Newton and the Counterfeiter (15 page)

The difficulty stemmed from a change in the way Europeans made war on each other. In a land campaign, the contending armies engaged in a series of assaults on fortified positions. It was slow, indecisive, positional warfare, dominated by combat engineers and the artillery, interspersed with sudden bursts of intensely bloody face-to-face combat whenever the cannons managed to blow a breach in the opponent's defenses. Both sides responded to the resulting stalemate by ramping up their armed forces. Louis's France, at war for decades, had already boosted the size of its standing army. The English followed suit. From just 25,000 men under arms at the beginning of the war, William's army grew to about 100,000 by the mid-1690s.

Supporting militaries on that scale forced radical change, not just in the types of battles such oversized forces could fight, but in the way governments and nations organized themselves to pay for their ambitions. In England, the necessary changes turned on the conditions attached to William's rise to the throne. He held power not by hereditary succession but by the gift of an elected lawmaking body, the Convention Parliament. It was a carefully limited grant: the elected members held on to the power of the purse. William himself received a salary from the state, thus becoming the first monarch to serve as the most prominent member of what was just becoming a professional civil service.

And most of what that nascent civil service did was to figure out ways to extract from the English people the money needed to run the ever more ambitious national government. William's revenue-collecting bureaucracy tried land taxes, customs duties, excise charges. In 1691, Parliament passed a bill authorizing a levy of more than i.6 million pounds to pay for "the Carrying on a Vigorous Warre against France." As a sign of the growing reach of the government, it appointed tax commissioners in cities and counties all over England and Wales—among them, for "the University and Towne of Cambridge," a Mr. Isaac Newton. The government borrowed as much as it could, much more than any previous English administration. William's ministers created a whole new kind of debt, an early form of government bonds, in 1693, raising a million pounds in one issue, more in another. It still wasn't enough to feed and arm the troops needed in the field, so in 1694, Parliament chartered the Bank of England. By the end of 1695, the Bank had already lent the government i.2 million pounds.

Even such enormous sums were not enough. By the mid-1690s, spending on the war exceeded government tax income. Worse, the export of good silver money as bullion, and the assault of the clippers and coiners, meant that the government collected much of its income in coins so debased that no private trader—and, crucially, no foreign banker—would accept them at face value. By 1695, the exchange rate for English silver currency in Amsterdam was dropping steadily. By midsummer, the cost of the war had affected both high finance—the ability of the government to raise large sums through loans—and the basic supply of hard cash, all that English silver that had vanished from the coinage. Put the two together, and William's army was perilously short of money.

The crisis could not have come at a worse moment. Taking Namur would be both a strategic and a symbolic victory, but not if William could not press his campaign there. Absent a ready supply of money from London, it fell to the army's paymaster, Richard Hill, to find some cash fast. He traveled to Brussels to solicit funds from the rich banking community there, but it took him months to secure a loan of 300,000 florins, explicitly because of the state of English government finances. The money did reach the army before it dissolved into rabble, and Namur fell on the fifth of September, but the war dragged on. For reasons of state, perhaps, and certainly of personal vanity, Louis XIV would not enter serious peace negotiations in the wake of a very public defeat. So, as the campaigning season ended in late 1695, it was clear that the war would resume the following spring—unless one of the combatants happened to go bankrupt in the meantime.

The implications were obvious, certainly to William and his government. If England were to continue to fight, it needed a stable currency. When William opened the session of the House of Commons on November 26, 1695, he almost begged its members to respond to the currency crisis.

He began with apparent diffidence, acknowledging that it was a "great Misfortune, That, from the Beginning of my Reign, I have been forced to ask so many, and such large, Aids of my People." But, he warned, there was to be no relief. "I am confident you will agree with me in Opinion," William said, "That there will be, at least, as great Supplies requisite for carrying on the War by Sea and Land this Year, as was granted in the last Session"—more, in fact, for "The Funds which have been given, have proved very deficient." William acknowledged the "great Difficulty we lie under at this time, by reason of the ill State of the Coin." Fixing that problem would cost yet more money the government did not really have, but this was "a matter of so general concern, and of so very great importance, that I have thought fit to leave it entirely to the consideration of the Parliament."

