was another more immediate, more prosaic interest involved. 192 00:21:33.560 --> 00:21:36.560 Here are Soho's enterprises. 193 00:21:36.560 --> 00:21:43.560 And to make a long story short, the plate company in the 1780s is not making much money. 194 00:21:43.560 --> 00:21:47.560 Neither is Bar-Boulton and Scale who make the buttons. 195 00:21:47.560 --> 00:21:54.560 A lot of this has to do with restrictions on trade that were imposed in connection with the American conflict. 196 00:21:54.560 --> 00:22:02.560 Then there's the Albion Mill, which is the first steam-powered corn mill, and it didn't fare very well either. 197 00:22:02.560 --> 00:22:05.560 Then there is Bolton and Watt steam engines. 198 00:22:05.560 --> 00:22:13.560 Now this is before the rotary engines are taking off. They're not invented until about 1786. 199 00:22:13.560 --> 00:22:21.560 And so all the profits to Bolton and Watt are coming from pumping engines in the Cornish mines, the Cornish copper mines, right? 200 00:22:21.560 --> 00:22:30.560 The problem is, and then Bolton and Watt in addition own a big interest, a big stake in the mines themselves as well as depending on the royalties from the steam engines. 201 00:22:30.560 --> 00:22:41.560 They charge a royalty based on the fuel savings that characterize the Watt engines compared to the new common atmospheric counterparts. 202 00:22:41.560 --> 00:22:53.560 The problem is that Anglesey is producing copper at such a low cost that the Cornish mines are in danger of shutting down and there goes all the steam engine royalties, there goes SOHO. 203 00:22:53.560 --> 00:23:09.560 So what's needed is something to get the price of copper up and so what Bolton's trying to do is get the government to coin thousands of tons a year and let him do the coining but in any event get the copper from Cornwall. 204 00:23:09.560 --> 00:23:15.560 and he's trying to exploit his interests and his connections in London to arrange that 205 00:23:15.560 --> 00:23:19.560 and that's why he builds this fantastic mint. Unfortunately the government doesn't come through 206 00:23:19.560 --> 00:23:27.560 and instead, there's a steam engine, by the way that's a rotary motion engine, see it's got a crank 207 00:23:27.560 --> 00:23:33.560 so it's not the right kind to show you what was in Cornwall, crank and flywheel, never mind. 208 00:23:33.560 --> 00:23:38.760 So anyway, Bolton goes to the Board of Trade, he tries to get them to take up his proposals 209 00:23:38.760 --> 00:23:44.160 for coinage reform, but for various reasons that I don't have time to go into, the government 210 00:23:44.160 --> 00:23:45.840 doesn't come through. 211 00:23:45.840 --> 00:23:52.000 So what ends up happening as a result of these efforts of both Bolton on one hand and Thomas 212 00:23:52.000 --> 00:23:57.040 Williams on the other to get the government to buy their copper and mint coins with it, 213 00:23:57.040 --> 00:24:02.440 or get them, let them mint coins with it, is they've prepared the stage for a competitive 214 00:24:02.440 --> 00:24:07.240 of Coinage Industry, which ends up having 20 different mints in Birmingham producing, 215 00:24:07.240 --> 00:24:15.400 all told, 600 tons of copper coin, more coin than the, that's half again as much coin as 216 00:24:15.400 --> 00:24:22.520 the royal mint has produced, copper coin, in the last half century. 217 00:24:22.520 --> 00:24:27.900 Here are the mints, almost all of which began as button-making firms, or they were sidelines 218 00:24:27.900 --> 00:24:31.700 of button-making because the equipment you used to make a livery button was not much 219 00:24:31.700 --> 00:24:35.060 Much different from what you would need to make a good coin. 220 00:24:35.060 --> 00:24:40.020 The main difference being that you use both upper and lower dyes, right, and the button 221 00:24:40.020 --> 00:24:42.860 only has engravings on one side. 222 00:24:42.860 --> 00:24:43.860 And there you can see the amounts. 223 00:24:43.860 --> 00:24:48.580 It was a competitive industry dominated by several firms, the largest producer of all 224 00:24:48.580 --> 00:24:50.820 being the Paris Minement. 225 00:24:50.820 --> 00:24:56.500 But you also have small producers, not unlike many other competitive industries. 226 00:24:56.500 --> 00:25:01.940 and they produced coins which they did not for the most part issue themselves, rather 227 00:25:01.940 --> 00:25:07.900 they were specialty coin producers producing custom coins on order for hundreds of separate 228 00:25:07.900 --> 00:25:12.500 issuers, merchants, private individuals. 229 00:25:12.500 --> 00:25:16.720 The only thing that was common to all the issuers who were scattered around England 230 00:25:16.720 --> 00:25:20.900 but located mainly where there was a lot of industrial or retail activity as you would 231 00:25:20.900 --> 00:25:26.100 expect, the only thing they all had in common was reputations good enough to allow them 232 00:25:26.100 --> 00:25:33.100 They were well known, they had capital, they were issuing IOUs that would not have been accepted otherwise. 233 00:25:33.100 --> 00:25:41.100 They had no legal backing for their coins, they weren't legal tender for any amount, but they were beautiful, absolutely gorgeous. 234 00:25:41.100 --> 00:25:45.100 This happens to be my favorite, the Camarithan halfpenny. 235 00:25:45.100 --> 00:25:49.100 That shows you typical of the engravings, the beautiful designs. 236 00:25:49.100 --> 00:25:54.100 Mind you, this thing is as big as a quarter, right? This thing is as big as a quarter. 237 00:25:54.100 --> 00:26:01.620 Look at that, the forge hammers, the drop hammers, and there you see they're raking 238 00:26:01.620 --> 00:26:03.700 the coal in the furnace. 