The Private Supply of Money

0:00When Joe first asked me to give the Friedrich Hayek lecture, I was frankly a little bit worried. You see, 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, 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, a very prominent fan of von Mises, wanted to suppress the article, say, this is terrible, this is critical of Mises.

0:52And, 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? So, then, not long ago, I was asked to participate in a panel at the Cato Monetary Conference honoring Milton Friedman. And I'm very fond of Milton Friedman. and so I naturally gave a talk attacking him, not really, but saying that he had really failed to appreciate the case for getting rid of government monopolies and currency. And after that talk somebody came up to me who was a big Friedmanite and actually almost assaulted me.

1:41I thought he was going to punch me or something and he said I should be ashamed of myself and I looked at him dumbfounded and said, what for, you should be ashamed of yourself. It turned out that he was very upset that I had characterized Friedman as someone who didn't believe in the gold standard. Sorry, I couldn't help it. So when Joe asked me to do this lecture I thought, well, what am I going to do, I'm I'm going to talk about Hayek's work on money, of course, and privatization of money. And don't you know, I sat down and started to make a list of all the places where Hayek had screwed up. But then when I came here, I talked to Jeff Tucker.

2:33I said, now, Jeff, you know, I could give this talk about Hayek. And, you know, I'd probably make some critical remarks. 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 here goes. But in fact, I can do better than that because I really do want to say some really nice things about Hayek. If it weren't for Hayek, first of all, this book 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 it was only thanks to Hayek's work on denationalization of money that I became interested in the subject of competitive supply of money.

3:26And it was moreover a particular passage in denationalization 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 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.

4:11Coins, of course, are small change today in more than one sense. They're 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 miniscule 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 allowed those economies in those days to function. There is 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

5:27bad 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 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. Anyway, Spencer was one of the few prominent thinkers to ever question the idea that only governments, kings, princes could supply money.

6:15And here is a statement from him that is the exception to the usual beliefs. I'll read it to you because it's 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 lawgivers 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 abolished. Perhaps in no case is the necessity of state supervision so generally assumed, and in no case will the denial of that necessity cause so much surprise. Yet must the denial be made.

7:00And 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 William 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.

7:52In my opinion, there's nothing less fit to be left to the action of competition than money. Jevons went on, moreover, to point to an empirical episode which he implied proved his position to be correct.

8:30and the Anglesey Company, which wear 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 reference to the Anglesey pennies. We'll see just how wrong Jevons was. Anyway, it was this quote, 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.

9:16Well, it turns out that the setting for the episode in question was of course the, it was the late last half of the 19th, 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 money shortages, even if you don't believe there can be a general shortage of money, there is a shortage 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. 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 were no checks and the average worker is lucky to make fifty dollars a week and you have some idea of the severity of the chain shortage that Great Britain faced. And that's what it faced on the eve of the industrial revolution which

10:24which began around 1760. Which revolution was going to require a massive increase in small change to meet the growing demands of industry to pay workers and of retailers to make change? This chart shows the total production of small denomination money in England in the entire 18th century. The red bars are copper, the silver bars are silver, 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 ceremonial purposes.

11:13And silver is hardly produced. There are a couple of 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. 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 an effective official exchange rate between the two metals. Well, if that exchange rate differs from the world or market exchange rate, whichever metal is relatively undervalued at the mint will no longer be brought to it to be coined.

12:04And in the case of 18th century England, the metal that was undervalued was silver. So essentially, with a couple of rare exceptions, no silver comes to the mint to be coined. 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, 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 copper coinage was 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.

12:59This 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. On the left is an official coin, a penny, half penny in relatively good condition. In the middle is what most of them actually looked like by the 1780s. And then finally on the right is a counterfeit. I think. Anyway, you could hardly ever tell the difference and nobody much bothered to and the mint thought, what's the point? The other problem was that just as, even though there were severe shortages 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.

