The King's Shilling

I have been accused of disrespecting my betters. In a recent dispute on twitter, Rohan Grey berated me for daring to criticize the narrative presented by Christine Desan in her work on the history of money, on the grounds that I lacked the technical knowledge of the history of money and the law adequate to evaluate it. I was, he implied, attempting to make an intervention out of what amounted to a beginner’s mistake, and that all my confusions would be cleared up by reading (in his words) “a 1000+ page book that covers these issues,” to which Desan contributed an introduction which, according to Grey, “serves as the overarching framework” of the book. The book in question is Money and the Western Legal Tradition: Middle Ages to Bretton Woods, edited by Fox and Ernst. I have therefore decided to skip over my promised evaluation of some of the historical claims in Stephanie Kelton’s work, in favor of moving ahead to Desan. These writers make substantially the same claims, and since Desan’s work both exhibits a higher level of scholarship and is more often invoked by advocates of MMT on the history anyway, it makes sense to skip ahead to her. 

As per the methodology of this blog, I will refrain from getting too deep into the conceptual issues under contention, and restrain myself to the evaluation of individual facts and citations. It must be noted at the outset, however, that this “1000+ page book” (actually, it weighs in a bit below 800) seems to support Grey’s position slightly less than he thinks: the first introduction, by Fox, Velde, and Ernst states unambiguously (and one only has to read 14 pages to get there) that “the monetary practice in England throughout most of the period covered by this book stands against the adoption of the full implications of chartalist theory.” They state, furthermore, that “following the practice in the classical Roman law, the medieval sovereign’s prerogative over money only controlled the minting, valuation, and import and export of coins. The term ius cunendi (‘right of coinage’) defined the legal boundaries of the right, and effectively exempted the creation of dematerialized substitutes for coin from the sovereign’s exclusive control” (14). It appears, then, that it is Grey who is confused on the finer points of the legal history of money and could benefit from a careful study of this text, rather than me. It also appears as though the two introductory chapters of the book present rather different views that sit in tension with one another, rather than either one constituting an “overarching framework.” But let us leave this aside. What of the second introduction, by Desan?

In this letter, I will focus on a statement made by Desan on the operation of the free minting system. The point I will be explicating here is a technical one, but my critics can hardly turn around and accuse me of pedantry: if the technical details about open market operations at the Fed are worth getting right, then so are the technical details of the medieval mint. Either get it right or leave it to those who will! Desan writes:

Making tokens out of a material that was scarce, durable, and difficult to work — thus long-lasting and hard to counterfeit — made great sense under the circumstances. The English, like most Europeans more generally, turned to silver. Under a system called ‘free-minting’, they opened mints that sold inhabitants coin on demand: buyers brought in a pound of bullion, for example, and got it back in coined form less a small charge for the work. Thus the mint might produce 242 pennies from a pound of silver, keep a fee of 12 pence for the moneyers and the king, and return 230 pennies to the buyer. (27) 

Desan’s citation for this claim is to Bimetallism by Angela Redish, which I could not find online. I ordered it; it’s in the mail. But we do not need to wait for the arrival of this text to see what is wrong with Desan’s statement: either Redish has made a very silly error, or Desan has misunderstood and misrepresented what she says. The mint price of silver bullion was never and could never have been, as Desan suggests here, 230 pence, for reasons which we will see in a moment. 

But first I want to address briefly the comment, made in passing, implying that usage of silver in the monetary object can be understood as an anti-counterfeiting measure. This claim, which is often advanced by chartalists as an attempt to explain why what they view as essentially “just a token” should have been made of such a scarce material, should be quite puzzling to anyone familiar with historical examples such as the two most famous outbreaks of counterfeiting in English monetary history: the episode of the “pollards and crockards” in the late 13th century and that of the “war of the nobles” in the late 14th, during which England was — despite the island kingdom’s best efforts to impose capital controls on the flow of the money across the border — flooded with imitations of English money produced in continental mints, especially in Flanders. In both cases, the English money was targeted for large-scale counterfeiting by rival mints precisely because of its high purity or intrinsic value. Because English coins were well known for having a very high metal content relative to equivalent coins produced by its neighbor, they tended to be held in high esteem in international money markets, and thus presented an especially tempting target to the counterfeiter, who could melt down legal English coins, alloy the metal with copper and tin, and remint them at a profit. Since this process would be much more difficult and less profitable to the counterfeiter in the case of less widely well regarded coins, the usage of silver in the money was an enticement, rather than a discouragement, to counterfeiters. 

In the case of the “war of the nobles,” there was an additional consideration: during this period, the English crown, which was (for reasons too complicated to discuss here) quite desperate for revenue, passed a series of legislations requiring foreign merchants to pay for exports of wool from the Calais Staple in heavy English gold nobles. Merchants seeking to export wool would thus have to arrive at the mint with bullion and have it exchanged for English nobles — a process in which the crown would take a cut. The requirement for payment at the Staple in English money was, therefore, an implicit export duty on the kingdom’s most important commodity. Philip, duke of Flanders, responded to this by issuing light weight counterfeit English nobles at his own mints, which the merchants of his duchy could use at the Staple and thus avoid the duty, to their and the duke’s mutual advantage. Here, again, the heaviness and purity of the coin is the motivation for the counterfeiting: the resource that the English government wanted to mobilize was, precisely, gold itself, and this was the reason they sought to have it paid in heavy money to their own standard. If the English nobles had lacked a high gold content in the first place, then Philip would have not had the motivation to engage in his programme of large-scale forgery. Either way, it is clear that the suggestion by Desan and other chartalists that the use of precious metal in coins is an anti-counterfeiting measure is a nonsensical one that fails to explain even the most famous episodes of the phenomenon. 

