Front Page Titles (by Subject) PREFACE. - The Works and Life of Walter Bagehot, vol. 5 (Historical & Financial Essays; The English Constitution)
Return to Title Page for The Works and Life of Walter Bagehot, vol. 5 (Historical & Financial Essays; The English Constitution)
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
PREFACE. - Walter Bagehot, The Works and Life of Walter Bagehot, vol. 5 (Historical & Financial Essays; The English Constitution) 
The Works and Life of Walter Bagehot, ed. Mrs. Russell Barrington. The Works in Nine Volumes. The Life in One Volume. (London: Longmans, Green, and Co., 1915). Vol. 5.
About Liberty Fund:
Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.
The text is in the public domain.
Fair use statement:
This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
The greatest want of our present political economy in England is, that some one should do for it what Sir Henry Maine has done so well for “ancient law”. We want some one to connect our theoretical account of the origin of things with the real origin. Our theory is right enough; our notion of what is best to be done is correct, but our notions of the way practices began and customs grew up are often erroneous enough. In physical science, it would be a great mistake to take the easy “sequence” of the elementary text-book for the order of real discovery; in fact, the hard propositions at the end were often discovered first, and men worked back from thence to the simple beginnings. Just so it might be shown that the simple “definitions” of political economy are not much like the first practices of early history, but that the real commencements were odder and far harder.
I cannot pretend to write on such a subject, least of all now in a mere preface to a series of papers on a practical plan. But I mention it for this reason:—In England there is a sort of conservatism of “coinage”; we have got to fancy that our notions are not only most right, but most ancient; that they embody what men have always thought reasonable as well as what we now think so. The moment a real and radical improvement is suggested, this kind of conservatism is frightened if not shocked. “I do not know,” I have heard it said, “what I would not rather change than our ‘sovereign’: it is about one of the best things we have.” But yet, if we examine our coinage creed, we shall find that it is a very modern creed, that old prestige attaches to a very different creed,—that we have gradually attained our present notions in times past, and therefore may hope to advance beyond them in time to come.
We commonly think, I believe, that the coining of money is an economic function of Government; that the Government verifies the quality and quantity of metal in the coin out of regard to the good of its subjects, and that Government is admirably suited to this task—that it is a very reliable verifier. But in truth, if we look at the real motives of Governments, and the real action of Governments, we may come to think otherwise.
The prevalent notion about coinage is not an economic, but a mystic notion. It is thought to be an inalienable part of sovereignty; people fancy that no one but a Government can coin—that it is nearly a contradiction that any one else should coin. A superstition follows the act. Coining is called a “natural” function of Government, as if nature would not permit a Government without it; an “inherent” right of royalty, as if no one could be king or queen without it. “The denomination of the coin” is “in the breast of the King,” says Blackstone; “Monetandi jus principum ossibus inhæret,” is the current formula which old writers on the civil law quote; and these are only specimens of the old teaching.
Such is not only the legal fiction, but the popular idea. That Cæsar’s coin is something peculiarly Cæsar’s, that Queen Victoria’s superscription marks something indefeasibly Victoria’s—are beliefs as firm as they are old. You may find them as rooted in an English county now as they ever were in a Roman province at any time.
There was, in truth, much reason for such ideas, though most of that reason has passed away, and though it is not very easy to recall it. We are apt to fancy that the wants of a past age are the same as the wants of the present, because we forget how much the past had to make for itself, and how much, because the past made it, we of the present find ready. The greatest of historical achievements is Government. Mankind—a large part of mankind—have acquired an ingrained habit of deferring to certain persons, and of obeying certain persons. The peace of the world is preserved by a habit—nearly unconscious—of constant subordination. But men were not born with that habit; savage tribes are now wanting in it; old nations did “what was right in their own eyes,” and were defective in it too. A long history and a curious list of means were necessary to implant it.
One most efficient expedient was the use of Royal symbols. The crown, the sceptre, the coronation, the procession, the homage—were so many acts indicating sovereignty and advertising sovereignty. The stamping of the common coin was another such act. It brought home to every one who used it that there was a King and a Government: it was one link in the chain of impressions and associations which in rude times cemented society by confirming Government.