239 00:26:03.700 --> 00:26:07.980 The guy who designed this was one of Birmingham's best, a guy named John Gregory Hancock, and 240 00:26:07.980 --> 00:26:13.660 I had a quote describing this coin among others in the book that says something like, it was 241 00:26:13.660 --> 00:26:23.260 of course impossible to engrave heat, but nobody told Hancock. 242 00:26:23.260 --> 00:26:28.180 I'll just flash through these quickly, but aren't they wonderful? Every brick, right? 243 00:26:28.180 --> 00:26:40.980 Every brick. Power loom, hand loom, the famous rupture, iron bridge, inclined plane. 244 00:26:40.980 --> 00:26:45.880 Books have been written about how wonderful these coins are as illustrations of industrial 245 00:26:45.880 --> 00:26:51.720 activity during the Industrial Revolution, but the significance of the engravings for 246 00:26:51.720 --> 00:26:56.480 For us, this is how they contributed to the soundness of the coins, mainly by preventing 247 00:26:56.480 --> 00:26:59.160 outright counterfeits. 248 00:26:59.160 --> 00:27:00.520 You couldn't copy these. 249 00:27:00.520 --> 00:27:05.960 You might as well try and copy the Mona Lisa and get it right, because the artists had 250 00:27:05.960 --> 00:27:10.560 unique skills. 251 00:27:10.560 --> 00:27:11.960 So why did they do it? 252 00:27:11.960 --> 00:27:16.440 Well, there were a couple of motives for the high quality of the coins. 253 00:27:16.440 --> 00:27:19.960 One was advertising in a day when there was no print advertising. 254 00:27:19.960 --> 00:27:24.040 These coins were great PR for the issuers, and of course the more beautiful the better 255 00:27:24.040 --> 00:27:31.040 the PR. Another was float, to the extent that people could be encouraged to hoard the coins, 256 00:27:31.040 --> 00:27:35.600 collect them for example, why they'd stay out in circulation forever, and that would 257 00:27:35.600 --> 00:27:41.600 be float to the issuers, a source of profit. Finally though, and most significantly, the 258 00:27:41.600 --> 00:27:47.000 good engravings were for security, because they served to prevent the counterfeiting 259 00:27:47.000 --> 00:27:53.720 of IOUs, which if it could go ahead successfully would have bankrupted the issuers or at least 260 00:27:53.720 --> 00:27:59.160 expose them to a great risk of bankruptcy, and thus through the quality of their engravings 261 00:27:59.160 --> 00:28:05.520 the private corn producers solved the counterfeiting problem that had vexed the royal mint. The 262 00:28:05.520 --> 00:28:11.360 royal mint was operated under the belief that all you had to do was get the metal content 263 00:28:11.360 --> 00:28:16.480 right according to the law and you were done. Engravings, who cares about that? In other 264 00:28:16.480 --> 00:28:22.980 In other words, they acted as if their fiduciary coins could be produced on the same basis as full weight ones. 265 00:28:22.980 --> 00:28:30.480 Now with a full-bodied gold coin, if you get the gold right, then that's adequate security against counterfeiting 266 00:28:30.480 --> 00:28:36.980 because there's simply not much profit in counterfeiting the coin unless you make it underweight, which is itself easily detected. 267 00:28:36.980 --> 00:28:40.480 But in the case of fiduciary coins, it's a whole different story. 268 00:28:40.480 --> 00:28:44.980 It's the small change that requires the protection against counterfeiting, not the large, 269 00:28:44.980 --> 00:28:51.540 and the Mint could never figure that out or didn't care. 270 00:28:51.540 --> 00:28:56.060 Now there was counterfeiting of these coins, but it was a different kind of counterfeiting. 271 00:28:56.060 --> 00:29:02.780 It was counterfeiting aimed precisely at those collectors who the coins had inspired. 272 00:29:02.780 --> 00:29:07.700 They became wildly popular with collectors and this turned out to be kind of their own 273 00:29:07.700 --> 00:29:14.780 undoing as I'll explain in a moment, but what happened was there was a lot of production 274 00:29:14.780 --> 00:29:21.520 a phony coins that actually weren't duplicates of existing coins or replicas, but were designed 275 00:29:21.520 --> 00:29:25.580 to fool collectors into thinking that they had missed out on an authentic coin and they 276 00:29:25.580 --> 00:29:32.940 needed it to complete their collection, right? Lots of that stuff was made, like this 1784 277 00:29:32.940 --> 00:29:40.300 Paris mine druid. Hey, you can still read collector's articles saying, you know, I've 278 00:29:40.300 --> 00:29:50.540 They've all got a 1784, but the only problem is that the mint wasn't started until 1787. 279 00:29:50.540 --> 00:29:55.220 Then they started even making some that made fun of the collectors. 280 00:29:55.220 --> 00:30:01.960 This one says, asses running for half-pens. 281 00:30:01.960 --> 00:30:15.200 This one's better though, it says, we three blockheads be. 282 00:30:15.200 --> 00:30:21.000 So one of the complaints now, where does this myth that Jevons subscribed to that the private 283 00:30:21.000 --> 00:30:23.480 coinage was bad, where does it come from? 284 00:30:23.480 --> 00:30:28.540 Incidentally, it did solve the shortage problem and I have testimony to that effect. 285 00:30:28.540 --> 00:30:33.860 There were still packages of short-chain shortages, but nothing like the severe shortages that 286 00:30:33.860 --> 00:30:38.580 afflicted England throughout the rest of the 18th century and especially in the earlier 287 00:30:38.580 --> 00:30:40.840 years of the Industrial Revolution. 288 00:30:40.840 --> 00:30:43.260 So one of the charges was a lot of counterfeiting. 289 00:30:43.260 --> 00:30:49.660 It turns out that this charge is almost entirely due to confusing counterfeits aimed at collectors 290 00:30:49.660 --> 00:30:52.460 with counterfeits that enter circulation. 