Now: let us turn to the issue of the mint price and the King’s Shilling, or the 12 pence taken by the King from every pound of silver bullion brought to his mint. Desan, remember, suggests that “the mint might produce 242 pennies from a pound of silver, keep a fee of 12 pence for the moneyers and the king, and return 230 pennies to the buyer.” She claims, in other words, that (during some unspecified period) the English penny was minted at a standard of 242 to the pound, that the combined total of brassage (minting costs) and seignorage (the king’s cut) was 12 pence, and that the mint price (money received by the merchant for the pound of bullion) was 230 pence. No mention is made of the fineness of the metal, so she is assuming, implicitly, that the coins are made of pure silver (or, at least, silver of equal fineness to that of the bullion supplied for it) at 1/242th of a pound. Such a situation at the mint is not only counterfactual, but also impossible, and it seems to indicate a lack of deep understanding of the free minting system on the part of the author.

To see why, it will be easiest to begin by giving a more rigorous description of the English mint during the later period of the long-cross penny, around the second quarter of the 14th century — the period during which the penny was in fact minted at a weight standard of about 242 pence to the pound. I specify that we are here discussing the later long-cross penny, because this coin was originally minted at the “correct” standard of 240 pence to the pound (“correct” in that, on this standard, each penny weighed a pennyweight) and was only lowered to slightly inferior standards varying from 242 to 245 pence to the pound later on (for reasons I will hint at in a moment, though not discuss fully). At any rate: what actually happened when a merchant brought bullion to an English mint during the later period of the long-cross penny? Did they receive, in exchange, 230 pence of silver of the same fineness as the bullion they had brought, which they valued because of, as Desan suggests, their “cash services”? No — and any medieval merchant with a lick of sense would have scoffed at this proposition and told the King where to shove it.

Desan is right that the numbers “242” and “12” have something to do with it, but is confused on all other points. What actually happened is this. A merchant would bring a Tower pound of “pure” silver (modern chemistry would not consider it pure, but they did) to the mint, a unit of weight equivalent to 7,680 Tower grains (a wheat unit). This pound was divisible into 20 shillings of 12 pennyweights (dwt.) each, or 240 dwt. in total. Upon receiving and melting the bullion, the mint master would remove 18 pennyweights of silver from the pound, and replace it with base metal, leaving the metal at the sterling standard of 37/40 or 92.5%. 12 pennyweights of this extracted silver (pennyweights, not pence, as Desan suggests) were due to the King as the “King’s Shilling,” and the remaining 6 were left to the mint master as brassage. Out of the resulting pound weight of sterling silver, 242 pence would be minted (pence, therefore, which weighed just slightly less than a pennyweight), all of which were received by the merchant: the figure of 242 pence sterling to the pound, therefore, is already the mint price net of brassage and seignorage, which are taken out by the mint master and the King in the form of reduced quality rather than reduced count.

If the mint price were indeed 230 pence, as Desan suggests, the merchants would not bring their silver to the mint, because the coins they received would be worth nominally less than the bullion they supplied. In this case the production of money under the free minting system would indeed be, as the chartalists like to imagine, an asymmetrical relation in which the merchant sacrificed both intrinsic (pennyweights) and nominal (pence) value of their money in return for “cash services.” In reality, however, mint masters did not face a buyer’s market: they had to compete with other mints, including those in other legal jurisdictions, to attract bullion to their window, and so they needed to offer merchants an enticement, which they did by raising the mint price. In other words: the transaction that “made money” under the free minting system can be better characterized as a swap of nominal for intrinsic value. The merchant trades some of the intrinsic value of their bullion to the mint, in exchange for monetary instruments which are actually worth more in nominal terms. The merchant, in bringing their bullion to the mint, has lost intrinsic value of 18 pennyweights of silver, but has actually gained a nominal profit of 2 pence.

That merchants, during the early period of the long-cross penny, should have bought pence at par, or traded an intrinsic pound of silver for a nominal pound of 240 pence, shows that coinage does indeed have a value that can be described as the value of “cash services.” Otherwise there would have been no reason for them to trade in their silver for coins, other than in anticipation of immediate need to pay taxes or duties in nominal money. But the taking of a nominal rather than an intrinsic loss at the mint by the party supplying the bullion was not a normal part of the operation of the free minting system. This did sometimes occur, but only during specific episodes known as recoinages, as part of either the revisionist or the restorationist minting cycles, the latter of which applies to the history of the long-cross penny. That, however, is a topic for another letter. 

Let me close by saying that, if Modern Monetary Theorists wish to make the mastery of arcane technical details the basis of authority for the historical narrative they assert about money, then that is a gauntlet I am more than happy to take up. And if they wish to wave in the direction of intimidatingly long books as evidence that disagreement with their position must be a product of ignorance, then perhaps they should read them more carefully.

Stay tuned for more. -CD

REFERENCES:

Fox, David, and Wolfgang Ernst, eds. Money in the Western Legal Tradition: Middle Ages to Bretton Woods. First edition. New York, NY: Oxford Univ Press, 2016.