The Private Supply of Money | George A. Selgin

they take particular pleasure in introducing my good friend George Celgene as the friedrich hayek lecturer professor Celgene is a BB&T professor of free-market thought at West Virginia University and professor of economics at the University of Georgia can I have one of those two jobs he's got two of them okay his specialties are macroeconomics monetary economics and monetary history and he's the author of numerous articles and books on these subjects his most recent book is needed up here good money Birmingham button makers the Royal Mint and the beginnings of modern coinage which is the story of private coinage in Britain in the early years of the Industrial Revolution is the seminal contribution to the historical literature one that brings to light a chapter of the Industrial Revolution has been largely unknown his lecture today will make the case for the full privatization of the production of money in society so I introduce to you George Celgene thank you Joe thanks everybody when Joe first asked me to give the Frederick Hayek lecture I was frankly a little bit worried you see it I I've been asked to do lectures in honor of famous economists who I admire on a number of occasions 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 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 and and of course I criticized Mises I pointed out that he had actually undermined his own case for a gold standard somewhat and as a result somebody who bear a very prominent a fan of von Mises wanted to suppress the the the article so this is terrible this is critical if Mises and of course I love von Mises a great fan of him but this is just my habit when I and it's my way of expressing admiration right so so then not long ago I was asked to participate in a panel at the the Cato monetary conference honoring Milton Friedman and and I and I'm very fond of Milton Friedman and and so I naturally gave a talk attacking him not really but saying that he had really failed to appreciate the the case for Burke getting rid of government monopolies and currency and after that talk somebody came up to me who was a big Friedman Knight and actually almost assaulted me I thought he's gonna punch me or something he said I should be ashamed of myself and I looked at him dumbfounded I said what for who should be ashamed of yourself it turned out that he he was was very upset that I had characterized Friedman as someone who didn't believe in the gold standard sorry I I couldn't help it but so when Joe asked me to didn't do this lecture I thought well they're gonna you know what am I going to do I've got to talk about about Hayek's work on money of course in privatisation of money and don't you know I sat down and started to make a list of all the places where hiya kid screwed up and and but then when I came here I I talked to I talked to Jeff Tucker I said now Jeff you know I could give this this this talk about tae ik and you know I probably make some critical remarks and Jeff said no no no no no I don't want you to do that you should talk about your recent book and I thought okay I can do that you know I think I can do that without being too critical so so here goes this is but I do want and but in fact I'll do more I can do better than that because I really do want to say some really nice things about hike if it weren't for hi at first of all this book wouldn't have been written there's no question this book would not have been written in fact I wouldn't be speaking here about anything because was only thanks to Hayek's work on the nationalization of money that I became interested in the subject of the competitive supply of money and it was Mort moreover a particular passage in India nationalization of money a very brief passage that I think rested in the back of my mind for all the years between when that book came out and I read it in 78 and the beginning of my research on this book that sponsored this this new project because Hayek refers very briefly to an exchange between Herbert Spencer the great Victorian polymath and William Stanley Jevons the great Victorian economist concerning the matter of private production of coins now let me step back a bit and tell you why I think coins are important a coins of course are our small change today in more than one sense their small change obviously in the literal sense of being small denomination money but they're also small change let's face it in representing a very minuscule component of national money supplies and so it's easy to dismiss coinage as being of trivial importance but I think that that's a mistake for two reasons first of all because historically coins were not so unimportant and indeed in the industrial revolution not only coins generally but the smaller denomination coins really provided the mass of the exchange media that that that allowed those econo economies in those days to function there's another reason why coinage is important because it was with the monopolization of mints that governments first usurped control of money and established the so-called prerogative of money that is the foundation for the entire apparatus of state control of money to this day and it is myths that have been promulgated since ancient times concerning how only governments can be relied on to mint coins and how the private production of coins will result in bad money driving out good that formed the basis for the precedent for modern state control of money now if the myth of coinage can be exploded if we can show that it is not in fact and never has been true that coins have to be supplied by the state or best supplied by the state then that in turn cuts the ground from the the most ancient beliefs that underlie the present existence of central banks and monetary regulation by the state anyway Spencer was one of the few prominent thinkers to ever question the idea that only governments Kings princes could supply money and here's a statement from him that is the exception to the usual beliefs I'll read it to you cos very important for those of you in the back so constantly have the ideas of currency and government been associated so Universal has been the control exercised by law givers over monetary systems and so completely have men come to regard this control as a matter of course that scarcely