"The ruine of their Diana": Lowndes, Locke, and the Bankers

In 1696, near the end of the long and very expensive Nine Years' War (1689–97) against France, England decided to melt down and recoin the better part of its silver currency. Contemporaries debated long and hard about whether the government should simultaneously "raise the coin" (roughly, devalue the pound). In this article I reassess the reasoning of the two principal participants in this debate—Treasury Secretary William Lowndes and freelance monetary theorist John Locke. Section 1 explains why monetary reform was needed in the first place. Section 2 summarizes Lowndes's and Locke's contributions to the debate on raising the coin. Section 3 weighs the relative merits of their arguments. I maintain that Lowndes's case was curiously weak and that Locke's main thesis (equal quantities of silver are always of the same value) was an apposite rejoinder. Section 4 shows that for contemporaries the debate turned on distributive considerations. I argue that Lowndes's case was weak because the Treasury could not afford to advertise the real reason it favored raising the coin: to clear the way for new war loans. The resulting large windfall gains to financiers would have afforded a strong incentive to continue lending to the Crown during the anticipated currency crunch. Locke saw through the smokescreen and judged the intended subsidy unnecessary and unjust. I conclude that the usual verdict in favor of Lowndes and against Locke should be overturned.

1. Pressures for Monetary Reform

A few preliminaries on the contemporary monetary system are in order. English coins were stamped only with distinguishing images, not with any indication of their value in units of account (pounds, shillings, and pence). Contemporaries referred to coins by name (e.g., crown, guinea, groat) rather than by face value. Unit-of-account values were set by law for silver coins and by the market for gold coins. The unit-of-account values of silver coin had not changed (but for a few temporary aberrations) since 1601, while those of gold coin frequently varied, sometimes from day to day. Silver coin was the predominant currency; in 1693 for instance, silver coin, guineas, and goldsmith notes accounted for 60 percent, 30 percent, and 10 percent respectively of the money in circulation (calculated from Kelly 1991, 112). Most international trade transactions were cleared using foreign bills of exchange rather than coin or bullion. Since 1662 it had been legal to export English gold coin, foreign coins whether of gold or silver, and gold or "foreign" (i.e., previously imported) silver bullion; it remained illegal to melt or export English silver coin (15 Car. II, c. 7). Whatever the state of the law, price differentials between England and Europe ensured that precious-metal exports usually took the form of silver rather than gold (Jones 1988, 77; Quinn 1996, 476).

Clipping had played an important long-term role in shaping the composition of England's specie stocks. In 1662, in a bid to deter clippers, the mint had introduced machine-manufactured or "milled" money, the edges of which were marked with serrations and an engraved inscription that made clipping easy to detect. Most older, hand-manufactured ("hammered") gold specie quickly disappeared and the new milled "guinea" became the dominant gold coin. But (owing perhaps to the statutory prohibition on melting and exporting silver coin or to a gold:silver ratio that favored gold exports at the time) a lot of hammered silver coin remained in circulation. This allowed clippers to continue in their trade a while longer. Curiously, the longer they kept at it, the more secure did their trade become.¹ Clipping reduced the weight of silver coin so gradually that the general public continued to accept it at full face value even after it had fallen considerably below its statutory weight. This meant that after a time clipped silver money was worth considerably more as specie than as...