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English subjects paid their taxes in silver money—and anyone who could would offer the debased older coins to make up whatever sum was due.
The army’s paymaster, Richard Hill, tried to raise a loan in Brussels, but the sorry state of English money and credit forced him into months of work to secure the relatively modest amount of 300,000 florins.
instead of leaving England’s money with two different possible values—the “intrinsic” market price of its metal and its “extrinsic” denomination as some number of shillings and pence—those separate measures must be brought into agreement. To make this happen, Newton proposed raising the face value of the coinage by about one-quarter, so that, for example, the crown, a five-shilling piece in the old system, would now be worth six shillings three pence.
To modern ears, Newton’s proposal sounds utterly conventional. If something that can be traded is worth more in one setting than another—what would now be called an arbitrage opportunity—simply adjust the price until the disparity disappears. In London in 1695, though, this was genuinely disruptive reasoning.
Where Newton sought to force the silver coinage to adjust to shifts in the market for silver and gold bullion, Locke argued that silver, and silver alone, had a special property that made it the sole standard, the foundation on which England’s money rested.
Silver money, according to Locke, derived value not simply from the amount of metal within each coin but from its official, almost sacred nature as a unique measure of value.
TO THE HARD men of monetary politics, though, for all that Newton’s logic may have made sense, Locke’s touched the heart of the matter. Devaluing English coins would cost a very particular group of people a great deal of money. If new shillings were suddenly to contain about 20 percent less silver than the coins that preceded them, landowners would lose that much out of their rents.
(The fact that as long as clipped money circulated, government takings were about half their legally mandated weight of silver was ignored in the political maneuvering.)
Parliament approved the recoinage on January 17, 1696, mandating that the new coins conform to the standard weights of the prior issue—meaning that once again the new coins would hold more silver, measured in the amount of gold it could buy in Amsterdam and beyond, than they were worth when exchanged for gold coins in London.
In Plymouth, the government tried to pay the army in old, worn coin but backed down at the threat of mutiny, satisfying soldiers with provisions instead of cash.
With Neale out of the way, Newton ramped up the production line, ordering eight new rolling mills and five coining presses. At the height of the recoinage, in late 1696 and through 1697, Newton commanded about five hundred men and fifty horses driving the giant rolling mills. To ensure that his army of laborers wasted none of their efforts, he conducted perhaps the first time-and-motion study on record.
The Mint could not operate any faster than his men could spin their capstans, and every other step had to be timed to match the work of his presses. So Newton watched to “judge of the workmen’s diligence.”
Eventually, he identified the perfect pace: if the press thumped just slightly slower than the human heart, striking fifty to fifty-five times a minute, men and machines could stamp out coins for hours at a time.
Newton continued to drive his horses and men for the next two and a half years until the nation’s entire silver money supply had been remade. In all, under his command, the Mint recoined over £6 million—£6,722,970 0s. 2d., to be exact.
Newton, having spent the whole of his prior life as an essentially solitary thinker, proved to be a truly extraordinary administrator, bringing the effort home with accounts accurate to the penny and stunningly free of corruption.
Newton the counselor had anticipated the fate of Newton the warden’s best efforts: making coins that were worth more as metal than their face value could buy was a fool’s errand. The illegal money trade across the Channel resumed, ultimately forcing Britain—after Newton was able to revalue the golden guinea coin in 1717—to switch from silver to gold as its currency standard.
As Newton was managing the manufacture of almost £7 million of new coins, the English government matched that achievement by manipulating not metal but paper in a new species of loans that brought almost exactly the same sum onto the Treasury’s books.
English financial authorities created newly abstract forms of money to cover the cost of William’s wars, sums increasingly divorced from a direct connection to a coin jangling in a purse. Each pound the Treasury borrowed became for a lender a stream of income—the interest to be paid every year on that borrowed money, payable to anyone willing to trade hard cash for a piece of paper.