14:09and 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. the cost of transport alone 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, and the two industrialists who are playing a key role here are first, Matthew Bolton, famous as the partner of James Watt

15:09not in the steam engine enterprise, but also the biggest factory owner, 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 Anglesey mines, Anglesey, remember Anglesey? Mentioned in Gevin's quote, the biggest copper mine in the world, an open pit mine for the most part, located on the island of Anglesey off 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 in 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.

16:01The 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 coin, you can see an important feature of these coins. This is not full-bodied money. These are token money. They circulated approximately twice the and the value of the copper they contain. They are claims or IOUs or fiduciary media, fractionally backed. And it says, and it's very explicit, right? We promise to pay the bear on one penny. And then if you were to look at the edges of these coins, you would see the legend continue.

16:48On demand in London, Liverpool or Anglesey. 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. 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, Jebbins refusing to accept anything but Anglesey coins, right?

17:44Now Jebbins 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 Bolton was, as I mentioned, the owner of the biggest factory in the world. 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 the world.

18:30This shows the mint actually as it was rebuilt later on in the 1790s, no need to go into to that. But here's the main Soho building, Soho factory. Steam engines are made in one of these yards here. And up here is the Soho mint, as it was at the end of the 18th century. The mint was a remarkable achievement, though not an easy one, and not one that always worked the way it was supposed to. This is the coining press, and it was steam driven. So this is 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,

19:35The 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 official regal coins, and of course I showed them in the worn 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.

20:20Now 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? 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. In fact, a lot of them are worth a lot more than any coin could fetch containing the same metal, anyway. Notice the coins tend to have industrial illustrations and we'll see some more prominent examples of that. Why did Bolton get into coinage?

21:06The standard story is that he really just was a reformer. He wanted to do something to help eliminate counterfeiting. He felt sorry for these counterfeiters who would be strung up on Hensworth Heath. And in fact, the story that it was all about being public spirited is quite wrong. And there was another more immediate, more prosaic interest involved. Here are Soho's enterprises. And to make a long story short, the plate company in the 1780s is not making much money. Neither is Bar-Boulton and Scale who make the buttons. A lot of this has to do with restrictions on trade that were imposed in connection with the American conflict.

21:54Then there's the Albion Mill, which is the first steam-powered corn mill, and it didn't fare very well either. Then there is Bolton and Watt steam engines. Now this is before the rotary engines are taking off. They're not invented until about 1786. And so all the profits to Bolton and Watt are coming from pumping engines in the Cornish mines, the Cornish copper mines, right? 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. They charge a royalty based on the fuel savings that characterize the Watt engines compared to the new common atmospheric counterparts.

22:41The 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. 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. and he's trying to exploit his interests and his connections in London 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, never mind.

23:33So anyway, Bolton goes to the Board of Trade, he tries to get them to take up his proposals for coinage 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 efforts of both Bolton on one hand and Thomas Williams on the other to get the government to buy their copper and mint coins with it, or get them, let them mint coins with it, is they've prepared the stage for a competitive of Coinage Industry, which ends up having 20 different mints in Birmingham producing, all told, 600 tons of copper coin, more coin than the, that's half again as much coin as the royal mint has produced, copper coin, in the last half century.

24:22Here are the mints, almost all of which began as button-making firms, or they were sidelines of button-making because the equipment you used to make a livery button was not much Much different from what you would need to make a good coin. The main difference being that you use both upper and lower dyes, right, and the 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 Minement. 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 coin producers producing custom coins on order for hundreds of separate issuers, merchants, private individuals.

25:12The 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 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 Camarithan halfpenny. That shows you typical of the engravings, the beautiful designs. Mind you, this thing is as big as a quarter, right? This thing is as big as a quarter. Look at that, the forge hammers, the drop hammers, and there you see they're raking the coal in the furnace.

26:03The guy who designed this was one of Birmingham's best, a guy named John Gregory Hancock, and I had a quote 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 aren't they wonderful? Every brick, right? Every brick. Power loom, hand loom, the famous rupture, iron bridge, inclined plane. 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 For us, this is how they contributed to the soundness of the coins, mainly by preventing outright counterfeits.