Probably indeed the coinage was one of the most potent of suggestive symbols. We are so familiar with the matter; the rudiments of social economy have so thoroughly worked down to common minds, that we no longer find a wonder in money; but less taught times thought it very curious, almost magical. In rude districts now you may trace the same manner of thought. Money seems to do what nothing else will do. Those who have it need nothing else, for it will buy everything else; those who are destitute of it are eager to get it, for without it they may on occasions be unable to obtain what they most want. Money is the universal “procurer,” the one thing by which you are sure of everything, and without which you are sure of nothing. It seems proof against time, too; other things are less valuable to-day, though you only bought them yesterday; but money is never “second-hand”. You may hoard it for years, and be sure it will be as good when you extract it, as it ever was at first. Government is the only maker of this magic, and consequently the prerogative of making it seems half magical too. As an impressive and penetrating advertisement of royal powers the “image and superscription” had, and even has, a curious efficacy.
This almost august prerogative shielded a curious source of income. The verification of the quantity of metal in a coin is a trade; no one would naturally verify gratuitously; the mode of verification ought to yield a profit, like other trades, and as much as trades. But Governments have commonly made it yield much more. They have had a monopoly of the business; they would let no one else carry it on; they made not only making worse coin than theirs, but even making as good coin as theirs, a criminal offence; so it is by English law at this moment. Accordingly Governments could make their own charge and gain a profit far greater than the ordinary rate of profit on the capital they were using; they could make a charge exceptionally high for a service which they could render, and which they would let no one else render. “The profits on the seignorage,” says the first Lord Liverpool, “were so much considered by our monarchs as a certain branch of their revenue, that they were occasionally granted in whole or in part either to corporate bodies for their advantage, or for other purposes.” The trade is the simplest of all trades. A holder of bullion brings it to Government to coin, and the Government keeps part of it; if a thousand ounces are delivered, it does not return a thousand ounces, but a thousand ounces minus something. Some civilised Governments have, it is true, made an avowed charge for coining; but most Governments have kept back part of the metal, and said nothing about it.
So far, then, from its being historically true that coining is an economic act, which Governments do for the benefit of their subjects, it has been a political act, which they have done for their own sake. It won them reverence and gained them money; the mightiest monarchs have care for prestige and revenue, though most monarchs would have been very slow to provide petty cash for small dealers.
Nor is it at all true that Governments have “verified” well. Everybody, indeed, knows that they have verified ill. The use of the trade in the minds of many rulers has been that it enabled them to borrow in one currency, and pay in a less. We think we are familiar with the misconduct of Government from the frauds of Europe, but it is only those who know what Asiatic currencies are who really understand the true evil. “The coinage,” says Sir W. Hunter, in his most able Annals of Rural Bengal, “the refuse of twenty different dynasties and petty potentates, had been clipped, drilled, filed, scooped out, sweated, counterfeited, and changed from its original value by every process of debasement devised by Hindu ingenuity during a space of four hundred years. The smallest coin could not change hands without an elaborate calculation as to the amount to be deducted from its nominal value. This calculation, it need hardly be said, was always in favour of the stronger party. The Treasury officers exacted an ample discount from the landholders, a discount which, when Bengal passed under British rule, amounted to three per cent. after a coin had been in circulation a single year, and to five per cent. after the second year, although no actual depreciation had taken place. The landholder demanded a double allowance from the middleman, and the middleman extorted a quadruple allowance from the unhappy tiller of the soil. In a long indignant letter on the illegal cesses under which the cultivator groaned, Mr. Keating singles out the “batta” or exchange on old rupees as the most cruel, because the least defined. No recognised standard existed by which to limit the rapacity of the Treasury officers. The Government held them responsible for remitting the net revenue in full, and left them to deduct such a proportion from each coin as they deemed sufficient to cover all risk of short weight. Moreover, so great was the variety of coin in use, that they claimed a further discretion as to what they would receive at all. Cowries (shells), copper coins of every denomination, lumps of copper without any denomination whatever, pieces of iron beaten up with brass, thirty-two different kinds of rupees, from the full sicca to the Viziery, hardly more than half its value, pagodas of various weights, dollars of different standards of purity, gold mohurs worth twenty-five to thirty-two shillings each, and a diversity of Asiatic and European coins whose very names are now forgotten. At some treasuries cowries were taken, at others they were not. Some collectors accepted payment in gold; others refused it; others, again, could not make up their minds either way; and the miserable peasant never knew whether the coin for which he sold his crop would be of any use to him when he came to pay his rent.”
