Christopher Hollis
Two Nations

Ch. I. — The Medieval Managed Currency and its Collapse

There is one central truth running through all history.  It is that a steeply falling price-level inflicts such widespread suffering that no attempt drastically to reduce a price-level has ever been permanently successful.  Once prices have been allowed to rise, whether by dishonesty, by wise policy, or by miscalculation, experience has invariably proved that there has been no alternative but to accept the new price-level as a fait accompli.

A falling price-level inflicts great hardship and injustice — on producers and debtors.  A rising price-level also, it may be argued, inflicts hardship and injustice — on creditors and those who live on fixed incomes.  The rise may be as unjust as the fall, but those who suffer from the rise are in no position to hit back at the society which has robbed them.  Those who suffer from the fall — the producers — can always compel society to suffer with them by refusing to produce if it is not made worth their while to do so.  Therefore it has happened throughout the course of centuries that prices have sometimes risen but have never substantially fallen.  By consequence they are to-day, in England as in every other country, greater by a very considerable multiple than they were at any date in the distant past.

It is also true that, had the country lived under an automatic monetary system, as that phrase is often understood — that is, had the amount of money in the country been dependent merely on the amount of silver or gold in the country and that amount in its turn been dependent on the accidents of commerce and mining — in many periods of history prices must inevitably have fallen.  A country's productivity as a rule increases gradually from generation to generation; the proportion of goods produced that are sold for money on a market tends to increase.  On the other hand, throughout a large portion of the world's history — from Roman times, for instance, almost until the discovery of America — there has been no important addition to the world's supply of precious metals at all.  Had it been merely England that was short of silver in the Middle Ages, the problem would have righted itself without management.  The shortage of silver would have caused low prices in England, and the low prices in England would have caused the owner of silver in, say, France to spend his money in England where he could buy more for it.  Thus silver would have flowed into England until the price-level was restored.  But in the late medieval Europe there was no country that was possessed of this surplus of silver.  It is clear then that, had the currency not been managed then, prices must have fallen.  In medieval Europe we lived under a managed currency.

The way in which it was managed was as follows.  From time to time the weight of silver in every coin was reduced.  Thus the number of coins that could be coined out of a constant amount of silver was increased, and by this means an increased monetary supply was put out to buy the increased quantity of goods and a fall in prices prevented.  If we study a list of medieval prices such as that collected by Thorold Rogers,(1) we find that, owing to the poverty and slowness of communications, there were considerable local and seasonal variations of price in the different commodities.  Yet at the same time, for the hundred and fifty years before the Black Death — the high period of the Middle Ages — the general price-level was held absolutely steady.  Then, with the Black Death and the consequent sudden decrease of productivity, prices jumped up by about 20 per cent.  Edward III had the wisdom to accept the new price-level as a fait accompli and not to attempt to force it down again to the pre-Black Death level.  They remained steady at the new level until the end of the century.  Then came the revolution of 1399 against Richard II, a sort of Catholic dress-rehearsal of 1688, the overthrow of the true English monarchy, and the establishment in its place of the Lancastrian monarchy, which was a cross between a monarchy and a plutocratic republic.  For the first time in English history power passed into the hands of men who wished to play tricks with the price-level.  As a result it fluctuated about wildly.  According to the computation which Mr. Feaveryear(2) has made from Thorold Rogers's figures of a price-index of commodities not dependent on the chance of harvest, if prices were 100 in 1400, by 1402 they had risen to 115.3.  Then they fell steadily until by 1446 they were down to 80.4 — just about what they had been before the Black Death.

Yet to medieval morals such a policy was so intolerably wicked that no régime could long survive which allowed it to be practised.  Both the Yorkists and the Lancastrians learnt their lesson, and throughout the second half of the century, whoever was in power, prices remained remarkably stable.  By 1500 they were at 76.8 to 1400's 100 and there they remained until the dissolution of the monasteries and debasement of the coinage by Henry VIII in 1542.  Throughout all those hundred years they never moved more than a trifling number of points either way.  With the two exceptions of the period of the Black Death and the quite exceptional first forty years of the fifteenth century, prices moved far less in a hundred years in the Middle Ages than they have often moved in a single year in our times.

"From the 25th of Edward III," writes Adam Smith,(3) "to the beginning of the reign of Elizabeth, during the space of more than two hundred years, six shillings and eight pence, it appears from several different statutes, had continued to be considered as what is called the moderate and reasonable, that is the ordinary or average, price of wheat.  The quantity of silver, however, contained in that nominal sum was, during the course of this period, continually diminishing in consequence of some alterations which were made in the coins.  But the increase in the value of silver had, it seems, so far compensated the diminution of the quantity of it contained in the same nominal sum, that the legislature did not think it worth while to attend to this circumstance."