291 00:30:52.460 --> 00:30:55.840 The counterfeits that are aimed at collectors never circulate. 292 00:30:55.840 --> 00:31:02.800 They go right to unscrupulous dealers and get sold for well above their face value to 293 00:31:02.800 --> 00:31:04.800 gullible collectors. 294 00:31:04.800 --> 00:31:09.240 Just suppose that somehow one of these made it into circulation and you're a poor worker 295 00:31:09.240 --> 00:31:11.880 and it ends up in your pay packet. 296 00:31:11.880 --> 00:31:13.040 Should you feel awful? 297 00:31:13.040 --> 00:31:14.400 Have you been ripped off? 298 00:31:14.400 --> 00:31:15.400 No. 299 00:31:15.400 --> 00:31:19.440 You can sell it to a gullible collector too and make more than the thing is worth, but 300 00:31:19.440 --> 00:31:21.440 of course that never happened. 301 00:31:21.440 --> 00:31:27.320 There were actual counterfeits of some coins, but the extent of counterfeiting didn't hold 302 00:31:27.320 --> 00:31:30.280 a candle to the counterfeiting of regal coins. 303 00:31:30.280 --> 00:31:37.720 By the late 1780s, it was estimated that over 90% of the extensive regal copper coins in 304 00:31:37.720 --> 00:31:41.960 circulation were actually fraudulent, 90%. 305 00:31:41.960 --> 00:31:46.240 And we know from samples of the commercial coins that there weren't anything like that 306 00:31:46.240 --> 00:31:56.680 Another beef against these coins was that their circulation was limited, and it was 307 00:31:56.680 --> 00:31:57.880 in many cases. 308 00:31:57.880 --> 00:32:02.540 Some of them had practically a national circulation, like the Paris Mine Druids, which were redeemable 309 00:32:02.540 --> 00:32:07.620 after all in London, Liverpool and Anglesey, but in most cases they were just redeemed locally 310 00:32:07.620 --> 00:32:10.280 and they only circulated locally. 311 00:32:10.280 --> 00:32:15.400 Now bear in mind though, this is a time when your average worker never leaves town. 312 00:32:15.400 --> 00:32:21.800 These people, most of them never, you know, if you were in, let's say you were in Birmingham, 313 00:32:21.800 --> 00:32:26.840 you were unlikely to ever visit London and more so in a smaller town, so the fact that 314 00:32:26.840 --> 00:32:31.440 your pennies and half pennies were only useful locally was no problem for you, absolutely 315 00:32:31.440 --> 00:32:33.400 no problem at all. 316 00:32:33.400 --> 00:32:37.320 It also though, I mean it was also a check against them getting someplace where they 317 00:32:37.320 --> 00:32:42.000 couldn't easily be returned to their issuers because the circulation pattern was as if 318 00:32:42.000 --> 00:32:44.480 they circulated in a saucepan, right? 319 00:32:44.480 --> 00:32:49.760 If they went too far away from town, where they were issued, then they would tend to 320 00:32:49.760 --> 00:32:54.240 come back, because they would not be as readily accepted outside. 321 00:32:54.240 --> 00:32:56.320 It really wasn't a big problem. 322 00:32:56.320 --> 00:33:02.080 But the last complaint was more serious, which was that the intrinsic value of these coins 323 00:33:02.080 --> 00:33:03.800 was low and deteriorated. 324 00:33:03.800 --> 00:33:07.040 Now, first of all, it wasn't low to begin with. 325 00:33:07.040 --> 00:33:11.960 Paris mine druids, for example, had a higher copper standard, if that's the right word 326 00:33:11.960 --> 00:33:17.040 to use with a fiduciary money, it's arguable whether it is, but they had more copper in 327 00:33:17.040 --> 00:33:22.600 them than regal pennies, and so did most of the early provincial or commercial copper 328 00:33:22.600 --> 00:33:28.040 coins. However, in the course of the 1780s and early 1790s, the copper content tended 329 00:33:28.040 --> 00:33:34.400 to go down. But that wasn't a sign of the coins deteriorating, because what was happening 330 00:33:34.400 --> 00:33:38.600 at the same time as the price of copper was rising and sharply in connection with the 331 00:33:38.600 --> 00:33:46.760 and the vast usage of copper to mostly deceive ships after the outbreak of the Napoleonic 332 00:33:46.760 --> 00:33:47.760 Wars. 333 00:33:47.760 --> 00:33:50.960 Now, here's the thing with fiduciary money. 334 00:33:50.960 --> 00:33:56.360 If that copper content in value terms got too high, these coins would lose their fiduciary 335 00:33:56.360 --> 00:33:57.840 quality and guess what? 336 00:33:57.840 --> 00:34:01.240 They'd all be melted and you'd be back to shortages again. 337 00:34:01.240 --> 00:34:06.520 It's precisely the failure of the British government to keep its fiduciary money fiduciary 338 00:34:06.520 --> 00:34:11.020 that caused it to go out of circulation and gave rise to scarcity. 339 00:34:11.020 --> 00:34:13.820 So, what do you want the private issuers to do? 340 00:34:13.820 --> 00:34:21.520 Lower the copper content as the price rises to maintain a constant value of copper in the coins. 341 00:34:21.520 --> 00:34:28.420 Fortunately, I have a friend in England who managed to get statistics on vast amounts of copper coins 342 00:34:28.420 --> 00:34:32.320 and look at the weight characteristics, the copper weight characteristics by date. 343 00:34:32.320 --> 00:34:39.160 If you regress the weights against value, 90% of the reduction in value can be attributed 344 00:34:39.160 --> 00:34:41.860 to the increased price of copper. 345 00:34:41.860 --> 00:34:46.700 In other words, in value terms, the copper content was practically constant. 346 00:34:46.700 --> 00:34:52.000 They depreciated in terms of copper weight exactly the way you wanted them to, the way 347 00:34:52.000 --> 00:34:55.940 an ideal fiduciary money would depreciate. 348 00:34:55.940 --> 00:34:59.980 You didn't want the copper content to get too low because then the temptation to counterfeit 349 00:34:59.980 --> 00:35:01.060 would rise. 350 00:35:01.060 --> 00:35:02.060 But that didn't happen. 