Britain's single currency debate of the late 1860s∗

∗ The author wishes to thank the referees of this journal for their useful comments.

Abstract

Though a Royal Commission had rejected Britain joining the Latin Monetary Union, Robert Lowe, the Chancellor of the Exchequer, said he would recommend membership provided three conditions were satisfied. As these included a general adherence to the gold standard, nothing further came of it. But meanwhile there had been a complex public discussion of the subject, and the related topic of shrinking the pound coin so it weighed the same as the 25-franc piece. The debate shed much light on the contemporary state of value and monetary theory, and those who supported the changes had the best of it.

Keywords:

• Euro
• money
• Jevons
• Lowe
• coinage

Notes

∗ The author wishes to thank the referees of this journal for their useful comments.

1 Bagehot later proposed an Anglo-American monetary union which he believed Germany would want to join too, but the idea attracted very little support anywhere.

2 Jevons was opening up a weak flank here: if you substitute ‘silver and gold’ for ‘coin and bullion’ you have the precise argument Walras used to show Jevons was exaggerating the instability of a bimetallic system (Flandreau 2004: 15ff.).

3 Jevons' ally Colonel J.T. Smith picked up a point originally made by McCulloch, arguing that a mintage charge would also discourage people from turning sovereigns back into bullion and thus wasting the Mint's time. This is correct: a mintage charge would deter the coining of bullion in the first place, so there would be fewer coins to melt when demand switched back towards bullion again (J.T. Smith, ‘On gold coinage’, letter to The Times, 26 August 1869, p. 4).

4 Overstone started and ended in this position but in the second of his three contributions he condemned all mintage as ‘charg[ing] the creditor with the expense necessarily incident to the preparing or manufacturing that to which he has an absolute right’ (O'Brien 1971: vol. 3, 1182).

5 It was one of Overstone's objections to Jevons that he used ‘mintage’ (the cost of coining) and ‘seignorage’ (any profit above this) interchangeably.

6 Lowe was alleging that new sovereigns differed enough in weight for it to be profitable (under free coinage) to melt the heavier ones down and get them recoined. Both Lowe and Jevons purported to know of continental ‘melting establishments’ set up to do just this. However J.T. Smith claimed this would never be profitable, the bullionist Ernest Seyd poured scorn on the idea of such establishments and the Observer wanted to know why they would have to be located abroad (Lowe 1869: fo.83; Smith 1869: 6; Ernest Seyd, ‘Gold coinage’, letter to The Times, 14 September 1869, p. 10; Observer, 12 September 1869). It should however be noted that the possibility of melting down heavier coins could have driven a wedge between the exchange value of old and new pounds had they circulated concurrently (something Lowe was not proposing). I am grateful to one of the referees of the first draft of this paper for pointing this out, and discuss it below in note 20.

7 It was almost inevitable that someone would propose calling the new coin the ‘Lowe’, and now someone did (letter to The Times by ‘Par’, 13 September 1869, p. 6).

8 Lowe to Cardwell, 7 September 1869, Gladstone Papers Add. Mss. 44611, f.54.

9 Cardwell to Gladstone, 19 September 1869, Gladstone Papers Add. Mss. 44119, f.66.

10 Gladstone to Cardwell, 20 September 1869, Gladstone Papers Add. Mss. 44537, f.66.

11 Lowe's next letter to Gladstone was to request the abolition of the post of Master of the Mint, to save money. It is unclear why Einaudi sees Gladstone's reply, which is entirely about the affairs of the Mint, as an order to Lowe to ‘calm down’ on the European currency; though Gladstone's scrawl, which has caused Einaudi to read ‘establishment’ as ‘sovereign's weight’, is not helpful (Lowe to Gladstone, 11 October 1869, Gladstone Papers Add. Mss. 44301 ff.84 – 5; Gladstone to Lowe, 12 October 1869, ibid. Add. Mss. 44537, f.92v.; Einaudi 2000: 299).

12 At home, the pound coin would acquire a premium over an equal weight of bullion by virtue of the new mintage charge; in France it would acquire a similar premium by virtue of the existing French mintage charge which, for the first time, could be avoided by bringing in (internationally acceptable) coin rather than bullion (Jevons 1868: 431).

13 Einaudi (2001: 149) accuses the reformers of taking a position which implied that a coin could have two different values at the same time and in the same place. None of them implied any such thing, and the only person who apparently believed it was Lord Overstone, who was on the other side (see above).

14 ‘We agree with Peel in his definition of a pound – that it its nothing more or less than a certain weight of gold of a certain fineness, stamped by the State, and at the expense of the State, as a certification of its weight and fineness. [Mintage would] interfere with a principle of our currency on which Sir Robert Peel laid so much stress.’ (‘Mr Lowe's seignorage scheme’, Morning Advertiser, 23 August 1869, reprinted Crawford 1870: 7).

15 Several people pointed out that the Mint did not currently provide free coinage, given the considerable lag, and attendant opportunity cost, between its taking your bullion and returning it as coin. That was why the Bank of England could charge for exchanging coin for bullion and still get more custom than the Mint did. See James Aytoun, ‘The Chancellor of the Exchequer must be taught political economy’, Morning Advertiser, 14 August 1869, reprinted in Crawford (1870: 37).

16 See for instance ‘H.M.H.’, ‘The gold coinage’, letter to the Daily Telegraph, 9 October 1869, reprinted in Crawford (1870: 219). The Telegraph itself went further and maintained that any mintage charge was unjust: ‘The cost of our Mint is simply the tax which the nation contributes for supplying itself with one of the best coinages in the world. An impost more universal in its application, more fair in its incidence, it is difficult to imagine’ (editorial, 21 October 1869, reprinted in Crawford (1870: 200 – 2)).

17 L. Bruton, ‘The gold coinage’, letter to the Daily Telegraph, 13 October 1869, reprinted in Crawford (1870: 251 – 3); F. Hendriks, ‘Mr Lowe on the coinage’, Economist, 20 November 1869, reprinted in Crawford (1870: 295 – 6).

18 The Banque de France remained solidly in favour of bimetallism, the Senate voted against a gold standard, and the French government itself was split on the subject. See Einaudi (2000: passim).

19 Gladstone to Lowe, Gladstone Papers, British Library, Add. Mss. 44301 ff.35 – 6.

20 If pound coins of different gold content had circulated concurrently (something J.B. Smith was alone in proposing), there might have been enough demand for coins for melting that arbitrageurs would have exchanged 1.01 new sovereigns for each old one. This might even conceivably have led to dual pricing of goods in the shops. Had shopkeepers, however, priced goods which had previously cost £1 at £1 in old money and £1.01 in new, importers from abroad would have needed 1 per cent more bullion, or a claim on 1 per cent more bullion, to buy them (the net effect of the 1 per cent increase in prices, the 1 per cent mintage charge and the 1 per cent reduction in the size of the coin.) The resulting trade deficit and specie-flow effect would have brought prices down to £1 in new money and £0.99 in old, i.e. thanks to the mintage charge, the new coins would still have maintained the exchange value of the old ones prior to the change. Of course, the importers could have offered the old coins if available, and then the initial dual prices might have been a temporary equilibrium, but one which would only have lasted until all the old coins were melted down or the demand for coins to melt was satisfied.

21 Economist, 21 August 1869, reprinted Crawford (1870: 68 – 71); Daily Telegraph, 21 September 1869, reprinted Crawford (1870: 278); The Times, 19 October 1869, p. 8; Lowe to Cardwell, 7 September 1869, Gladstone Papers Add. Mss.44611 fo.54.