It is hard to know just what Adam Smith means by "the legislature did not think it worth while to attend to this circumstance."  For it was obviously the threat of falling prices which caused the King and the legislature to "attend to this circumstance" and reduce the silver content of the shilling.  It is also true that during the last sixteen years of that period — during, that is to say, the last years of Henry VIII and the reigns of Edward VI and Mary — 6s. 8d. might indeed be spoken of as an ordinary price of wheat, but only in the sense in which some people in the years after the War spoke of the 1914 price-level as a normal price-level to which, when the world was sane again, we should return.  It was not in fact the price-level of the moment, and very soon people had to recognize that it never would be possible to return to it.  In the same way the price-levels of Edward VI's and Mary's reigns were not the price-level of pre-1542 England and people had in the end to reconcile themselves to the impossibility of returning to that price-level.  Nevertheless Adam Smith's words are of importance as evidence of the stability of the price-level for the two hundred years up to 1542.

In 1542 Henry VIII began to debase the coinage.  He did it in the hope that thus he would be able to pay his debts for nothing.  To begin with, he kept secret what he was doing, collected all the silver and gold that was paid in to him as loans and benevolences, and issued it out again from the Mint, mixed with alloy, and thus he was able to pay out about a quarter as much again as he received.  With every £100 of new loan that he received he could pay off £125 of old debt.  As was inevitable, the trick was soon discovered.  He then frankly raised the price which he was prepared to pay for gold and silver, thus causing all possessors of those metals — there were plenty such owing to the recent loot of the monastic plate — to bring them to the Mint to be recoined into a larger quantity of base metal coins.  He himself profited out of the seigniorage which he charged them for minting and also by borrowing the metals for his own uses for the period of some three or four months which elapsed between delivery and reissue.

The difficulty was, as may be imagined, with foreign trade.  Foreign merchants were reluctant to take Henry's debased coins.  The reason for this was not that in itself it mattered whether the coins were pure or alloyed.  The trade between England and the Continent was a trade of goods against goods.  Coin was only used to effect a temporary balance if the English did not happen, at a moment when no foreigner wanted any of their goods, to have an export with which to buy back their import.  In the long run the English coins returned to England, or at least about as much gold and silver returned to England as left it.  The concern then of the foreigners, it is clear enough, was not that the coin should be made of this or that purity of metal but that they should have a guarantee that the English price-level would be kept stable — that the coin would buy as many goods on the day when the debt should be collected as it did on the day when it was incurred.  With such a guarantee they would have been perfectly willing to have accepted payment in paper.  Owing to the debasement, to the inflationary effect of the first American silver and of the coining of a certain amount of the looted monastic plate, money had in Henry VIII's time increased more rapidly than goods, and therefore there had been a rise in prices.  The two hundred year old English tradition of a stable price-level had been broken, and therefore Henry's credit abroad necessarily suffered.

Yet it is vital to the understanding of the story of England that we should grasp clearly the statistics of Henry VIII's experiment.  According to Mr. Feaveryear's(4) calculation, between 1542 and his death in 1547, Henry called in £400,000 of pure silver money and reissued it as £526,000 of debased silver money.  The inflation of those five years, that is to say, was trivial in comparison with, say, the inflation of the four years of the war of 1914.  Comparatively trivial, too, was the effect on prices.  According to Thorold Rogers's price-lists, if 100 was the price-level in 1541, then that level rose to 124.6 in 1545 and by Henry's death in 1547 had sunk again to 116.4.

A King is not likely to debauch the currency unless he is the veriest simpleton.  For, as Lenin pointed out in our own day, such debauchery is the most effective way possible of plunging a country into anarchy.  From anarchy it is clear that a King is very likely to lose and cannot possibly gain.  For he cannot become more than a King.  It is not even to the true interest of a King to raise the price-level for, though such a manoeuvre may be immediately convenient to him in enabling him to pay off more cheaply some debt that he has contracted, it is clear that, if he raises the prices of everything, he will raise the cost of his own government.  Therefore taxation will have to be increased, and the necessity of increasing it will bring unpopularity, if nothing worse, to the monarch.

Now a King, whether he be a good man or a bad man, has little motive for preferring any other interest before that of the preservation and strength of the monarchy.  For a King intends to be a King for life.  A regent, on the other hand, knows that his term of office is limited.  If he be a good man he will, in spite of this, be conscientious.  But if he be a bad man then he is under every temptation, just as any other politician is, to use his term of office to feather his own nest.  History can tell us of good regents but it would, I think, be possible to argue without much exaggeration that no ancient monarchy has ever fallen except when it has been previously weakened by a period of unscrupulous regency.  For it is obviously to the baser interests of a regent to issue an excess of money and to put the surplus, directly or indirectly, into his own pocket, to sell the Crown lands to himself or his friends at unfairly low prices.  It is nothing to him that such conduct will create a monetary problem that will certainly embarrass and may in the end destroy the monarchy, so long only as he behaves with sufficient restraint to postpone the crash until after the conclusion of his own period of office.