351 00:35:02.060 --> 00:35:06.060 stayed more or less constant. Everybody understand? 352 00:35:06.060 --> 00:35:12.060 But let's finally consider the market's verdict. This is a mistake on this slide. 353 00:35:12.060 --> 00:35:18.060 A magistrate went around the country, he was totally opposed to private coinage, 354 00:35:18.060 --> 00:35:24.060 and he was appalled to discover that when he went to the shops in all sorts of market towns, 355 00:35:24.060 --> 00:35:31.060 when he tried to pay with regal money, he was asked to pay twice as much as if he offered a local token. 356 00:35:31.060 --> 00:35:35.060 Twice as much, not three times, sorry about that. 357 00:35:35.060 --> 00:35:42.060 This is the market verdict on the private coinage, and folks, as far as I'm concerned, that's what's most important. 358 00:35:42.060 --> 00:35:46.060 These coins were preferred to the government stuff. 359 00:35:46.060 --> 00:35:55.060 And that Stockport resolution, I've already explained, it was not a resolution against private coins on the control. 360 00:35:55.060 --> 00:36:05.060 Well, I'm going to rush through the rest of my slides and talk rather quickly because I would like to be able to entertain some questions, but I do want to tell you, of course, what happened. 361 00:36:05.060 --> 00:36:13.060 Briefly, in 1797, a small French landing party invaded England. This was the Fishguard invasion. 362 00:36:13.060 --> 00:36:18.060 It triggered a run on the Bank of England, which forced the government to act on the coinage. 363 00:36:18.060 --> 00:36:23.620 on the coinage. It tried to do so at first by countermarking a bunch of old Spanish dollars 364 00:36:23.620 --> 00:36:28.780 the Bank of England had at its fault. You can see the little counter mark here. This 365 00:36:28.780 --> 00:36:37.780 is the Spanish King, that's the King of England. As some wag put it, the bank to make its dollars 366 00:36:37.780 --> 00:36:54.380 Boulton also got his regal coinage contract, so now he's coining for the British government 367 00:36:54.380 --> 00:37:00.940 at last, having had to settle for being a commercial coin maker for ten years. 368 00:37:00.940 --> 00:37:04.900 He was commissioned to make half pennies and tuppence coins. 369 00:37:04.900 --> 00:37:08.400 These are the Tuppence's shown more or less life-size. 370 00:37:08.400 --> 00:37:10.420 No, they weren't that big. 371 00:37:10.420 --> 00:37:11.380 But they were huge. 372 00:37:11.380 --> 00:37:12.420 They were about this big. 373 00:37:12.420 --> 00:37:16.260 They were nicknamed cartwheels, the most inconvenient coins 374 00:37:16.260 --> 00:37:19.300 probably ever made, unless you count some very tiny ones that 375 00:37:19.300 --> 00:37:23.780 were just as bad, almost as bad. 376 00:37:23.780 --> 00:37:25.460 Let's see. 377 00:37:25.460 --> 00:37:29.980 Then Soho said, let us over-strike the Spanish silver. 378 00:37:29.980 --> 00:37:33.380 And they did so very well, enough to almost disguise 379 00:37:33.380 --> 00:37:36.380 the underlying Spanish engravings. 380 00:37:36.380 --> 00:37:40.260 And so the government, the Bank of England said, oh, we're going to contract with SOHO 381 00:37:40.260 --> 00:37:41.660 for our silver. 382 00:37:41.660 --> 00:37:44.260 Well, what this does is gets the mint very upset. 383 00:37:44.260 --> 00:37:47.420 At first they were willing to tolerate private coinage, right? 384 00:37:47.420 --> 00:37:48.420 It's just copper. 385 00:37:48.420 --> 00:37:49.780 There's not much money in that. 386 00:37:49.780 --> 00:37:53.580 Uh-oh, now we have private production of silver coins. 387 00:37:53.580 --> 00:37:57.020 Next thing you know, they might start striking gold. 388 00:37:57.020 --> 00:37:59.140 Then we'll really all be out of the job. 389 00:37:59.140 --> 00:38:02.140 We'll lose our mint, right? 390 00:38:02.140 --> 00:38:24.140 So, the Royal Mint which had resisted reform for all those years, and here shown its original headquarters, you may recognize this building here, the Tower of London, perfectly good place for the state to exercise its despotic coinage policies. 391 00:38:24.140 --> 00:38:33.140 Here is the actual mint located like a bunch of barnacles against the walls, the inner walls of the mint. 392 00:38:33.140 --> 00:38:41.140 Here's how they struck coins, technology well over a hundred years old, several hundred years old, manual screw presses. 393 00:38:41.140 --> 00:38:52.140 And here's their new building. Bolton's automated mint cost him a cool 70,000 pounds, an incredible, exorbitant expense for a mint. 394 00:38:52.140 --> 00:39:02.140 unheard of. Disgusting. This mint had about the same capacity. It cost 300,000 pounds. 395 00:39:02.140 --> 00:39:07.340 There's the Bolton and Watt mint equipment, Bolton and Watt presses installed at the new 396 00:39:07.340 --> 00:39:14.560 Royal Mint. Yet, despite the new facility, coin shortages continued. Now, I should say 397 00:39:14.560 --> 00:39:20.100 this new facility didn't start cranking out many coins until the 1820s, but Bolton and 398 00:39:20.100 --> 00:39:26.060 and Soho was making lots of coins, but they were making them now according to old-fashioned 399 00:39:26.060 --> 00:39:27.860 government procedures. 400 00:39:27.860 --> 00:39:32.300 It wasn't that the coins were all that inferior, though you saw the tuppence cartwheel, it 401 00:39:32.300 --> 00:39:34.220 wasn't very pretty now, was it? 402 00:39:34.220 --> 00:39:39.220 But also the distribution system was the same crummy distribution system as before, where 403 00:39:39.220 --> 00:39:41.780 you had to get the coins at the mint. 404 00:39:41.780 --> 00:39:47.300 I'm sorry, I'm lying a little bit, a little bit. 405 00:39:47.300 --> 00:39:51.460 Walton actually had a distribution budget, unlike the Royal Mint before. 