In the beginning, in the 1690s, such a science of money was still very much an aspiration. But the urgency of the moment drove what was becoming a financial revolution forward, as England’s monetary officials turned to more abstract—and more complicated—ways to extract funds to spend right now by the use of new forms of credit built on “mere opinion.”
the Nine Years’ War was not an isolated event. It was, rather, the first episode in an almost constant century of war. From William and Mary’s coronation in 1689 to Napoleon’s final defeat in 1815, soldiers and sailors from Britain and France fought each other for 76 of those 126 years.
In the last decades of the preceding dynasty, the Stuarts had kept only about fourteen thousand men under arms. Following the Glorious Revolution, the average muster of the army William sent to fight the Nine Years’ War topped seventy-six thousand.
Bluntly, William had taken on more than he could handle. Under his predecessor, James II, England had spent about £2 million a year. In the Nine Years’ War, annual spending ranged between £5 and £6 million—and even though the new monarchy managed to raise more revenue than the Stuarts had, official income averaged just £3.64 million per year.
ENGLISH MONARCHS HAD always borrowed. Even for the most prudent of rulers, governing costs money every day, while revenue from taxes, fees, harvests on crown lands—or forfeited property seized from unruly lords and too-worldly abbots—arrives only in its season, and not necessarily when it’s needed.
Though, as it evolved, England’s Parliament imposed restrictions on the crown’s prerogatives, including its ability to extract money from the realm by fiat, still, before the Glorious Revolution, those debts ultimately fell to the English throne and its occupant.
The resumption of the Dutch wars left King Charles II’s treasury unable to cover its bills in 1672—leading to the infamous Stop of the Exchequer, in which government suppliers and workers were told they could not be paid for the foreseeable future. It took decades to settle the claims produced by the Stop—and even then, the luckless lenders to the crown had to settle for just ten shillings to the pound, a cut of 50 percent of what they were due. Even
England’s new rulers—and all their successors—had to surrender any claim to the kind of absolute power asserted by the Stuarts. Instead, English sovereigns were required to “Governe…according to the Statutes in Parlyment Agreed on.” Most important: they were explicitly forbidden to raise money without permission from the legislature.
the new arrangement meant that in early 1692, three years into the Nine Years’ War, it fell to the House of Commons to figure out how to pay the swiftly ballooning bill.
In other words: create a kind of loan that people would be able to buy from or sell to others. Paterson accepted the challenge and came back with an unusual form of lending called a tontine.
As it turned out, the tontine structure was not terribly attractive to the English public. Almost 90 percent of the investors opted to receive the guarantee of the annuity, with its set, high rate of return, and tontines were rarely attempted again in Britain.
The ubiquitous Thomas Neale was a better pitchman than the more sober Paterson. He was a gambler to his core, from his days of chasing sunken treasure through his role as the king’s groom porter, in effect the court’s gaming floor boss.
To feed the Treasury’s need for more cash, he proposed a scheme he called the Million Adventure. The Adventure was a lottery, offering one hundred thousand £10 tickets in a drawing for a top prize of £1,000 a year for sixteen years. Neale’s twist was that after the prizes were distributed the tickets would turn into bonds, earning 10 percent annually for that same sixteen-year term.
All one hundred thousand of the Million Adventure’s tickets sold swiftly, the lottery was drawn and winners were named, and the Treasury got its million pounds, all in ample time for the summer campaigning season. But there were troubling hints for anyone paying close attention. The rates of return—double-digit interest on both the first two loans—reflect the sense of crisis evoked by the unprecedented cost of the war. But in the moment, what mattered was that England had discovered something genuinely new that could pay for its ambitions: in place of the personal obligations of untrustworthy
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the price of its charter was a £1.2 million loan to the state. That requirement turned the fledgling institution into something new on Europe’s financial landscape. Because those who made deposits with the bank could use the banknotes they received in return as cash in any transaction where the other party would accept it, the Bank performed what we now call fractional reserve banking.
The Bank of England, by contrast, both gave its depositors banknotes in return for deposits and could turn around and lend that same money to the government (following a practice already used by some private goldsmiths’ banks).