anyone seems to inquire what would result if it were if where it abolished perhaps in no case is the necessity of state supervision so generally assumed and in no case will the denial of that necessity caused so much surprise yet must the denial be made and Spencer went on to say that in fact private firms could do a better job supplying coins than governments do well this brought about the following reaction from Williamstown Stanley Jevons the great Victorian economist and he was a great monetary economist incidentally despite this 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 he has overlooked the important law of gresham that better money cannot drive out worse in matters of currency self-interest acts in the opposite direction to what it does in other affairs and if coining were left free those who sold light coins at reduced prices would drive the best trade in my opinion there's nothing less fit to be at left to the action of competition than money Germans went on moreover to point to an empirical episode which he implied proved his position to be correct quote for a long time the copper currency of England consisted mainly of tradesmen's tokens which were issued very lights and excessive in number the multitude of these depreciated pieces in circulation was so great that the magistrate's and inhabitants of Stockport held the public meeting and resolved to take no halfpence in future but those of the Anglesey company which we're a full-weight this shows if proof were needed that the separate action of self-interest was inoperative in keeping bad coin out of circulation I want you to remember this quote and that reference to the Stockport Resolution and the mysterious rent net reference to the Anglesey pennies and will see just how wrong Jevons was anyway it was this quote in this exchange that sparked my interest because of course here we had someone pointing to what appeared to be an actual episode of private coinage admittedly the person was saying that it was a disaster but not wishing to take his word for it I thought I would investigate well it turns out that the setting for the episode in question was a was of course the the it was the late of last half of the 18th century and that was a time when Great Britain faced a very severe shortage of money particularly small change now since I know we have many fans of deflation here who don't believe there can be many shortages even if you don't believe there can be a general shortage of money Barrett inch of specific denominations this is the problem in England it isn't a general shortage of money it's that there's no small change there's no small change and by small change I mean pretty much anything under five pounds if you want an equivalent imagine that we had nothing less than hundred-dollar bills today there are no checks and the average worker is lucky to make $50 a week and you have some idea of the severity of the change shortage that fake Great Britain faced and that's what it faced on the eve of the Industrial Revolution which began around 1760 which revolution was going to require a massive increase in a small change to meet the growing demands of Industry to pay workers and of retailers to make change this chart shows the total suction of small denomination money in England in the entire 18th century the red bars are copper the silver bars are some gray bars anyway and to make a long story short there's essentially no production after 1775 the last of the copper coins are produced for the rest of the century there's essentially no copper money there are little blips that are Maundy money for up for ceremonial purposes and silver is hardly produced there are a couple occasions where substantial quantities are produced for very special reasons on order by the Bank of England let me just explain briefly the reason for this lack of production of silver and copper in the case of silver it was a simple example of the operation of bimetallic legislation and most of you I think are familiar with the problem there where you have two metals defining the standard unit in this case the British pound sterling then the mint essentially prices each metal in terms of the same unit that sets up the the effective official exchange rate between the two medals well if that exchange rate differs from the world or market exchange rate whichever medal is relatively undervalued at the mint will no longer be brought to it to be kind and in the case of 18th century England the middle that was undervalued was silver so essentially with a couple rare exceptions no silver comes to the mint to be pardoned as for copper that was coined on government account that is the government arranged to buy the copper and have it minted if it wanted to but after 1775 it didn't mint anymore despite a very large demand for small change a lot made larger still by the lack of silver money so that copper would be needed as a substitute the reason though for the suspension of copper coinage was that the that copper coinage was being so aggressively counterfeited well there it was a two-fold reason one was that the copper coinage that well-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 and and this this illustration gives you some sense here are some george ii halfpennies of the kind that would have still been current at the end of the century and that supplied most of the official pennies on the left is a an official coin of a penny Halfpenny in good relatively good condition in the middle is what most of them actually looked like by 1780 and then finally on the right is a counterfeit I think any way you can hardly ever tell the difference and nobody much bothered to in the mint thought what's the point the other problem was that justice even though there were severe shortages 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 for retail payments and then wholesale payments most of it would end up at the breweries because most of these pennies were spent on on beer that's absolutely true by the way and copper by the way was legal tender up to six pence so the breweries would get it and he 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'd be starving for him but the mint were beginning 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 the transport was such an it wasn't effective to make side payments for