It was a neat display of rhetorical jiu-jitsu. The King modestly deferred to the Commons—he was, after all, monarch by grace of Parliament's vote—to figure out who should suffer to fund his unpopular war. But the question remained: what could the government actually do to prevent the sale of English silver to the highest bidder?

Hence Lowndes's plea for help, and the answers that came in from the good and the great—among them Isaac Newton.

T
O NEWTON, WORKING
through the problem Lowndes had set, one fact was obvious. Though he did not put it in quite this language, it was clear that currency criminals were rational actors responding to an uncomplicated set of incentives. Silver clippings represented pure profit, as was the margin harvested abroad for full-weight minted shillings. Human beings would continue to take those gains unless compelled by coercion or a change in the marketplace. The problem was as straightforward as the simplest of equations.

Newton also understood that force alone could not eliminate the smuggling of bullion, given that the crime of clipping persisted despite the death sentence it carried. So he turned his attention to the source of profit in the illegal silver trade, and came up with two measures that could destroy the elementary economic logic behind the assault on England's coins. First the nation had to get rid of its old, worn, increasingly debased currency. To do so, Newton and many others recommended a complete recoinage. All of England's silver money, old and new, was to be called back in to the Mint, melted down, and remade into a single, consistent, edged issue. That step alone would mostly solve the clipping problem. With no more hand-hammered, smooth-edged money in circulation, it would become exceedingly difficult to shave much metal from the new coins.

But without a shift in the ratio of weight to face value of the new coins, reminting England's money would not curb the relentless flow of silver across the Channel. To solve that problem,
Newton argued, it was essential "to make Milled money constantly of the same Intrinsick & Extrinsic value, as it ought to be and thereby to prevent the Melting or Exporting it." That is, instead of two different sources of the value implied by a coin—the "intrinsic" market price of its metal and the "extrinsic" value imparted by the stamp of the head of a monarch that transformed an ordinary disc of metal into legal tender—these separate measures must be brought into agreement. With silver and gold both being used as money, this meant altering the relative value of the two. In this case, when England's silver bought more gold on the Continent than it could buying guineas at face value, that meant lowering the amount of silver per shilling—making Dutch or Spanish gold more expensive as counted in English silver money. Such a devaluation, performed correctly, would eliminate the price differences exploited so successfully by the currency buccaneers.

Lowndes, the leading public figure arguing for devaluation, welcomed Newton's reasoning and support. He still found it hard to make his case, because at its core was a radically modern thought: the King's imprimatur was a mere fiction and not the working of a kind of magic that determined the absolute worth of a given piece of silver. By Newton's logic, the word "shilling" could be thought of as no more than a convenient way to express what a given amount of silver bullion was worth as a commodity. In that view, units of currency—shillings, half-crowns, guineas—could not be absolute statements of value, extensions of the divine authority of kings. Instead, they were relative claims of the prices of quantities of metal—of anything—and those values could change with every shift in conditions in the real world.

Thus, lurking within the argument for devaluation lay a genuinely unsettling idea. Money need not be seen as merely a thing, a tangible object jangling in one's purse. It could be understood as a term in an equation, an abstraction, a variable to be analyzed mathematically—as in fact skilled traders had been doing more or less explicitly every time they played the markets in Holland against those in London.

Newton himself did not at first grasp the full implications of his analysis. He still had moments when he thought that the government could, on its own, fix a value for England's silver. He told Lowndes that after devaluation, any dealer who offered a higher price for silver by weight than the face value of the same weight of milled money should be jailed "till the Party offending shall give an Account of himself." But the underlying logic of his discussion of the two sources of value led implacably to the conclusion that devaluation was the only way out of England's currency predicament.