406 00:39:51.460 --> 00:39:56.020 So he had enough money to get these coins into circulation far away from the Mint. 407 00:39:56.020 --> 00:39:59.260 But then they would come back for the same reasons the old ones came back, and then there 408 00:39:59.260 --> 00:40:03.120 was no budget for getting them back out again, so they piled up in London again. 409 00:40:03.120 --> 00:40:07.360 They weren't redeemable, so you have the same basic problems. 410 00:40:07.360 --> 00:40:12.340 Also the war is causing massive amounts of silver coin to be exported overseas to pay 411 00:40:12.340 --> 00:40:16.680 for grain because of shortages in England and also to pay for Wellington's Peninsular 412 00:40:16.680 --> 00:40:19.080 Campaign. 413 00:40:19.080 --> 00:40:21.780 So you've got another round of private coinage, right? 414 00:40:21.780 --> 00:40:26.240 After the both Bolt and Regal coinage, you have a stop to private coinage, they expected 415 00:40:26.240 --> 00:40:29.400 to be banned, but it isn't. 416 00:40:29.400 --> 00:40:32.440 And now you have another round, and now they're producing silver coins. 417 00:40:32.440 --> 00:40:35.240 This is a six-pence penny coin. 418 00:40:35.240 --> 00:40:38.160 You can see the redeemability, right? 419 00:40:38.160 --> 00:40:42.640 One pound for 40 tokens, right? 420 00:40:42.640 --> 00:40:49.640 Now this fellow in Redding issues a gold token. Finally does it, right? 40 shilling. And this, 421 00:40:49.640 --> 00:40:54.360 by the way, is a fiduciary token. It actually had a face value above the gold content. But 422 00:40:54.360 --> 00:41:00.520 the threat, the implicit threat to the mint and to the government's coinage monopoly is 423 00:41:00.520 --> 00:41:05.240 unmistakable. And it was intended, by the way, to intimidate the government. 424 00:41:05.240 --> 00:41:11.040 So the Prime Minister, Spencer Percival, decides he's going to put an end to private coinage. 425 00:41:11.040 --> 00:41:17.960 This is too much, even though these coins are uniquely responsible for avoiding shortages. 426 00:41:17.960 --> 00:41:27.960 Percival never quite got around to pushing through his measure, but eventually a new 427 00:41:27.960 --> 00:41:34.040 government was formed and they took up the legislation, which passed through the commons 428 00:41:34.040 --> 00:41:40.880 relatively easily but met stern opposition in the House of Lords in the form of eloquent 429 00:41:40.880 --> 00:41:47.360 and arguments of the Earl of Lauderdale, James Maitland, who spoke out against the local 430 00:41:47.360 --> 00:41:52.720 tokens bill, the bill to suppress tokens, that is, quote, this is the most dangerous 431 00:41:52.720 --> 00:41:58.040 and mischievous measure which will create confusion and distress in the country by destroying 432 00:41:58.040 --> 00:42:03.120 the means of carrying on the retail trade, it being only through the medium of the small 433 00:42:03.120 --> 00:42:08.580 change afforded by these local metallic tokens that the retail trade in the country can at 434 00:42:08.580 --> 00:42:10.860 present be carried on. 435 00:42:10.860 --> 00:42:16.460 And to prove his point, Lauderdale sent petitions all around the country to various persons 436 00:42:16.460 --> 00:42:23.100 involved in issuing or using coins to ask them for their opinion about the coins and 437 00:42:23.100 --> 00:42:25.260 about the plan to suppress them. 438 00:42:25.260 --> 00:42:30.500 And he got dozens, dozens of replies which are all reproduced in a book of his called 439 00:42:30.500 --> 00:42:34.020 Further Considerations on the State of the Currency. 440 00:42:34.020 --> 00:42:39.320 A prize like this one sent from Bath in September 1812, quote, 441 00:42:39.320 --> 00:42:44.060 The local token circulated here may amount to about five and twenty thousand pounds, 442 00:42:44.060 --> 00:42:48.560 forming about two-thirds of the circulating silver change, the remaining third consisting 443 00:42:48.560 --> 00:42:54.200 of shillings and sixpences and of bank tokens, that is Bank of England tokens, nearly in 444 00:42:54.200 --> 00:42:55.780 equal quantities. 445 00:42:55.780 --> 00:43:00.900 So two-thirds of the money available for trade is the private local coins. 446 00:43:00.900 --> 00:43:05.140 It was very difficult to get a pound note changed even by taking 15 shillings worth 447 00:43:05.140 --> 00:43:07.920 of copper before tokens were issued. 448 00:43:07.920 --> 00:43:12.860 The people here are in general crying out, what shall we do for change when the tokens 449 00:43:12.860 --> 00:43:14.220 are called in? 450 00:43:14.220 --> 00:43:20.740 And there were dozens of pieces of testimony like this, and that's just a short excerpt. 451 00:43:20.740 --> 00:43:23.660 Nevertheless, the government suppressed the coinage. 452 00:43:23.660 --> 00:43:28.340 They put it off several times because they could see that the government was not at all 453 00:43:28.340 --> 00:43:31.340 All prepared to issue enough to make up for the lack of small change. 454 00:43:31.340 --> 00:43:40.580 Finally, they cracked down with this oppressive legislation that did away with silver tokens. 455 00:43:40.580 --> 00:43:44.180 It wasn't interpreted to affect the copper coins. 456 00:43:44.180 --> 00:43:57.220 However, an MP from Cornwall in Grenfell moved to suppress copper coinage. 457 00:43:57.220 --> 00:44:01.980 He was hoping to get a big issue of new regal coins, which was good for the copper interests 458 00:44:01.980 --> 00:44:04.580 in Cornwall. 459 00:44:04.580 --> 00:44:10.420 The new legislation suppressed all copper tokens with two exceptions, tokens issued 460 00:44:10.420 --> 00:44:15.620 by workhouses, including the Birmingham Workhouse, and they made these exceptions because the 461 00:44:15.620 --> 00:44:18.260 workhouses couldn't pay the poorer rates, right? 