So it was during the protectorship of the Duke of Somerset that the English monarchy was destroyed.  In contrast with Henry VIII's comparatively trifling £126,000 Somerset by his further debasement increased the monetary supply by £1,000,000 and, as a result, prices rose from 116.4 of 1547 to 202.3 in 1551.  Somerset died, leaving behind him Somerset House, the English currency debauched, and the monarchy fatally weakened.

Somerset left to his successor, Northumberland, a very difficult problem.  For, once the currency was thoroughly and admittedly debauched, then no action of the Government was required to cause a steady further inflation.  For obviously everybody possessed of an old coin of good silver would turn it into two coins of debased and thus contribute to a yet further inflation.  To counteract this process Northumberland hoarded and put out of circulation all the coins on which he could lay his hands.  He was thus successful in checking the rise in prices, which fell somewhat so that by Edward's death they were down to 173.6.

Northumberland forced them down, if anything, too far, for he checked production.  Therefore Mary at her accession threw a little of Northumberland's hoard back on the market with the result that prices rose again to 199.3.  Froude in his History [vii, 454] accuses Mary of "pouring out a fresh shower of money containing but 3 oz. of silver," but subsequent investigation has shown that for this as for so many of his statements that great writer was indebted wholly to his imagination.  Mary was able to keep prices at approximately their new level throughout her reign with the exception of the years 1555 and 1556, when they jumped up to 212.9 and 213.5.  Those years were years of exceptionally bad harvest.  The effect of a very bad harvest in a country with a metallic currency is always inflationary, for people in their necessity bring out their savings and thus put into circulation money which is not in circulation in normal years.  Also, if there are fewer goods, then, unless the monetary supply is also reduced, each particular article will clearly cost more.  However, Mary recaptured control of the price-level in 1557 and brought it back again to that level at which she found it at her accession.

Elizabeth on her accession found in circulation some £900,000 of debased silver money.  She borrowed from Antwerp 200,000 crowns of pure silver.  On 27th September, 1560, she issued a proclamation that henceforth every penny should pass for three farthings, every two-penny bit for a penny halfpenny, and the sixpenny teston for fourpence halfpenny.  She then announced that anyone who brought in the base money would receive its new value in pure silver with a bonus of 3d. in the £.  She proclaimed vigorous penalties against anyone who should export the coins in the hope of getting a better price abroad.  The new silver she, of course, to begin with coined out of the Antwerp crowns.  She fixed a date — 9th April, 1561 — after which the old base coins would no longer be legal tender.  The business was carried through with vigour and ability and was successful.  For the base coins that were brought in she had to pay out £638,113 15s. 6d. But, when she had extracted the silver out of them, she was able to make of it £733,248 of new good money.  Her gross profit on the proceeding was thus a little short of £100,000 and her net profit, after all expenses had been deducted, some £14,000.

But the effect of the whole proceeding was, of course, deflationary.  For the coins for which she paid out her £600,000 odd had, before the proclamation of 1560 reducing the coins' purchasing power by 25 per cent, a value of £600,000 odd ¾ , that is to say, of about £850,000.  Elizabeth had therefore taken £850,000 out of circulation and only put back £730,000 in its place.  We should therefore expect to find that prices fell, and so they did for the moment.  In 1561 — the year when the old base coins ceased to be legal tender — they stood at 205.  By 1562 they had fallen to 1929.

Yet immediately afterwards they took a turn upwards again and rose steadily throughout the rest of her reign, at the end of which they stood at about 275 to 1541's 100.  They rose because the money in circulation was increasing more rapidly than the goods in circulation.  For that there were two reasons.  The first reason was that, as always before the invention of milled edges, the clipper was at work, decreasing the de facto value of the coins by clipping little bits off the edges of them.  Such were his activities that by the end of the reign in 1601 the Government found that it had no alternative but to reduce the silver content of the coins that it itself issued — a measure, of course, of inflation.  The second reason was the influx of American gold and silver.

Now the first of these two evils the Government was unable to remedy, for the method of circumventing the clipper had not as yet been discovered.  The second, on the other hand, it could well have remedied.  Among the many important services that have been rendered to truth by Professor Soddy, there is none more important than his exposure of the sloppiness with which so many historians and economists at every interesting stage of their narrative try to slip past truth beneath a camouflage of impersonal verbs.  Listening to language about gold and silver pouring into England from America, one might think that the precious metals fell like rain from heaven, or that they were a couple of ducks which swam across and landed one morning on English soil without so much as a "by your leave."

