Toward the end of the seventeenth century the old hammered silver coinage accounted for the bulk of England’s circulating coinage. The coinage was worn and clipped, some dating back to Elizabeth I, effectively reducing the silver weight relative to the face value of each coin. Freshly struck milled coins disappeared as fast as they left the mint as Gresham’s law played itself out—bad money chasing out good. The milled coins, immune from clipping, enjoyed greater silver value and were far more beautiful.
Once the government committed itself to recoinage, two schools of thought rose up about the principles that should guide it. John Locke, the famous philosopher who influenced the American Revolutionaries, stood firmly in favor of maintaining the historical weight standard of English coins. Locke’s proposal required that the lost silver content of worn and clipped coins be restored in recoinage, substantially increasing the government’s costs. William Lowndes, secretary to the Treasury, proposed recoinage at a lower silver content for a given face value, bringing the silver content of freshly minted coins into line with the silver content of worn, clipped coins. Wear and clipping had on average cost the coinage 20 to 25 percent of silver content. Supporting Lowndes’s proposal were numerous historical precedents for stabilizing depreciated coins at current levels. Locke described the proposal to reduce the silver content relative to face value as “a clipping done by public authority, a public crime.” Lock was also concerned that reducing the silver content enabled the government to repay debt with cheaper money.
Sir Isaac Newton, another towering figure who was a player in this drama, served as warden of the mint during recoinage. Newton appears to have favored devaluation, and apparently foresaw that refusing to devalue would increase the amount of silver each gold coin would buy, increasing the value of gold at home, causing gold to flow in and silver to flow out.
Parliament sided with Locke, and the Act for Remedying the Ill State of the Coin, with minor exceptions, mirrored Locke’s views. The cost of the recoinage surpassed all expectations, totaling 2.7 million pounds, more than half of the government’s revenue. In the spirit of the Enlightenment, the government enacted a tax on windows to help pay for the recoinage. In addition to the Tower mint, several branch mints were pressed into service, and the recoinage was completed in three years.
The mechanics of the plan for calling in the old coinage caused no small amount of discontent. For a certain period of time, the government accepted at face value worn and clipped coins for the payment of taxes and government obligations. Landowners with
The act struck a blow for upholding the sanctity of a monetary standard, even at great expense, to protect the interest of creditors, especially when government was a major debtor. Newton correctly anticipated, however, that the act would put England on the road to the gold standard. Gold flowed into England, where it could purchase silver cheaply. The silver was then sold abroad at a profit.