industrialists in the north to arrange to have coins shipped from London that the cost of transport alone would have would have been more than the value of the money you see so what happens in the mid 1780s is that some british industrialists decide to try and prompt the government to reform the copper coinage particularly in the two industrialists who are playing a key role here our first Matthew Boulton of Fame of the famous as the partner of James Watt in the steam engine enterprise but also the biggest factory owner and the owner of the biggest Factory in the world and Thomas Williams the copper King who owned the biggest copper mine in the world at the time this is a picture of the angle see mines angle C remember angle C mentioned in jebin's quote the biggest copper mine in the world an open pit mine for the most part located on the island of Anglesey of the north coast of Wales 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 and Anglesey than in Cornwall the other major source of english copper 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 the government says no thanks so he coins for himself and these were the first of the private coins these are the Anglesey mine or Paris mine Druids this happens to be a penny later they would produce half pennies and if you look at the corn you can see an important feature of these coins this is not full-bodied money these are token money they circulated approximately twice the value of the copper they contained they are claims or io u--'s or fiduciary media fractionally back and it says and it makes very explicit right we promise to pay the bear on one penny and then if you were to look at the site the edges of these coins you would see the legend continue on demand in London Liverpool or Anglesey now what that actually meant in practice was you'd have to get 250 of them 250 right 250 two of them together and you would get yourself a gold Guinea or a larger number for a five pound Bank of England up Williams set up a mint first in Anglesey 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 tonnes anywhere and and they were wildly popular actually wildly popular remember the Jevens quote again the merchants refusing to accept anything but Anglesey coins right now Jevons wants you to believe that it's because all the other private coins were lousy but in fact the Stockport resolution was issued when these were the only private coins around it was a resolution to accept them and not official English coins from the Royal Mint Matthew Boulton was as I mentioned the owner of the biggest factory in the world and he got into copper coinage also in an effort at first to get the government to let him coin for it in anticipation of a government contract remember this is 1787 he built the most technologically advanced largest capacity mint in now this shows the mint actually as it was rebuilt later on in the 1790s no need to go into that but here's the main Soho building so a factory steam engines are made in the I'm sorry I can't see the dama steam engines are made in one of these yards here and up here is the soho mint as a sole mint as it was in the at the end of the 18th century the mint was in a remarkable achievement though not an easy one and not one that always worked the way it was supposed to this is the where the this is the coining press and it was steam driven so this is a shaft here here the biggest steam engine a rotary motion engine and that would turn the shaft in here and there would be this bevel gear and this armature would go around like a like a merry-go-round and trigger each of of these presses and each time it would go around each press would strike a corner and then they would pop out and this is the press right here the dies would be upper and lower right there and an amazing apparatus 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 here's one of the first steam struck coins now I showed you the the official regal coins and of course I showed them in the warned condition that most of them were in 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 most of whom started out engraving buttons coat buttons livery coat buttons now if you think a button is a lousy little thing that doesn't doesn't warrant having great engraving if they remember who's wearing these livery coats right they were they were there very very prestigious things and it was part of the way of showing that you had you know a good good servant if you just him up in the livery code and you can go see some of these livery buttons and museums extremely valuable in fact a lot of them are worth a lot more than any coin could could fetch containing the same metal anyway notice of the the corns tend to have industrial illustrations and we'll see some more prominent examples of that why did Bolton get into carnage the the standard story is that he was really just was a reformer he wanted to do something a you know help eliminate counterfeiting and he felt sorry for these counterfeiters who'll be released strung up on hansworth Heath and you know and in fact this story that was all about being public spirited is quite quite wrong and there was the resistance there was another smart immediate more prosaic interest involved here are so hos enterprises and to to make a long story short the plate company in the 1780s is not making much money neither is bar Bolton and scale who make the buttons a lot of this has to do with restrictions on trade that that were imposed in connection with the American conflict then there's the Albion mill which is the first steam-powered corn mill and it didn't fare very well either then then there is built in and watt steam engines now this is before this rotary engines are taking off they're not invented until about 1786 and so all the profits - Boulton and watt are coming from pumping engines in the Cornish mines the Cornish copper mines right the problem is and then Boulton and watt in addition owned a big interest a big stake in the mines themselves as well as depending on the royalties from the steam engines or they charge a royalty based on the fuel savings that characterized the watt engines compared to the Newcomb in atmospheric counterparts the problem is that Anglesey is producing copper at such a low cost right that the corniche mines are in danger of shutting down and there goes all