This was a thought too far—if not for Newton, then for most of his colleagues. The unquestioned leader of the anti-devaluation forces was John Locke. To be sure, Locke recognized the need to recoin; the miserable state of the clipped coinage was as obvious to him as it was to anyone in England. But apart from melting down old silver to mint new coins, all else—the old weight and face values for each denomination—should remain constant. To do otherwise, he argued, would violate the very nature of money. After all, changing the number associated with a coin, calling a crown-weight piece of silver seventy-five pence instead of sixty, for instance, would not make that coin buy more silver bullion than it had previously. "I am afraid no body will think Change of Denomination has such a Power."

Locke's argument is correct; it is merely another way of stating the fact of devaluation: a devalued silver shilling contains and buys less silver metal than a higher-silver-content one did yesterday. But that was beside the point. The reason silver escaped to Amsterdam was because each transaction brought more Dutch gold than the same weight of silver stamped into shillings and crowns could buy in England. Nonetheless, Locke denied that units of money—shillings or pounds or pistoles, for that matter—could be subject to a market of their own, varying in price just like any other commodity. Lowndes was his chief target, but Locke did not flinch from contradicting his dear friend as well. In direct rebuke to Newton's thinking, he wrote, "Some are of the opinion that this measure of commerce [the currency], like all other measures is arbitrary, and may at pleasure be varied, by putting more or fewer grains of silver in pieces of a known denomination." Not so, he claimed. "But they will be of another mind when they consider that silver is
a matter of nature different from all other
" (italics added). It was, he said, "the thing bargained for as well as the measure of the bargain." To Locke, silver was unique in the material world: alone in nature it was the fixed center around which all else learned its worth.

Newton was right, but Locke grasped what his friend did not. Devaluation was a weapon aimed at the moneyed, and especially the landowning class—those whose rents would fall by the amount of silver shaved from the legal measure of a shilling piece. Since 1691, Locke had defended a permanently fixed monetary system as a matter of social necessity, a guarantor of the stability of the state. Now he argued that devaluation would "only serve to defraud the King, and a great number of his subjects, and to perplex all." In hard numbers, landlords and the government stood to lose twenty percent under the proposal advocated by Newton and Lowndes.

Locke's view won, of course. When on January 17, 1696, Parliament finally approved the recoinage, it stipulated that the new coins retain the old weights. Four days later, King William gave his royal assent to the act.

There was a pause before recoinage began in earnest. Absent some compelling reason to go to London, Newton simply stayed put, as he had for most of the preceding three decades. But on March 19, he received a letter from Charles Montague, Chancellor of the Exchequer, notifying him that the King intended "to make Mr. Newton Warden of the Mint." Montague had been one of the first men Locke enlisted to help find Newton a job. His rise to the chancellorship in 1694, coupled with the timely resignation of the incumbent Warden, had created the opportunity to provide his old Trinity College colleague with a position in London.

Newton could not respond swiftly enough. Trinity's records show that he left Cambridge for London on March 21 to discuss his prospects. Evidently what he found at the Mint's headquarters in the Tower of London satisfied him. The Chancellor had assured him that the Warden "has not too much bus'nesse to require more attendance than you may spare." By April 13, the paperwork was done. William III, "By Grace of God, King of England, Scotland, France and Ireland," confirmed that the office of Warden of the Mint now belonged to "Our beloved Isaac Newton, Esquire."

One week later, Isaac Newton left Trinity College for the last time. His luggage—including his library of several hundred volumes—would have gone ahead, on one of the carts that made regular hauling runs down the London road. For his own journey, he could have chosen to jounce with strangers on one of the early stagecoaches that had just begun to run from the provinces to the capital. More likely, he would have hired a horse, as became a gentleman. He would probably have broken the journey at the inn at Ware, waiting there, just as Chaucer's pilgrims had three hundred years before, for enough of a company to gather to provide mutual protection along the isolated stretch of road that followed, a notorious haunt of highwaymen.