This will enable us to comprehend that in King Edward I.’s time there were current in England “divers white moneys called pollards, crocards, staldings, eagles, leonines, and steepings, artificially made of silver, sulphur, and copper”. And we can imagine how much poor people, who must take such moneys, suffered—how much the rich, who paid them to the poor, throve by them.
So badly indeed have Governments verified, that it was necessary to call in another verifier. This is a point on which Adam Smith insisted, but it has dropped out of the common political economy which is derived from him; his mind was more historical, and in a certain sense more matter-of-fact, than those of his successors, and they have neglected some things which were plainly favourite things with him. On the point we are dealing with he says:—
“The currency of a great State, such as France or England, generally consists almost entirely of its own coin. Should this currency, therefore, be at any time worn, clipt, or otherwise degraded below its standard value, the State by a reformation of its coin can effectually re-establish its currency. But the currency of a small State, such as Genoa or Hamburgh, can seldom consist altogether in its own coin; but must be made up, in a great measure, of the coins of all the neighbouring States with which its inhabitants have a continual intercourse. Such a State, therefore, by reforming its coin will not always be able to reform its currency. If foreign bills of exchange are paid in this currency, the uncertain value of any sum, of what is in its own nature so uncertain, must render the exchange always very much against such a State, its currency being, in all foreign States, necessarily valued even below what it is worth. In order to remedy the inconvenience to which this disadvantageous exchange must have subjected their merchants, such small States, when they began to attend to the interest of trade, have frequently enacted that foreign bills of exchange of a certain value should be paid, not in common currency, but by an order upon, or by a transfer in the books of a certain bank, established upon the credit and under the protection of the State; this bank being always obliged to pay, in good and true money, exactly according to the standard of the State. The banks of Venice, Genoa, Amsterdam, Hamburgh, and Nuremberg seem to have been all originally established with this view, though some of them may have afterwards been made subservient to other purposes. The money of such banks, being better than the common currency of the country, necessarily bore an agio, which was greater or smaller, according as the currency was supposed to be more or less degraded below the standard of the State. The agio of the Bank of Hamburgh, for example, which is said to be commonly about fourteen per cent., is the supposed difference between the good standard money of the State and the clipt, worn, and diminished currency poured into it from all the neighbouring States.”
This origin of banking is one of the hundred examples of the difference between the real origin of conspicuous institutions and what a present observer would imagine to have been their origin. Any one would suppose that they were invented to diffuse modern conveniences and to satisfy refined desires, as they do around us. But, in fact, they are older than those desires. They were created at the sharp pinch of some old necessity, and being in existence and showing an aptitude for new services, were gradually used in new ways. The English have based on horse-racing a fine system of calculated betting, but the first horse was tamed for coarser purposes than that.
However, it will be said, though in history Government is a bad verifier, though influential classes have in all ages made a profit out of its bad verification, though a new verifier had to be called in because of its badness, yet at first, and when it undertook the business of coining, it must have had the welfare of the people at heart. But he is always a bold man who speaks of “origins”; most common things are older than history, and we can only tell by conjecture how they occurred. But conjecture for conjecture, it is more probable that Governments began to coin in their own interest, as they have continued to coin for their own profit.