the steam engine royalties there goes Soho so what's needed is something to get the price of copper up and so what Bolton's do Bolton's trying to do is get the government to coin thousands of tonnes a year right and let him do the coining but in any event get the copper from Cornwall and he's trying to exploit his interest in his connections in London to to arrange that and that's why he builds this fantastic mint unfortunately the government doesn't come through and instead there's a steam engine by the way that's a rotary motion engine see it's got a crank so it's not the right kind to show you what was in Cornwall crank and flywheel nevermind so anyway Bolton goes to the Board of Trade he tries to get them to take up his proposals for Cornish reform but for various reasons that I don't have time to go into the government doesn't come through so what ends up happening as a result of these these efforts of both Bolton on one hand in Thomas Williams and the other to get the government to buy their copper and mint coins with it or get them to let them in coins with it is they've prepared the stage for a competitive coinage industry which ends up having 20 different mints in Birmingham producing all tolled 600 tonnes of copper coin more coin than the that's that's half again as much coin as the Royal Mint has produced copper coin in the last half century here are the mints almost all of which began as button making firms where they were they were sidelines of bet making because the equipment you used to make a livery button was not much different from what you would need to make a good coin the main difference being that you you you use both upper and lower dies right and so a button only has engravings on one side and there you can see the amounts it was a competitive industry dominated by several firms the largest producer of all being the Paris mine mint but you also have small producers not unlike many other competitive industries and they produced coins which they did not for the most part issue themselves rather they were specialty corn juicers producing custom coins on order for hundreds of separate issuers merchants private individuals the only thing that was common to all the issuers who were scattered around England but located mainly where there was a lot of industrial or retail activity as you would expect the only thing they all had in common was reputations good enough to allow them to float their own money they were well known they had capital they were issuing IOUs that would not have been accepted otherwise they had no legal backing for their coins they weren't legal tender for any amount but they were beautiful absolutely gorgeous this happens to be my favorite the Polaris and half a halfpenny that that shows you typical of the engravings of beautiful designs mind you this thing's as big as a quarter right this thing's as big as a quarter look at that the forge the Forge hammers the drop hammers right in there you see they're breaking the cold and the furnace the guy who designed this was one of Birmingham's best and guy named John Gregory Hancock and I had a describing this coin among others in the book that says something like it was of course impossible to engrave heat but nobody told Hancock I'll just flash through these quickly but are they wonderful every brick every brick powerloom and Lou the famous rupture iron bridge inclined plain books have been written about how wonderful these coins are as illustrations of industrial activity during the industrial revolution but the significance of the engravings for us is how they contributed to the soundness of the coins mainly by preventing outright counterfeits you couldn't copy these you might as well try and copy the Mona Lisa and get it right because the artists had unique skills so why did they do it well there were a couple motives for the high quality of the coins one was advertised in a day when there was no print advertising these coins were great PR for the issuers and of course the more beautiful the better the PR another was float to the extent that people could be encouraged to hoard the coins collect them for example why they'd stay out in circulation forever and that would be float to the issuer as a source of profit finally though and most significantly the good engravings were for security because they serve to prevent the counterfeiting of IOUs which if it could go ahead successfully would have bankrupted or the issuers or at least expose them to a great risk of bankruptcy unless through the quality of their engravings the private corn producers solve the counterfeiting problem that had vexed the Royal Mint the Royal Mint was under the operated under the belief that all you had to do is get the metal content right according to the law and you were done engravings who cares about that in other words they acted as if their fiduciary coins could be produced on the same basis as full weight ones now with a full with a full bodied gold coin if you get the gold right then that's adequate security against counterfeiting because there's simply not much profit in counterfeiting the coin and unless you make it under weight which is itself easily detected but in the case of fiduciary coins it's a whole different story it's the small change that requires the protection against counterfeiting not the large and the mint could never figure that out or didn't care now there was counterfeiting of these coins but it was a different kind of counterfeiting it was counterfeiting aimed precisely at those collectors who the coins had inspired wildly cop a popular with collectors and this turned out to be kind of their own undoing as I'll explain in a moment but but what happened was there was a lot of production of phony coins that actually went duplicates of existing coins or replicas but where's designed to fool collectors into thinking that they had missed out on an authentic coin and they needed it to complete their collection right lots of that stuff was made like this 1784 Paris mine druid Hey you can still read collectors articles saying you know I've got a 1784 the only problem is that the mint wasn't started till 1787 and then they started even making some that made fun of the collectors this one says asses running after running for Halfpenny halfpence this one's better though it says we