462 00:44:18.260 --> 00:44:22.620 They needed small change of paying out two or three pence, you know, or two or three 463 00:44:22.620 --> 00:44:25.020 shillings per week for poor people. 464 00:44:25.020 --> 00:44:26.380 It was welfare, right? 465 00:44:26.380 --> 00:44:31.880 Couldn't do that with large bills, so they exempted the workhouses for a couple of years. 466 00:44:31.880 --> 00:44:34.880 They grandfathered them for a couple of years. That begs the question, right? 467 00:44:34.880 --> 00:44:37.880 There are lots of poor people. There are lots of people who need change. 468 00:44:37.880 --> 00:44:42.380 What good does it do to just exempt two workhouses and two towns? 469 00:44:42.380 --> 00:44:47.380 The same reason why you would exempt them would be a good reason for exempting them all. 470 00:44:47.380 --> 00:44:49.880 But never mind. 471 00:44:49.880 --> 00:44:53.380 Oh well, I'm going to finish very quickly now. 472 00:44:53.380 --> 00:45:02.380 The new Mint finally tried to get its act together and one of the things they did was they hired a lot of the great Birmingham engravers who had been working for the private coinage industry. 473 00:45:02.380 --> 00:45:10.380 This is William Wyon's famous crown with the picture of George the third. 474 00:45:10.380 --> 00:45:18.380 George the fourth was not very happy with that likeness because it actually looked like him. 475 00:45:18.380 --> 00:45:28.080 I just want to say one thing on a technical matter. Tom Sargent and Francois Bell wrote 476 00:45:28.080 --> 00:45:32.100 a book on the small change problem and their story is, well, governments couldn't solve 477 00:45:32.100 --> 00:45:36.380 this problem because first they didn't have the right theory of how to make small change 478 00:45:36.380 --> 00:45:40.740 and then they didn't have the right technology and then along came Bolton with the steam 479 00:45:40.740 --> 00:45:45.220 presses and that solved it. Well, this is all wrong. First of all, there's nothing to 480 00:45:45.220 --> 00:45:49.460 To the theory of supplying small change, anybody could figure it out, unless you were a government 481 00:45:49.460 --> 00:45:50.460 mint. 482 00:45:50.460 --> 00:45:56.220 And as for the technology, if that theory were right, they needed steam presses, then 483 00:45:56.220 --> 00:46:00.060 these commercial coins, which were all good, should have all been produced with steam presses, 484 00:46:00.060 --> 00:46:01.220 except they weren't. 485 00:46:01.220 --> 00:46:05.260 Bolton's Soho Bint was the only one with steam presses. 486 00:46:05.260 --> 00:46:07.420 No other commercial mint used them. 487 00:46:07.420 --> 00:46:12.260 As an effort to prove that, I had to compile a pile of evidence, because when you criticize 488 00:46:12.260 --> 00:46:18.260 Last Time Sergeant, a single definitive piece of evidence won't do. 489 00:46:18.260 --> 00:46:24.900 So what I did was I went to, I located all the mints in Birmingham, these red dots are 490 00:46:24.900 --> 00:46:31.420 all the mints in Birmingham, as of the time of the commercial coinage episode, and then 491 00:46:31.420 --> 00:46:36.460 I located all the steam engines in Birmingham, it was only two steam engines before 1800, 492 00:46:36.460 --> 00:46:41.460 you see these, where's my dot, I can never see my own dot, you see these two here, these 493 00:46:41.460 --> 00:46:57.460 Those are the only two steam engines near any of the commercial mints. 494 00:46:57.460 --> 00:47:01.460 Now the Soho mint is out of town, but we know it had steam in it. 495 00:47:01.460 --> 00:47:08.460 So unless these mints had really long shafts going through, 496 00:47:08.460 --> 00:47:13.460 They couldn't possibly have had steam-powered facilities. 497 00:47:13.460 --> 00:47:17.460 Here, by the way, is a token issued by one of the bigger private mints in Birmingham. 498 00:47:17.460 --> 00:47:19.460 And as you can see, he puts a screw press on it. 499 00:47:19.460 --> 00:47:25.460 Would he put a screw press on his own token if he had a steam press to show off? 500 00:47:25.460 --> 00:47:27.460 Unlikely. 501 00:47:27.460 --> 00:47:33.460 The key requirements for good small change are these things, which are old-fashioned. 502 00:47:33.460 --> 00:47:36.460 But competition is the most important one. 503 00:47:36.460 --> 00:47:41.300 Without competition, you get monopoly pricing. When you have monopoly pricing, well then 504 00:47:41.300 --> 00:47:47.840 it's easy to make a profit counterfeiting the coins. Or, put it another way, for a merchant 505 00:47:47.840 --> 00:47:54.740 you can get the coins cheaper from a counterfeiter. So naturally you create a demand for counterfeits. 506 00:47:54.740 --> 00:48:00.700 The counterfeiters though couldn't beat the producers of legitimate commercial coins. 507 00:48:00.700 --> 00:48:06.060 They operated in the same competitive market and charged competitive prices. So now, instead 508 00:48:06.060 --> 00:48:12.860 Instead of having a choice, oh, do I go down to the tower and pay a penny to get myself 509 00:48:12.860 --> 00:48:18.380 a penny with half a penny's worth of copper and then bring it back, or do I buy a penny 510 00:48:18.380 --> 00:48:20.900 for half a penny from a counterfeiter? 511 00:48:20.900 --> 00:48:21.900 Let me think. 512 00:48:21.900 --> 00:48:22.900 Right? 