26:59You 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 of motives for the high quality of the coins. One was advertising 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 issuers, a source of profit. Finally though, and most significantly, the good engravings were for security, because they served to prevent the counterfeiting of IOUs, which if it could go ahead successfully would have bankrupted the issuers or at least expose them to a great risk of bankruptcy, and thus through the quality of their engravings the private corn producers solved the counterfeiting problem that had vexed the royal mint. The

28:05royal mint was operated under the belief that all you had to do was get the metal content right according to the law and you were done. Engravings, who cares about that? In other 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-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 unless you make it underweight, 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.

28:51Now 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. They became wildly popular with collectors and this turned out to be kind of their own undoing as I'll explain in a moment, but what happened was there was a lot of production a phony coins that actually weren't duplicates of existing coins or replicas, but were 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 collector's articles saying, you know, I've They've all got a 1784, but the only problem is that the mint wasn't started until 1787.

29:50Then they started even making some that made fun of the collectors. This one says, asses running for half-pens. This one's better though, it says, we three blockheads be. So one of the complaints now, where does this myth that Jevons subscribed to that the private coinage was bad, where does it come from? Incidentally, it did solve the shortage problem and I have testimony to that effect. There were still packages of short-chain shortages, but nothing like the severe shortages that afflicted England throughout the rest of the 18th century and especially in the earlier years of the Industrial Revolution.

30:40So one of the charges 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 at collectors never circulate. They go right to unscrupulous dealers and get sold for well above their face value to gullible collectors. 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. You can sell it to a gullible collector too and make more than the thing is worth, but of course that never happened. There were actual counterfeits of some coins, but the extent of counterfeiting didn't hold a candle to the counterfeiting of regal coins.

31:30By the late 1780s, it was estimated that over 90% of the extensive regal copper coins in circulation were actually fraudulent, 90%. And we know from samples of the commercial coins that there weren't anything like that 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.

32:15These people, most of them never, you know, if you were in, let's say you were in Birmingham, you were unlikely to ever visit London and more so in a smaller town, so the fact that your pennies and half pennies 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 the circulation pattern was as if they circulated in a saucepan, right? If they went too far away from town, where they were issued, then they would 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.

33:03Now, 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 to use with a fiduciary money, it's arguable 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 and the vast usage of copper to mostly deceive ships after the outbreak of the Napoleonic Wars. Now, here's the thing with fiduciary money.

33:50If that copper content in value terms got too high, these coins would lose their fiduciary quality and guess what? They'd all be 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 a friend in England who managed to get statistics on vast amounts of copper coins and look at the weight characteristics, the copper weight characteristics by date. If you regress the weights against value, 90% of the reduction in value can be attributed to the increased price of copper.

34:41In other words, in value terms, the copper content was practically constant. They depreciated in terms of copper weight exactly the way you wanted them to, the way an ideal 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. stayed more or less constant. Everybody understand? But let's finally consider the market's 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 that 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.

35:31Twice as much, not three times, sorry about that. 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 that Stockport resolution, I've already explained, it was not a resolution against private coins on the control. 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. Briefly, in 1797, a small French landing party invaded England. This was the Fishguard invasion. It triggered a run on the Bank of England, which forced the government to act on the coinage.

36:18on the coinage. It tried to do so at first by countermarking a bunch of old Spanish dollars the Bank of England had at its fault. You can see the little counter mark here. This is the Spanish King, that's the King of England. As some wag put it, the bank to make its dollars Boulton also got his regal coinage contract, so now he's coining for the British government at last, having had to settle for being a commercial coin maker for ten years. He was commissioned to make half pennies and tuppence coins.

37:04These are the Tuppence's 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, the 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, the Bank of England said, oh, we're going to contract with SOHO for our silver. Well, what this does is gets the mint very upset. At first they were willing to tolerate private coinage, right? It's just copper. There's not much money in that. Uh-oh, now we have private production of silver coins.

