For the past century England has been unwavering in her allegiance to the gold standard of value. Other nations have changed or hesitated, and but for England's refusal to alter her present system, it is probable that some attempt to create a universal double standard would have been made. In this country there has, it is true, been at times an influential political minority in favour of change; but the banking and commercial classes have been unmistakably in favour of a continuance of the monetary policy which has done so much to build up London's financial reputation.

In these circumstances it is singular to reflect that England adopted the gold standard by a happy accident. The event which marked out England's future path as the upholder of gold monometallism is the rating of the guinea at twenty-one shillings in 1717, and this rating was due to an illogical and partial adoption of Sir Isaac Newton's report, a report which was intended to prevent, and not to hasten, the displacement of silver by gold in our currency.

Originally our standard was a silver one, based upon the Saxon pound's weight of that metal, and our shilling, which weighs the sixty-sixth part of a pound, is the degenerate descendant of the twentieth part of a pound's weight of silver. Gold has circulated freely in the country since about the beginning of the fourteenth century, but at varying rates compared with silver. Until the beginning of the eighteenth century the bulk of the coinage was of silver, but soon after the great recoinage of silver in 1(596 gold began to displace the less valuable metal in circumstances which aroused general alarm. This recoinage of William III.'s reign had been necessitated by the disgraceful condition into which the silver coinage had been allowed to fall, most of the coins in circulation being from 30 to 50 per cent. below their correct weight. This caused the rating of the guinea to vary according to the condition of the silver in the locality. Guineas had originally been coined in 1663 to circulate at twenty shillings; but owing to the depreciation in the silver coins their value with regard to the latter rose. The holders of guineas refused to part with them in some cases for less than thirty shillings, "not" as an anonymous pamphleteer remarks, "that gold became worth 30s. a guinea in good money, but in clipped and counterfeit coin."

After the recoinage of the silver at a cost to the nation of £2,700,000 the price of guineas fell to twenty-two shillings; but to the general alarm the new silver which had cost so much to issue, rapidly disappeared and gold poured into the country.

Gresham's law was in operation in its second form. Gold was overrated, and therefore was driving silver from circulation. At first sight it seems difficult to see in what manner gold was overrated, because guineas circulated at a varying rate, and there was apparently no attempt on the part of the Government to fix a ratio between the two metals. How, then, can gold be said to have been overrated?

The following letter (a) issued by the Treasury Board to the Exchequer answers the question:

"Oct. 25th, 1697. "Sir, "The Lords Commissioners of his Majesty's Treasury desire you to signify to the tellers in the receipt of Exchequer, that they receive guineas at 22s. each, pursuant to the advertisement in the Gazette of Thursday last.

"(Signed) Wm. Lowndes."

This was tantamount to fixing the price of the guinea at twenty-two shillings, and at this ratio gold was overrated.

Sir Isaac Newton was asked to give his advice, and his report, issued in 1717, is a piece of thoroughly sound reasoning. He showed that in France, Holland, Italy, Germany, Poland, Denmark, and Sweden, the ratio between gold and silver did not exceed fifteen to one, and that at this ratio the guinea would be worth 20s. 8 1/2d. in silver. But in England the guinea at this time passed at 21s. 6d., and it was therefore a profitable proceeding to send gold to England and buy silver with it for export to these countries.

(a) S. Dana Horton, The Silver Pound, p. 24.

Newton's advice was as follows (b): "If gold were lowered only to have the same proportion to the silver money in England which it hath to silver in the rest of Europe, there would be no temptation to export silver rather than gold to any other part of Europe. And to compass this last there seems nothing more requisite than to take off about 10d. or 12d. from the guinea. . . . But if only sixpence were taken off at present, it would diminish the temptation to export or melt down the silver coin, and by the effects would show hereafter better than can appear at present what further reduction would be most convenient for the public."

The report was enthusiastically received, and a Royal proclamation was issued rating the guinea at twenty-one shillings - a reduction of sixpence only. This should have been the first step only according to Newton, a provisional measure; but no further steps were taken, although this reduction was quite inadequate, as events soon proved.

There is nothing to show that the omission to proceed further was deliberate: it was apparently a blunder, and the proclamation which was intended to protect the silver coinage had the effect of sealing its fate as a part of the English standard of value.

From 1717 to 1816 both silver and gold were, by custom, in the absence of any legislation on the subject, legal tender to any amount. The Mint was open to the free coinage of both, and they circulated at a fixed ratio to each other. These, as we shall see later, are the three essential characteristics of a perfect bimetallic system. Yet what was the condition of affairs in practice? No one brought silver to the Mint to be coined because it was worth more as bullion than it was as money. If a merchant had a remittance of silver bullion from the East it would pay him better to buy gold abroad and take the gold to the Mint than it would to take the silver to the Mint direct. In Europe he could buy as much gold as would make a guinea for twenty silver shillings and eightpence. If he took his silver to the Mint and received it back as coin, it would take twenty-one silver shillings to purchase as much as a gold guinea at the legal rating.

(b) W. A. Shaw, Writers on Monetary History, p. 193.

The inevitable consequence was that the amount of silver coin in circulation dwindled rapidly and became insufficient even for the purposes of change. What was left was so worn that in 1774 it became necessary to declare (14 Geo. 3, c. 42) that silver should be legal tender for sums exceeding £25, only by weight and not by tale (i.e., number of coins) at 5s. 2d. an ounce.

For the first time in English history gold formed not only the bulk of the currency, but also the more popular part of the coinage. Gold supplanted silver against the wishes of the nation, but during the eighteenth century people became accustomed to it and grew to prefer it, so that when in 1816, after the great restriction of cash payments, the coinage had to be reorganised, there was never any question of reinstating silver in its old position. The Act of 1816 simply established on a legal basis what had long been settled in practice. The reduction of the silver coins to token pieces was designed with two objects in view which have been well attained - the ensuring of a sufficient supply of silver coins for small change, and the establishment of gold as the bulk of the coinage and the standard of value.

At the same time one innovation was made by this Act which has been an incalculable saving of trouble. Previous to 1816 the standard unit of account in England did not coincide with the standard unit of the coinage. Sums have always been reckoned in pounds, shillings, and pence, the shilling having consistently been the twentieth part of a pound, originally, as we saw before, a twentieth of its weight. But the pound had never been coined before. Occasionally there had been gold coins in circulation which exchanged for twenty shillings, but the rating of the gold coins had previous to 1717 been very variable. For a century people had reckoned in pounds and paid in guineas, and we have a survival of those days in the custom of charging fees in the older professions, in guineas, and of giving subscriptions to charities in the same form. But this double system is very troublesome in dealing with large sums, and accordingly in 1816 the guinea was replaced by a smaller coin, the present sovereign, rated at twenty shillings, thus bringing the unit of the coinage into conformity with the unit of account.