513 00:48:22.900 --> 00:48:29.020 Now the choice is, do I buy a penny for half a penny from a counterfeiter, or do I issue 514 00:48:29.020 --> 00:48:35.020 my own coin that I buy for half a penny and have made legitimately with my name on it? 515 00:48:35.020 --> 00:48:46.020 Yeah, so that's competition doing it, right? And Tom Sargent's competition? What has that got to do with it? 516 00:48:46.020 --> 00:48:54.020 Well, they sold the Soho mint, unfortunately. Once the government reasserted its power through the new mint, they sold it off. 517 00:48:54.020 --> 00:49:02.020 And this is the auction actually held on April Fool's Day, 1851. Very sad. 518 00:49:02.020 --> 00:49:05.020 But the Birmingham Mint bought the equipment. 519 00:49:05.020 --> 00:49:07.020 Ralph Heaton and Sons bought the equipment. 520 00:49:07.020 --> 00:49:11.020 I'm sorry I don't have a quote, another quote from Jevons, right? 521 00:49:11.020 --> 00:49:14.020 And I'm going to end, I really promised to end now. 522 00:49:14.020 --> 00:49:18.020 Also in the Hayek thing, he quotes another passage from Jevons. 523 00:49:18.020 --> 00:49:20.020 Let me just read that. 524 00:49:23.020 --> 00:49:28.020 This is Jevons expressing his indignation about Spencer's proposal, 525 00:49:28.020 --> 00:49:35.420 Quote, that as we trust the grocer to furnish us with pounds of tea and the baker to send us loaves of bread, 526 00:49:35.420 --> 00:49:40.420 so we might trust Heaton & Sons or some other of the enterprising firms of Birmingham 527 00:49:40.420 --> 00:49:45.020 to supply us with sovereigns and shillings at their own risk and profit. 528 00:49:45.020 --> 00:49:49.820 Couldn't possibly do that, but here's a Heaton & Sons farthing. 529 00:49:49.820 --> 00:49:56.220 And Heaton & Sons actually produced massive amounts of official regal coinage in the late 18th century. 530 00:49:56.220 --> 00:50:00.740 Not only that, but as the Birmingham Mint limited, as the firm came to be known, they 531 00:50:00.740 --> 00:50:04.880 produced large numbers of euro coins, and they did it so much better that they submitted 532 00:50:04.880 --> 00:50:10.060 a bid for euro coins and blanks, and so did the Royal Mint, and the Royal Mint lost, because 533 00:50:10.060 --> 00:50:14.860 theirs were inferior. The Birmingham Mint produced a lot of the euros. The Royal Mint then violated 534 00:50:14.860 --> 00:50:18.540 a contractual agreement with the Birmingham Mint. The Birmingham Mint had always been 535 00:50:18.540 --> 00:50:23.300 making a profit all those years, no private money. The Royal Mint was being heavily subsidized. 536 00:50:23.300 --> 00:50:26.300 And guess what happened? They put the Birmingham Mint out of business. 537 00:50:39.300 --> 00:50:45.300 I managed to leave ten minutes for questions, which I'm happy to answer. 538 00:50:45.300 --> 00:50:49.300 But you can also find answers in my book, which is for sale in the store. 539 00:50:49.300 --> 00:50:58.300 Do you know what the metallic value of a current U.S. money is? 540 00:51:19.300 --> 00:51:29.300 Could you comment on the parallels between this episode and the American episode of Private Coinage? 541 00:51:29.300 --> 00:51:31.300 That's a very good point. 542 00:51:31.300 --> 00:51:33.300 You have to change for the Civil War. 543 00:51:33.300 --> 00:51:35.300 Yes, I will. 544 00:51:35.300 --> 00:51:44.300 The question was whether I would comment on the parallels between the British Private Coinage episode 545 00:51:44.300 --> 00:51:48.300 and that which occurred in California before the Civil War, mainly, right? 546 00:51:48.300 --> 00:51:56.300 Well, there was private gold coinage in the South and in the West, and then there was private small chain coinage throughout the world. 547 00:52:18.300 --> 00:52:25.800 And there's no evidence that the industry gave rise to Gresham's Law with inferior weight coins driving out superior ones. 548 00:52:25.800 --> 00:52:34.800 On the contrary, it seems that the mints that produced less coins that were inferior to the official standard, 549 00:52:34.800 --> 00:52:38.300 with respect to the official standard, went out of business pretty soon. 550 00:52:38.300 --> 00:52:41.300 During the Civil War, though, there were token coins issued. 551 00:52:41.300 --> 00:52:47.800 And that episode and some subsequent U.S. episodes resembled more the British experience I just talked about. 552 00:52:47.800 --> 00:52:57.800 So there are other episodes in the US, like the British one, and I do hope that people will do some more writing and research on these other private coinage episodes. 553 00:52:58.800 --> 00:52:59.800 Yes, Rita. 554 00:52:59.800 --> 00:53:15.800 I have a few questions for you. The first one is that you seem to have a theory that the issue of token coins always lies individually from a coin. Would it be possible to issue token coins on a 100% basis, if not, why not? 555 00:53:15.800 --> 00:53:44.800 The second question would be, you mentioned the fact that the coin producers had a conflict during the 1780s, the 90s. Why is this not, say, a residence law? And the last question is, well, I actually agree with your assessment of it, but in the lifetime you seem to assume that there can be permanent shortages on the free market. 556 00:53:44.800 --> 00:53:47.800 Can you explain to us how this is possible? 557 00:54:14.800 --> 00:54:19.800 The problem is, when you have a single standard unit of account, you can have a shortage of particular denominations. 558 00:54:19.800 --> 00:54:25.800 Imagine if the government said, we're going to monopolize the production of shoes for left feet, 559 00:54:25.800 --> 00:54:29.800 but we can have a free market and shoes for right feet. 560 00:54:29.800 --> 00:54:38.800 No matter what you do to the market price of shoes, you're going to have a problem if the government doesn't get its own supply right. 