The assumption was (and is) that everyone won’t want to pull their money out of the bank at the same time, and it is thus possible to put the same pound or dollar of deposits to more than one use.* Such a fractional reserve approach puts more money into circulation, and it was one of the key innovations that helped William pay for his war.
In all, using slightly different forms between 1693 and 1698, England was able to borrow just over £6,900,000. It wasn’t always easy. The Treasury missed some payments on the Million Adventure tickets and on some of the other new debts. That made potential creditors wary, and in 1697, when the Treasury went to the public with another lottery offer, a £1.4 million draw that was to be funded by taxes on malt (and hence on beer), that Malt Lottery failed.
Compounding the fiscal crisis in early 1697, the recently chartered Bank of England couldn’t meet a new request for another long-term loan. The danger was clear. Experiments in money were just that. They could fail.
It had been a near-run race, but the idea of a permanent debt had worked—for two reasons. The first was obvious on its face: making the king’s debts the nation’s, guaranteed by a legislature chosen by the same people who could lend money to the state, gave lenders power that they had never had before: they could vote out England’s leaders if they dallied with the idea of reneging.
The second was more subtle but at least as vital. The various forms of borrowing invented over the last years of the seventeenth century shared one critical feature. They were all forms of property that, though vastly more abstract than a piece of land or a bolt of cloth, still existed as a claim on the future.
when the Treasury first began to borrow in this new way, it created not just a new, mostly secure form of state borrowing. The novelty, that fractions of a government loan could be bought and sold in a market in money, attracted clients who would not previously have been able to engage in national finance—effectively expanding the pool of those who would lend to the government, which in turn enabled further state borrowing and the expansion of the national debt.
it was the secondary market in financial paper that made it possible to turn emergency measures into ordinary statecraft. Such an exchange had begun to emerge before the national debt burst onto the scene, mostly trading in the shares of a handful of private businesses. The national debt supercharged that nascent financial market, distributed along Exchange Alley, a narrow, twisting passage just east of the Bank’s original headquarters.
Nothing remains of Jonathan’s today. Exchange Alley is itself a ghost: a narrow, deserted pedestrian corridor flanked by faceless office buildings from the High Banal epoch in British architecture. Even its name has shrunk, trimmed over the years to mere ’Change Alley.
Most of Smyrna’s devotees took their coffee in one of the city’s more than forty coffeehouses, described in a wonderful phrase by a French visitor, Jean de Thevenot, as “cabarets publics de cahue.” Edwards slipped into such local habits—but soon found himself more than commonly hungering for his dose, so much so that it was later recorded that he required as many as nine cups a day to satisfy his hunger.
Making coffee in the Turkish manner was an involved process: the raw beans had to be roasted, then ground into a powder. Water would be poured over that powder and brought to a boil, then allowed to relax, then reboiled as many as a dozen times until a thick, bitter brew remained. In London, Edwards introduced his habit to his friends and family, and they rallied to the strange new drink.
That a small business could be nurtured to profitability three and a half centuries ago wouldn’t usually inscribe much of a mark on time. But the opening of the first coffeehouse in the English-speaking world did more than expose Londoners to an exotic drink. London’s coffeehouses were the meeting places in which patrons discovered new ways of thinking.
At its worst, a seventeenth-century cup of coffee in London would be a hideous stew of burnt breadcrumbs, hickory, and, one hopes, some fraction of actual ground coffee beans.
Crucially, the coffeehouse temporarily suspended the usual social hierarchies.
The routine was much the same: a penny bought a seat; a dish of coffee; access to another novelty, the newspapers; and, as one chose, conversation with friends or with strangers, sometimes organized, often not.
The polymathic Robert Hooke, for example, traveled daily around a series of regular perches, with Jonathan’s Coffee House in Exchange Alley vying with Garraway’s, a few doors farther down the Alley, as his most frequent destination.
It’s even possible, perhaps likely, that the ultimate encounter between baristas and men of science reached its climax at Jonathan’s—if, as is plausible, Hooke there read the letter from Antoni van Leeuwenhoek in which the great microscopist first described the microstructure of the coffee bean.
