Debt: The First 5000 Years - autonomous learning

340 DEBT
creditors to the crown-offered King William III a £1.2 million loan to
help finance his war against France. In doing so, they also convinced
him to allow them in return to form a corporation with a monopoly
on the issuance of banknotes-which were, in effect, promissory notes
for the money the king now owed them. This was the first independent
national central bank, and it became the clearinghouse for debts owed
between smaller banks; the notes soon developed into the first European
national paper currency. Yet the great public debate of the time, a
debate about the very nature of money, was about not paper but metal.
The 169os were a time of crisis for British coinage. The value of silver
had risen so high that new British coins (the mint had recently developed
the "milled edge" familiar from coins nowadays, which made
them clip-proof) were actually worth less than their silver content, with
predictable results. Proper silver coins vanished; all that remained in
circulation were the old clipped ones, and these were becoming increasingly
scarce. Something had to be done. A war of pamphlets ensued,
which came to a head in 1695, one year after the founding of the bank.
Charles Davenant's essay on credit, which I've already cited, was actually
part of this particular pamphlet-war: he proposed that Britain
move to a pure credit money based on public trust, and he was ignored.
The Treasury proposed to call in the coinage and reissue it at a 20- to
25-percent lower weight, so as to bring it back below the market price
for silver. Many who supported this position took explicitly Chartalist
positions, insisting that silver has no intrinsic value anyway, and that
money is simply a measure established by the state.81 The man who
won the argument, however, was John Locke, the Liberal philosopher,
at that time acting as advisor to Sir Isaac Newton, then Warden of the
Mint. Locke insisted that one can no more make a small piece of silver
worth more by relabeling it a "shilling" than one can make a short
man taller by declaring there are now fifteen inches in a foot. Gold and
silver had a value recognized by everyone on earth; the government
stamp simply attested to the weight and purity of a coin, and-as he
added in words veritably shivering with indignation-for governments
to tamper with this for their own advantage was just as criminal as the
coin-clippers themselves:
The use and end of the public stamp is only to be a guard and
voucher of the quality of silver which men contract for; and the
injury done to the public fa ith, in this point, is that which in
clipping and false coining heightens the robbery into treason.82