The ecology of money, by Richard Douthwaite
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Box 4: Devaluation in Britain through the ages

Offa, the king of Mercia, issued the first silver coins minted in England, in 760AD, who decreed that 240 pennies should be made from a pound of silver. However, as a result of a series of reductions in its silver content, the value of the penny fell inexorably for the next thousand years. The first devaluation was carried out on the orders of William the Conqueror, who opened a mint at the Tower of London in 1067 and decreed that it would make its pennies out of a Tower pound of silver rather than a troy pound. The Tower pound was 6.5% lighter. He also reduced the purity of the silver itself to 925 parts per thousand. This became known as sterling silver, and coins were made from silver of this standard right up to 1920.

As coins were valued by number rather than weight, it was not just the rulers who had an incentive to reduce the amount of silver they contained - the users did too. They brought their reduction about by clipping or filing the coin's metal away to sell, despite the fact that, if detected, they were liable to the death penalty. It was only in 1663 that the Mint began milling each coin's edges to prevent this being done. Until then, to maintain their appearance, coins were periodically reminted but without adding any more silver.

The first major reduction in William the Conqueror's standard was in 1343, when the weight of a penny was cut from 22 grains of silver to 20.3. By 1346, it was 20, and in 1351, Edward III reduced it to 18 so that he could produce 293 pennies from every pound of silver. During the next 150 years, the weight of silver in a penny was halved, but the value of the metal in terms of other commodities rose so, as Adam Smith pointed out, the price of wheat scarcely varied from 6s. 8d a quarter throughout the period.

Then came the Great Debasement. In 1542, Henry VIII, sorely in need of funds to fight the French, told the Mint to add six ounces of copper to every 10 ounces of sterling silver it used to make pennies. A few months later, the amount of copper was increased to seven ounces per pound, then to ten, then to twelve and finally under Edward VI, to thirteen. The adulteration enabled the Mint to produce much more money than would otherwise have been possible. Prices doubled and Ket's Rebellion broke out in 1549 in protest against the domestic inflation. On the foreign exchanges, the pound lost over half its value. A proclamation that a shilling (12d) would henceforward be only worth 9d set off a national panic. It was left to Elizabeth I to call in all the debased coins, refine out the copper, and re-issue them as 100% sterling silver.

England's first gold coin (a gold penny twice the weight of a silver penny and worth twenty times as much) was issued in 1257 primarily for use in the export trade. Running two coinages whose external value was based on their content of different metals didn't work well. "Even the arrival of one Spanish treasure ship in Cadiz, or the departure of a silver-laden trader for the East, could shift the value-ratio between them by several points", Peter Wilsher wrote in his excellent history to mark the decimalization of the British currency.
25 This was a drag on commerce so Sir Isaac Newton was asked for his advice as Master of the Mint. He advised that silver should be dropped and fixed a price for gold, to which the value of all other coins was to be related. His advice was taken and as Wilsher states: "Trade and society flourished as never before".

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