If gold and silver came into England somebody brought them.  Who brought them? and why ?  A good deal, of course, came in as result of piracy.  But the greater part came in as a result of trade — a new sort of trade — the exchange of goods against gold and silver.  The Spaniards, having a surplus of precious metals, developed the habit of purchasing goods with them and of living on foreign imports instead of on the products of their own country.  Whether or not this was wisdom in them we need not discuss.  But the consequence of it for the English was that they gave the Spaniards consumable goods and received in exchange for them unconsumable metal.  If, as Adam Smith truly says, the one object of production is consumption, it is clear that this exchange was pure loss to the English, and it is not surprising that with such a commerce the reign of Elizabeth should be filled loud with the poor's complaints of their desperate poverty.

Why then did Elizabeth tolerate this disadvantageous commerce ?  The notion that she did not understand the plain consequence of filling the country with silver and emptying it of goods may be dismissed at once.  The woman was not an idiot.  The elements of monetary theory had been perfectly understood since the time of the, Greeks.  As Macaulay records,(5) Gresham's Law is found noted in Aristophanes.  In the Middle Ages the quantitative theory was familiar to every educated person, nor was it, as will be later shown, until in the eighteenth century the educational machine deliberately imposed confusion on men's minds, that there was any misunderstanding of the ABC of these problems.  Both Elizabeth and all other educated people were then well aware that if silver "poured" into England it would cause a rise in prices.  It would have been perfectly possible to have forbidden its import and insisted that the Spaniards, if they wanted our goods, must give us goods in exchange.  Had she done so there would have been in England both a more adequate supply of goods and a stable price-level — to the great advantage of the country.

Why then did she let the treasure in ?  It is true that, as the mercantilists argued, it was an advantage to a Government to possess a reserve of gold and silver which it could use in the event of the emergency of war.  And, had Elizabeth been able to capture for herself, as the French Kings were able to do, the new supplies of metals and to hoard them against the day of necessity when she might wish to buy from abroad and be unable to offer goods in exchange for those that she wanted, her policy would then have been most intelligible.  But that was not at all what happened.  An inconsiderable proportion of the new metal passed into the royal hands.  As a result the royal wealth and royal income did not at all keep pace in increase with the increase of the national wealth and national income, while the royal expenditure rose with the rise of prices.  Thus according to Professor Neale,(6) Elizabeth's ordinary revenue from Crown lands, Customs, etc., at her accession was £200,000.  By her death it had risen to £300,000.  From taxation she was able to raise on an average about £50,000 a year at the beginning of her reign and £80,000 at the end.  In other words her revenue was increasing less rapidly than prices were rising, while the revenue itself in the first place was a revenue adequate for the expenses of government at the price-level of Henry VII's time rather than that of the latter half of the century.  It was by that latter half quite inadequate if ever there was any extraordinary expenditure.  How then did she manage ?  She raised money by a variety of dodges, as her two successors were to do after her.  But, when every dodge was exhausted, Elizabeth again and again had to face the ugly truth that she could only make both ends meet by selling some of the Crown lands.  In one year at the time of the Irish campaigns she had to sell £120,000 worth of these.  A temporary relief, these sales by reducing income left the situation more desperate still for the future.  By the end of her reign the royal income was beginning to decline not merely in proportion to the national income but absolutely.  It is clear enough then that the influx of gold and silver was against Elizabeth's interest because it impoverished her; she would have stopped it had she been free to follow her proper policy and not the servant of the stronger forces that guided her.  It was also against the interests of the poor because it caused an artificial scarcity of commodities.  But it was to the interests of those who sold goods to the Spaniards in exchange for gold and silver, of those who robbed the Spaniards of their gold and silver, and of all the others who could in any way annex to themselves a share of the new store of precious metals.  Such people were indifferent to a rise in prices, for they immediately invested their gains in land and houses whose price rose with the general rise.  They were the masters of the State, so that no one could prevent them from passing on the burden of higher prices to the poor by a successful refusal to raise wages, whereas they were strong enough to prevent the Queen from passing on the burden of her increased expenses to them in the form of increased taxation.  For at that date there was, of course, no question of the Government acting as it does in modern Parliamentary States and just taking from the subject whatever money it sees fit.  The moneylending interest, on the other hand, which likes falling prices, was not yet strong enough to dominate the State.

proceed !


1. History of Agriculture and Prices, vol. ii.

2. The Pound Sterling, A. Feavearyear, p. 60.

3. Wealth of Nations (ed. Routledge), p. 143.

4. Pound Sterling, Feavearyear, p. 57.

5. History of England, Macaulay, iv, 621-2, footnote.

6. Queen Elizabeth, p. 284.