three Blockheads be so one of the complaints now where does this myth that Jevons subscribe to that the private coinage was bad where does it come from incidentally they did it did solve the shortage problem and I have testimony to that effect there were still packages of shortchange shortages but nothing like the severity severe shortages that afflicted England throughout the rest of the 18th century and especially in the earlier years of the Industrial Revolution so one of the charges is was a lot of counterfeiting it turns out that this charge is almost entirely due to confusing counterfeits aimed at collectors with counterfeits that enter circulation the counterfeits that are aimed of collectors never circulate they go right to unscrupulous dealers and get sold for well above their face value to do too gullible collectors now just suppose that somehow one of these made it into circulation and you're a poor worker and it ends up in your pay packet should you feel awful have you been ripped off no huh you can sell it to a gullible collector too and make more than the thing is worth but of course that never happened there where actual counterfeits of some coins but the the stent of counterfeiting was not didn't hold a candle to the counterfeiting of regal coins by 7 to 17 late 1780s it was estimated that over 90% of the stents of regal copper coins in circulation were actually fraudulent 90% and we know from samples of the commercial coins that weren't anything like that many direct counterfeit replicas of those many nothing like another beef against these coins was that their circulation was limited and it was in many cases some of them had practically a national circulation like the Paris mine druids which were redeemable after all in London Liverpool and Anglesey but in most cases they were just redeemed locally and they only circulated locally now bear in mind though this is a time when your average worker never leaves town these people most deliver you know if you if you were where in let's say you were in Birmingham you were not unlikely to ever visit London and more so in a smaller town so the fact that your pennies and halfpennies were only useful locally was no problem for you absolutely no problem at all it also though I mean it was also a check against them getting someplace where they couldn't easily be returned to their issuers because they circle the circulation pattern was as if they circulated in a saucepan right if they went too far away from town where they were issued and there that they were tend to come back because they would not be as readily accepted outside it really wasn't a big problem but the last complaint was more serious which was that the intrinsic value of these coins was low and deteriorated now first of all it wasn't low to begin with Paris mine Druids for example had a higher copper standard if that's the right word for to use with a fiduciary money it's arguable of whether it is but they had more copper in them than regal pennies and so did most of the early provincial or commercial copper coins however in the course of the 1780s and early 1790s the copper content tended to go down but that wasn't a sign of the coins deteriorating because what was happening at the same time as the price of copper was rising and sharply in connection with the vast usage of copper to to snow sleet achieve ships and after the outbreak of the Napoleonic Wars now here's the thing with fiduciary money if you if that copper content in value terms got too high these coins would lose their fiduciary quality and guess what they'd all melted and you'd be back to shortages again it's precisely the failure of the British government to keep its fiduciary money fiduciary that caused it to go out of circulation and gave rise to scarcity so what do you want the private issuers to do lower the copper content as the price rises to maintain a constant value of copper in the coins fortunately I have friend in England who managed to get statistics on vast amounts of copper coins and look at the weight characteristics of copper weight characteristics by date if you regress the weights against value 90% of that the reduction in value can be attributed to the decline in to the increased price of copper in other words in value terms the constant the copper content was practically constant they depreciated in terms of copper weight exactly the way you wanted them to the way an ideal stand fiduciary money would depreciate you didn't want the copper content to get too low because then the temptation to counterfeit would rise but that didn't happen it stayed more or less constant everybody understand but let's finally consider the markets verdict this is a mistake on this slide a magistrate went around the country he was totally opposed to private coinage and he was appalled to discover then when he went to the shops in all sorts of market towns when he tried to pay with regal money he was asked to pay twice as much as if he offered a local token twice as much not feet I'm sorry this is the market verdict on the private coinage and folks as far as I'm concerned that's what's most important these coins were preferred to the government stuff and in that stockport resolution I've already explained it was not a resolution against private coins on the control well I'm gonna 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 briefly in 1797 a small French landing party invaded England this was the fish guard invasion it triggered a run on the Bank of England which forced the government to act on the coinage it tried to do so at first by counter marking a bunch of old Spanish dollars the Bank of England had at its fault and you can see the little counter mark here this is a Spanish King that's the King of England as some wag put it the bank to make its dollars pass stamp the head of a fool on the head of an ass Bolton in the moat Bolton also got his regal coinage contract so now he's pointing for the British government at last having had to settle for being a commercial coin maker for ten years and he was commissioned to make half pennies and tuppence coins these are the tuppence has shown more or less life-size no they weren't that big but they were huge they were about this big they were nicknamed cartwheels most inconvenient coins probably ever made unless you count some