37:53Next thing you know, they might start striking gold. Then we'll really all be out of the job. We'll lose 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 walls, the inner walls of the mint. Here's how they struck coins, technology well over a hundred years old, several hundred years old, manual screw presses.

38:41And here's their new building. Bolton's automated mint cost him a cool 70,000 pounds, an incredible, exorbitant expense for a mint. unheard of. Disgusting. This mint had about the same capacity. It cost 300,000 pounds. There's the Bolton and Watt mint equipment, Bolton 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 and Soho was making lots of coins, but they were making them now according to old-fashioned government procedures.

39:27It wasn't that the coins were all that inferior, though you saw the tuppence cartwheel, it 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. Walton 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 them 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 of shortages in England and also to pay for Wellington's Peninsular Campaign.

40:19So you've got another round of private coinage, right? After the both Bolt and Regal coinage, you have a stop to private coinage, they expected to be banned, but it isn't. And now you have another round, and now they're producing silver coins. This is a six-pence penny coin. You can see the redeemability, right? One pound for 40 tokens, right? Now this fellow in Redding issues a gold token. Finally does it, right? 40 shilling. And this, by the way, is a fiduciary token. It actually had a face value above the gold content. But the threat, the implicit threat to the mint and to the government's coinage monopoly is unmistakable. And it was intended, by the way, to intimidate the government.

41:05So the Prime Minister, Spencer Percival, decides he's going to put an end to private coinage. This is too much, even though these coins are uniquely responsible for avoiding shortages. Percival never quite got around to pushing through his measure, but eventually a new government was formed and they took up the legislation, which passed through the commons relatively easily but met stern opposition in the House of Lords in the form of eloquent and arguments of the Earl of Lauderdale, James Maitland, who spoke out against the local tokens bill, the bill to suppress tokens, that is, quote, this is the 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.

42:10And 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. A prize like this one sent from Bath in September 1812, quote, The local token 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 shillings and sixpences and of bank tokens, that is Bank of England tokens, nearly in equal quantities. So two-thirds of the money available for trade is the private local coins.

43:00It was very difficult to get a pound note changed even by taking 15 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 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 the government was not at all 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 wasn't interpreted to affect the copper coins. However, an MP from Cornwall in Grenfell moved to suppress copper coinage.

43:57He was hoping to get a big issue of new regal coins, which was good for the copper interests in Cornwall. The new legislation suppressed all copper tokens with two exceptions, tokens issued by workhouses, including the Birmingham Workhouse, and they made these exceptions because the workhouses couldn't pay the poorer rates, right? They needed small change of 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 the workhouses for a couple of years. They grandfathered them for a couple of years. That begs the question, right? There are lots of poor people. There are lots of people who need change. What good does it do to just exempt two workhouses and two towns?

44:42The same reason why you would exempt them would be a good reason for exempting them all. But never mind. Oh well, I'm going to finish very quickly now. 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. This is William Wyon's famous crown with the picture of George the third. George the fourth was not very happy with that likeness because it actually looked like him. I just want to say one thing on a technical matter. Tom Sargent and Francois Bell 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 technology and then along came Bolton with the steam presses and that solved it. Well, this is all wrong. First of all, there's nothing to

45:45To the theory of supplying small change, anybody could figure it out, unless you were a government mint. And as for the technology, if that theory were right, they needed steam presses, then these commercial coins, which were all good, should have all been produced with steam presses, except they weren't. Bolton's Soho Bint was the only one with steam presses. No other commercial mint used them. As an effort to prove that, I had to compile a pile of evidence, because when you criticize Last Time 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 coinage 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 never see my own dot, you see these two here, these Those are the only two steam engines near any of the commercial mints.

46:57Now the Soho mint is out of town, but we know it had steam in it. So unless these mints had really long shafts going through, They couldn't possibly have had steam-powered facilities. Here, by the way, is a token issued by one of the bigger private mints in Birmingham. And as you can see, he puts a screw press on it. Would he put a screw press on his own token if he had a steam press to show off? Unlikely. The key requirements for good small change are these things, which are old-fashioned. But competition is the most important one. Without competition, you get monopoly pricing. When you have monopoly pricing, well then it's easy to make a profit counterfeiting the coins. Or, put it another way, for a merchant you can get the coins cheaper from a counterfeiter. So naturally you create a demand for counterfeits.