Herodotus gives a graphic account of the difficulty of great Governments who did not use money. “The Persian king,” he says, “treasures up his revenue in this way. He melts the gold and silver he receives and pours it into earthen vessels. When the vessel is full and the metal is cooled, he breaks the jar. From these lumps, when he wants money, he cuts off what he needs.” A sovereign who was possessed of large treasures in the precious metals would like very much to have an easier mode of using them. The notion of coining money was borrowed by the Greeks from the East, and it is much more likely that the Babylonian monarchs found an advantage for themselves in dividing their metallic treasures into ascertained and stamped weights, than that they thought much of aiding the traffic of their subjects. Indeed, their standard of value was too high for common purposes. They coined (what was afterwards called) the “Æginetan talent,” which is about £406 English money. Perhaps other school-boys, like myself, have fancied that the ancients must have been very rich, “because they had such big money”. But the puzzle is explained if we suppose the original coins to have been suggested by the convenience of the original coiners, and to have been used for the remittances of despots and the tributes of provinces rather than in petty dealings of trade.
But any further discussion of this curious subject would be out of place here, and it would be difficult, for we have to carry back our minds to a time when measuring by weight was a novel invention. There is no “natural” unit of weight; no foot, no cubit; and it was ages before any sort of standard was agreed upon. The original talent was the weight in the scale, as well as coined money; it became the principal coin because it was the largest weight. Sir George Lewis justly said that it required a “good stroke of the imagination” to conceive a state of civilisation in which it was difficult to tell the time of day; still more would it tax the fancy to conceive a time in which “standard weights” came in as new things, and out of them stamped weights or coins grew. We are so used to the candle that we forget it required to be lighted.
All this long history proves, I think, that we must not reject improvements in our theories of coinage, on the ground that our present theories are universal or ancient; on the contrary, those theories are very modern and very rare.
But what improvement is possible? The answer is plain. A remarkable movement is going on in the world towards a uniformity of coinage between different nations. And it was begun in what seems the way of the nineteenth century; the way in which Germany was created, and the unity of Italy too; that is, not by a great number of States, of set design and in combination, chalking out something new, but on the contrary, by some great State acting first for its own convenience, and then other lesser and contiguous nations imitating its plan and falling in with its example. In this way France has now formed a great coinage league, which Switzerland and Italy have already joined, which Austria has agreed to join, which the Provisional Government of Spain has proclaimed, and which the United States have been asked to join. This league, of which the terms are completely stated further on, in fact takes the French standard and coinage for the universal standard and coinage, and uses them without alteration.
If we could adopt this coinage ourselves without material inconvenience, I confess I, for one, should urge our doing so. The advantages of a single coinage, which are explained in the following papers, seem to me fully equivalent. But I fear, when looked at strictly, it will be found that the difficulties of such a step are simply insurmountable. And if this is so, and we do nothing, what then? Why, we shall, to use the vulgar expression, be “left out in the cold”. Germany has a currency to choose; none of her many currencies which have descended from her divided States are fit to be her exclusive currency, now that she is one. If things remain as now, she is sure to adopt the French currency; already there is a proposal in the Federal Parliament that she should take it. Before long all Europe, save England, will have one money, and England be left outstanding with another money.
This is a selfish reason for looking to our currency, but it is not the only reason. Every person must see that the demand for uniformity in currency is only one case of the growing demand for uniformity in matters between nations really similar. Many subjects, most subjects of legislation, vary between nation and nation; they depend on national association and peculiar idiosyncrasy and other causes. But commerce is everywhere identical; buying and selling, lending and borrowing, are alike all the world over, and all matters concerning them ought universally to be alike too. In the old mediæval “law merchant,”—the universal custom of trade which the international trader took with him from country to country,—there was a recognition of a principle which we want now. The possession of special and very active legislatures by many States has broken up everywhere old customary laws; the unity we need now must be a unity based on explicit treaty and voluntary agreements. But the idea is the same. Ultimately the world will see one Code de Commerce, and one money as the symbol of it.
We are, as yet, very distant from so perfect an age. The proposal set forth in these pages does not profess to realise even the monetary part of the ideal. I fear the attempt to found a universal money is not possible now; I think it would fail because of its size. But I believe we could get as far as two moneys, two leading commercial currencies, which nations could one by one join as they chose, and which, in after time, might be combined; and though this may fall short of theoretical perfection, to the practical English mind it may seem the more probable for that very reason.