very tiny ones that were just as bad almost as bad let's see then Soho said let us over strike the Spanish silver and they did so very well enough to almost disguise the underlying Spanish engravings and so the government cut the Bank of England said all we're gonna contract with Soho for our silver well what this does is gets the mint very upset at first they were willing to tolerate private cornish right it's just copper there's not much money in that oh now we have private production of silver coins next thing you know they might start striking gold then we'll really all be out of a job we lose our our mint right 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 here is the actual mint located like a bunch of barnacles against the the walls the inner walls of the man here's how they struck coins technology of well over a hundred years old several hundred years old manual screw presses and here's their new building Bolton's Bolton's automated Mint cost him a cool 70 thousand pounds an incredible exorbitant expense for a mint unheard-of disgusting this mint had about the same capacity it cost three hundred thousand pounds there's the Boulton and watt mints equipment Boulton and watt presses installed at the new Royal Mint yet despite the new facility coin shortages continued now I should say this new facility didn't start cranking out many coins until the 1820s but Bolton and Soho was making lots of coins but they were making them now according to old-fashioned government procedures it wasn't that the coins were all that inferior though you saw the tuppence cartwheel that wasn't very pretty now was it but also the distribution system was the same crummy distribution system as before where you had to get the coins at the mint I'm sorry I'm lying a little bit a little bit Bolton actually had a distribution budget unlike the Royal Mint before so he had enough money to get these coins into circulation far away from the mint but then they would come back for the same reasons the old ones came back and then there was no budget for getting him back out again so they piled up in London again they weren't redeemable so you have the same basic problems also the war is causing massive amounts of silver coin to be exported overseas to pay for grain because with shortages in England and also to pay for Wellington's Peninsular campaign so you've got another round of private coinage right after the both Bolton regal coinage you ever stopped the private corners is expected to be banned but it isn't and now you have another round and now they're producing silver coins this is a sixpence penny coin you can see the redeem ability right one pound for 40 tokens right now you spelling reading issues a gold token finally does it right 40 shilling and this by the way he's a fiduciary token it actually was meant had a face value above the gold content but the port the threat the implicit threat to the for the mint into the government's coinage monopoly is is is unmistakable and it was intended by the way to intimidate the government so the Prime Minister Spencer Perceval decides is gonna put an end to private coinage this is too much this is too much even though these coins are uniquely responsible for for avoiding shortages first of all never quite got around to pushing through his measure but but but eventually a new government was formed and they took up the legislation which passed through the the Commons relatively easily but Metis met stern opposition in the House of Lords in the form of eloquent arguments of the Earl of Lauderdale James Maitland who spoke out against the local tokens bill the builds suppress tokens that is quote this is a most dangerous and mischievous measure which will create confusion and distress in the country by destroying the means of carrying on the retail trade it being only through the medium of the small change afforded by these local metallic tokens that the retail trade in the country can at present be carried on and to prove his point Lauderdale sent petitions all around the country to various persons involved in issuing or using coins to ask them for their opinion about the coins and about the plan to suppress them and he got dozens dozens of replies which are all reproduced in a book of his called further considerations on the state of the currency replies like this one sent from Bath on in September 1812 quote the local tokens circulated here may amount to about five and twenty thousand pounds forming about two-thirds of the circulating silver change the remaining third consisting of shilling shillings and six and of bank tokens at his Bank of England tokens nearly in equal quantities so two-thirds of the money available for trade is the private local coins it was very difficult to get a pound note changed even by taking fifteen shillings worth of copper before tokens were issued the people here are in general crying out what shall we do for change when the tokens are called in and there was dozens there were dozens of pieces of testimony like this and that's just a short excerpt nevertheless the government suppressed the coinage they put it off several times because they could see that that that the government was not at all prepared to issue enough to make up for the lack of small change finally they cracked down with this oppressive legislation that did away with silver tokens it didn't it didn't it wasn't interpreted to affect the copper coins however an MP from Cornwall moved in Grint Grenville moved to suppress copper coinage he was hoping they got a big issue of new regal coins which was good for the copper interests of Cornwall the new legislation suppressed all copper tokens with two exceptions tokens issued by work houses one including the Birmingham workhouse and they made these exceptions because the work houses couldn't pay the par rates right they needed small change are paying out two or three pence you know or two or three shillings per week for poor people it was welfare right couldn't do that with large bills so they exempted though the work houses for a couple years I grandfathered him for a couple years the begs the question right there are lots of poor people there lots of people in need change what goodness is due to just exempt to work houses in two towns at the same reason why you would exempt them would be a good