47:54The counterfeiters though couldn't beat the producers of legitimate commercial coins. They operated in the same competitive market and charged competitive prices. So now, instead Instead of having a choice, oh, do I go down to the tower and pay 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 counterfeiter? Let me think. Right? Now the choice is, do I buy a penny for half a penny from a counterfeiter, 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 Tom Sargent's competition? What has that got to do with it?

48:46Well, they sold the Soho mint, unfortunately. Once the government reasserted its power through the new mint, they sold it off. And this is the auction 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 a quote, another quote from Jevons, right? And I'm going to end, I really promised to end now. Also in the Hayek thing, he quotes another passage from Jevons. Let me just read that. This is Jevons expressing his indignation about Spencer's proposal, Quote, that as we trust the grocer to furnish us with pounds of tea and the baker to send us loaves of bread, so we might trust Heaton & Sons or some other of the enterprising firms of Birmingham to supply us with sovereigns and shillings at their own risk and profit.

49:45Couldn't possibly do that, but here's a Heaton & Sons farthing. And Heaton & Sons 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, and they did it so much better that they submitted a bid for euro coins and blanks, and so did the Royal Mint, and 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. And guess what happened? They put the Birmingham Mint out of business.

50:39I 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 in the store. Do you know what the metallic value of a current U.S. money is?

51:19Could you comment on the parallels between this episode and the American episode of Private Coinage? That's a very good point. You have to change for the Civil War. Yes, I will. The question was whether I would comment on the parallels between the British Private Coinage episode and that which occurred in California before the Civil War, mainly, right? Well, there was private gold coinage in the South and in the West, and then there was private small chain coinage throughout the world.

52:18And there's no evidence that the industry gave rise to Gresham's Law with inferior weight coins driving out superior ones. On the contrary, it seems that the mints that produced less coins 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 episode and some subsequent U.S. episodes resembled more the British experience I just talked about. 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. Yes, Rita. 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?

53:15The 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. Can you explain to us how this is possible?

54:14The 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 we can have a free market and shoes for right feet. 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. 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. And similarly, when you monopolize, government monopolize the provision of all denominations of money, the market price may adjust to make up for a 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, in the same unit of account you can't have different price levels to equate the markets for all three.

55:19With regard to the 100% non-fiduciary token coin, yes, in principle I suppose you could have a merchant who says Because I'm going to keep 100% reserves on these coins and not earn any float from them. I'm going to 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 seriously doubt that anyone would have gotten into the business under that constraint, though technically it's of course possible.

56:10And 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. If the copper content gets too high in value terms, Gresham's Law will kick in because there will 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 a penny and the other is worth three quarters of a penny. 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.

56:55you 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 overvaluation and undervaluation in the Gresham's Law 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. 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.

57:49There were some private individuals who did so, usually they were landowners, big landowners, freemen, freeholders. So it was quite a variety, there were hundreds of issuers in all. and all. 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 the screen. Yes? One question, to go back to what you were saying about the token coins. Instead of talking about token coins, let's talk about subsidiary coins. One question, you go back to what you were saying about the token coins. Instead of talking about token coins, let's talk about subsidiary coins. Are you saying that, for example, silver, if you just had gold and silver, and no fixed exchange rate between them or whatever, are you saying that the value of silver is so great that you couldn't make subsidiary coins of a small enough denomination?

58:49Because the silver content would be so small? 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. 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. They also tried with teeny tiny gold coins. 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.

59:42But by that point, why not just use copper? Because silver wouldn't give it the value. No, nothing, neither metal gives it the value. That's what subsidiary coins, it's not the metal that gives them the value. It contributes to their cost of production. But if you're going to alloy the silver with copper, well, you could do that or you could just use copper.