561 00:54:38.800 --> 00:54:49.800 So free market price will, you know, it'll adjust and in some sense create an equilibrium but you can still have a specific shortage of the undersupplied type of shoe. 562 00:54:49.800 --> 00:54:56.800 And similarly, when you monopolize, government monopolize the provision of all denominations of money, 563 00:54:56.800 --> 00:55:05.800 the market price may adjust to make up for a shortage of say the gold coins, right, by getting the price of gold right, 564 00:55:05.800 --> 00:55:11.300 But you can still have a denomination, a shortage of the silver and copper coins 565 00:55:11.300 --> 00:55:19.800 because the government is, in the same unit of account you can't have different price levels to equate the markets for all three. 566 00:55:19.800 --> 00:55:30.800 With regard to the 100% non-fiduciary token coin, yes, in principle I suppose you could have a merchant who says 567 00:55:30.800 --> 00:55:39.560 Because I'm going to keep 100% reserves on these coins and not earn any float from them. 568 00:55:39.560 --> 00:55:45.820 I'm going to just store up, lock up as capital that much specie or Bank of England notes 569 00:55:45.820 --> 00:55:47.920 or whatever the redemption medium is. 570 00:55:47.920 --> 00:55:53.720 But of course, this would have meant effectively that they would be taking losses on the provision 571 00:55:53.720 --> 00:55:58.560 of small coins because there are administrative costs involved, costs of paying your agent 572 00:55:58.560 --> 00:56:00.080 to redeem the coins. 573 00:56:00.080 --> 00:56:10.080 I seriously doubt that anyone would have gotten into the business under that constraint, though technically it's of course possible. 574 00:56:10.080 --> 00:56:19.080 And finally, with regard to the reduction in the copper content, no, I don't think that it gives rise to Gresham's Law here, 575 00:56:19.080 --> 00:56:28.080 because we don't have a situation where people are particularly concerned about the metallic content of the different coins. 576 00:56:28.080 --> 00:56:36.080 If the copper content gets too high in value terms, Gresham's Law will kick in because there will be a temptation to melt. 577 00:56:36.080 --> 00:56:47.080 But let's say you have two American pennies, one of which is really worth in commodity value only half a penny and the other is worth three quarters of a penny. 578 00:56:47.080 --> 00:56:55.080 That in itself won't give you much incentive to hold on to one or hoard it or pass it on. They're both fiduciary. 579 00:56:55.080 --> 00:57:00.480 you may trust the one with more copper in it or more metal because it's less 580 00:57:00.480 --> 00:57:06.840 likely to be fraudulent or be imitated but it doesn't have the same knife edge 581 00:57:06.840 --> 00:57:10.800 effect that overvaluation and undervaluation in the Gresham's Law 582 00:57:10.800 --> 00:57:36.800 A great variety of different firms issued tradesmen's or commercial coins, but as I said, the one thing they all had in common was that they were sufficiently reputable and known in their communities. 583 00:57:36.800 --> 00:57:49.800 Some were big factories, there were the workhouses, there were many retail firms, there were some non-profit type or social institutions that issued coins. 584 00:57:49.800 --> 00:57:59.800 There were some private individuals who did so, usually they were landowners, big landowners, freemen, freeholders. 585 00:57:59.800 --> 00:58:04.800 So it was quite a variety, there were hundreds of issuers in all. 586 00:58:04.800 --> 00:58:11.000 and all. Yes, banks got involved, but banks didn't play much of a role in the earlier 587 00:58:11.000 --> 00:58:16.240 episode simply because there weren't very many banks. But by the time of the second 588 00:58:16.240 --> 00:58:20.920 round with the silver tokens, many of those were issued by banks, including the one I 589 00:58:20.920 --> 00:58:23.920 illustrated on the screen. Yes? One question, to go back to what you were saying about the 590 00:58:23.920 --> 00:58:24.920 token coins. Instead of talking about token coins, let's talk about subsidiary coins. 591 00:58:24.920 --> 00:58:28.920 One question, you go back to what you were saying about the token coins. 592 00:58:28.920 --> 00:58:32.920 Instead of talking about token coins, let's talk about subsidiary coins. 593 00:58:32.920 --> 00:58:36.920 Are you saying that, for example, silver, if you just had gold and silver, 594 00:58:36.920 --> 00:58:39.920 and no fixed exchange rate between them or whatever, 595 00:58:39.920 --> 00:58:43.920 are you saying that the value of silver is so great 596 00:58:43.920 --> 00:58:49.920 that you couldn't make subsidiary coins of a small enough denomination? 597 00:58:49.920 --> 00:58:53.920 Because the silver content would be so small? 598 00:58:53.920 --> 00:59:13.920 I'm using subsidiary and token as synonyms. I mean the same thing by them. And yes, subsidiary silver coins, even those would get too small for the half-penny and farthing denominations. 599 00:59:13.920 --> 00:59:24.920 And they tried to do it with silver and we have instances in British experience where they issued teeny tiny silver coins and people didn't like them. 600 00:59:24.920 --> 00:59:27.920 They also tried with teeny tiny gold coins. 601 00:59:27.920 --> 00:59:42.920 But I mean, you could, I mean, you know, if you look at a silver dollar, you know, it's only about 70, a little bit over 75% silver content, so you could have a little bitty amount of silver in, you know, inside of a coin. 602 00:59:42.920 --> 00:59:46.920 But by that point, why not just use copper? 603 00:59:46.920 --> 00:59:49.920 Because silver wouldn't give it the value. 604 00:59:49.920 --> 00:59:56.920 No, nothing, neither metal gives it the value. That's what subsidiary coins, it's not the metal that gives them the value. 605 00:59:56.920 --> 01:00:01.920 It contributes to their cost of production. 606 01:00:01.920 --> 01:00:08.920 But if you're going to alloy the silver with copper, well, you could do that or you could just use copper.