reason for exempting them all but never mind oh well I'm gonna finish very quickly now the the new mints 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's been working for the private coinage industry this is William Lyons famous crown with the picture of George the third that that swords the fourth and George the fourth was not very happy with that likeness because it actually looked like him the the I really want to say one thing on a technical matter a sergeant Tom Sargent and Francois vel wrote a book on the small change problem and their story is well governments couldn't solve this problem because first they didn't have the right theory of how to make small change and then they didn't have the right technique technology and then Along Came Bolton with the steam presses and that solved it right was it all wrong first of all there's nothing to the theory of supplying small change anybody could figure it out unless you were a government man and and the that's for the technology if it if that theory were right they needed steam presses then these these commercial coins which were all good should have all been produced with steam presses except they weren't bolton's soho bent was the only one with steam presses then note no other commercial mint used them and as an effort to prove that i had to compile a pile of evidence because when you criticize tom sergeant a single definitive piece of evidence won't do so what i did was i went to i located all the mints in birmingham these red dots are all the mints in birmingham as of the time of the commercial carnage episode and then i located all the steam engines in birmingham it was only two steam engines before 1800 you see these where's my dot i can't ever see my own dot you see these two here these two rectangles my fingers inside no no i i'm sorry i was blocking it a little bit wasn't okay yeah those are the two only two steam engines near any of the commercial mints now the supplement is out of town but we know it had Stephen so unless one these mints had really long shafts going they couldn't possibly it had still no power here by the way is a token issued by one of the bigger private mints in Birmingham and as a consid puts a screw press on it would he put us deep would you put a screw press on his own token if he had a steam press to show off unlikely the key requirements for a good small change are these things which are all fashioned but competitions the most important one without competition we all you get monopoly pricing when you have monopoly pricing well then it's easy to make a profit counterfeiting the coins and or but in another way for a merchant you can get the coins cheaper from a counterfeiter right so naturally you create a demand for counterfeits the counterfeiting counterfeiters though couldn't beat the producers of legitimate commercial coins they operated to the same competitive market and charged competitive prices so now instead of having a choice oh do I go down to the tower and pay you know a penny to get myself a penny with half a Penny's worth of copper and then bring it back or do I buy a penny for half a penny from a counterfeit er let me think right now the choice is do I buy a penny for half a penny from a counterfeit er or do I issue my own coin that I buy for half a penny and have made legitimately with my name on it yeah so that's competition doing it right and time sergeant competition what does that got to do with it well they sold this soho mint unfortunately once the government reasserted its power through the new mint they sold it off and this is the option actually held on April Fool's Day 1851 very sad but the Birmingham mint bought the equipment Ralph Heaton and Sons bought the equipment I'm sorry I don't have their little quote another quote from Japanese right and I'm going to end I really promise to end also in the Hayek that he quotes another passage from jebin's let me just read that just as Jevons expressing his indignation about Spencer's proposal quote that as we trust the grocer to furnish us with pounds of ste and the Baker to send us loaves of bread so in my trust Heaton and Sons or some other of the enterprising firms of Birmingham to supply us with sovereigns and shillings at their own risk and profit couldn't possibly do that but here's a hatin and Sons farthing and the Heaton and Sons provoked actually produced massive amounts of official regal coinage in the late 18th century not only that but as the Birmingham mint limited as the firm came to be known they produced large numbers of euro coins they did it so much better that they submitted a bid for euro coins and blanks and so did the Royal Mint the Royal Mint lost because theirs were inferior the Birmingham mint produced a lot of the euros the Royal Mint then violated a contractual agreement with the Birmingham Mint the Birmingham Mint had always been making a profit all those years no private money the Royal Mint was being heavily subsidized guess what happened they put the Birmingham Mint out of business I managed to leave ten minutes for questions which I'm happy to answer but you can also find answers in my book which is for sale mr. well until recently they were approaching it was approaching and had briefly surpassed a penny and then they would they change the metal content once again and now I don't know what it is but it's less than a penny again but they've had that problem several times now with the penny becoming worth more in as metal than as a penny and of course that then they get melted so the government said not solved the small change bubble yes yeah that's a very good point right yes I will so the question was whether I could would comment on the parallels between the British private coinage episode and that which occurred in in in California right before the Civil War mainly right and in the south yes okay all right so with regard to the gold coinage right the American antebellum experienced both after the gold rush in California and and before that after the discoveries of gold epilation discoveries there were private producers a full bodied gold coin and some of them produced very good coins and there's no evidence that the industry gave rise to Gresham's law with inferior wait coins driving out superior ones on the contrary it seems that the mints that produced less coins than that that were inferior to the official standard with respect to the official standard went out of business pretty soon during the Civil War though there were token coins issued and that that episode and some subsequent US episodes resembled more of the British experience I just talked about so there are other in the US like the British one and I do hope that people will do some more writing and research on these other private carnage episodes yes well let me take the questions in reverse order because I don't believe there can be permanent shortages in a free market the shortages I refer to the persistent shortages that that led to the private carnage episodes were of course not shortages in a free market but shortages due to the government monopoly of coinage and the consequent mismanagement of the coinage they persisted because the government's mistakes persist but I wouldn't characterize this the problem is when you have a single standard unit of account you can have a shortage of particular denominations imagine if the government said we're going to monopolize the production of shoes for left feet but then can have a free market and shoes for right feet no matter what you do to the market price of shoes you're gonna have a problem if the government doesn't get its own supply right so free market price will you know what it'll adjust and in some sense create an equilibrium but you can still have a specific shortage of the undersupplied type of shoe and similarly when you monopolize government monopolize the provision of all denominations of money the market price may adjust to make up for the shortage of say the gold coins right by getting the price of gold right but you can still have a denomination a shortage of the silver and copper coins because the government is that they can in the same unit of account you can't have different price levels to equate the markets for all three with regard to the hundred percent non-fiduciary token coin yes in principle I suppose you could have a merchant who says I'm going to keep a hundred percent reserves on these coins and not earn any float from them I'm gonna just store up lock up as capital that much specie or Bank of England notes or whatever the redemption medium is but of course this would have meant effectively that they would be taking losses on the provision of small coins because there are administrative costs involved costs of paying your agent to redeem the coins I don't I seriously doubt that anyone would have gotten into the business under that constraint though technically it's of course possible 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 because we don't have a situation where people are particularly concerned about the metallic content of the different coins you will if the copper content gets too high in value terms Gresham's law will kick in because there'll be a temptation to melt but let's say you have two American pennies one of which is really worth in commodity value only half the penny and the other is worth three quarters of a penny that in itself won't give you much incentive to to hold on to one or hoard it or pass it on they're both fiduciary you may trust the one with more copper in it or more metal because it's less likely to be fraudulent or be imitated but it doesn't have the same knife-edge effect that over valuation and under evaluation and the Gresham's law sense would have yes a great variety of different firms issued tradesmen's commercial coins but as I said the one thing they all had in common was of sufficient to be that they were sufficiently reputable and known in their communities some were big factories there were the work houses there were many retail firms there were some nonprofit type or social institutions that issued coins there were some private individuals who did so usually they were land landowners big landowners the freemen freeholders so it was quite a variety there were hundreds of issuers in all in it yes banks got involved but banks didn't play much of a role in the earlier episode simply because there weren't very many banks but by the time of the second round with the silver tokens many of those were issued by banks including the one I Illustrated on on the screen yes the value of silver is so great that you couldn't make subsidiary well first yeah I'm 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 for the penny and for the half penny and farthing denominations and they tried to do it with silver and we have instances in British experience where they issued tied teeny-tiny silver coins and people didn't like them they also tried with teeny-tiny gold coins you know about 70 a little bit over 75% so ver content well yeah but by that point why not just use copper no nothing neither metal gives it the value if that's what subsidiary coins it's not the metal that gives them the value it gives it and contributes to their cost of production but if you're gonna allow the silver with copper well you could do that or you could just use copper yeah thank you

Channel: misesmedia

Views: 17,839

Rating: 4.9331102 out of 5

Keywords: George, Selgin, Private, Money, England, Mint, Coin, History, Austrian, Economics, Ludwig, von, Mises, Institute, F., A., Hayek, Capitalism, Free, market, Liberty, Property, Peace

Id: -gn55fTRXZw

Length: 61min 27sec (3687 seconds)

Published: Mon Mar 23 2009

Reddit Comments

[u/JesusCripto]

George Selgin is an evolved Austrian. He's the one who is pioneering the development of monetary theory to include "synthetic" or "quasi" commodity monies, which is what Bitcoin is.

[u/Reefpirate]

He obviously pals around with Austrians, but he makes it fairly explicit at the start of the lecture that he has plenty of disagreements with the Austrian school. I just thought I should point that out in case some people are Austrian-phobic.

I thought it was a really cool history lesson on other cases where private actors took it upon themselves to create currency and how it worked. It reminded me a lot about what Bitcoin seems to be going through at the moment.

Through the perspective of this brief history I think you could easily understand how other players will inevitably get involved in the market for new 'digital' coins beyond Bitcoins, and basically this may be just the beginning of a wild ride of new digital currencies.