Good Money

by on September 2, 2008 at 7:44 am in Economics, History | Permalink

At the dawn of the industrial revolution as workers left the fields and moved to industrial employment the demand for a means of payment increased dramatically.  Workers, once paid in kind, needed to be paid in a medium they could use to buy the necessities of life.  Small-tender bank notes, however, were illegal and in Great Britain the production of coin was monopolized by the Royal Mint which failed to provide enough high quality coin to meet the demands of workers and business.  Silver coin, despite the efforts of Sir Isaac Newton, was overvalued and fled the country.  Gold was too expensive to make coins suitable for workingmen and the Mint could not or would not produce high-quality copper coins.

Good Money is George Selgin’s explanation of how enterprising button makers solved what Sargent and Velde called The Big Problem of Small Change thereby making the industrial revolution possible.  Selgin is a monetary theorist so you might expect a dry account of monetary history but the mint-battle between Matthew Boulton, whom Wired once named the ultimate CEO, and copper-king Thomas Williams propels the story forward. If you can imagine, Good Money is something of a cross between Friedman and Schwartz’s A Monetary History of the United States (although not as broad in scope) and a business epic like Barbarians at the Gate.   I also liked how Selgin draws on newspapers, novels, limericks and tavern songs to illustrate the problems and events of the time.  This bard was both a good economist (he has Gresham’s Law!) and public choice scholar.

‘Tis Gold buys Votes, or they’d have swarmed ere now,
Copper serves only for the meaner Sort of People
Copper never goes at Court
And since on Shilling can full Twelve Pence weight,
Silver is better in Germany
‘Tis true the Vulgar seek it, What of that?
They are not Statesmen,-let the Vulgar wait.

The money problem influenced and was influenced by all of the major events of the day so Good Money is also an economic and political history of the industrial revolution.  Here’s an interesting tidbit. Company stores were not so much a way for firms to rip off employees (why not just pay them less?) but were rather a means of economizing on coin.  Selgin shows how the shortage of coin sheds light on a number of other otherwise peculiar business practices. 

What lessons can be drawn from the history of private coinage?  Private money circulated only if it was voluntarily accepted as a means payment.  Thus the primary problem faced by private firms was how to create trust and credibility.  To encourage circulation, for example, issuers promised to redeem their tokens in gold (which the Royal Mint did not).  In turn, the promise to redeem gave producers an incentive to make their coins difficult to counterfeit, which they did by making the coins beautiful – numismatists will appreciate the full-color illustrations of the private coinage produced by Boulton and his rivals – as well as technologically advanced. 

Today, the big problem of small change is no longer such a big problem, although shortages of wanted coin continue to occur sporadically around the world (e.g. here and here) as well as surpluses of unwanted coin.  Nevertheless, the basic problems of private coinage were trust and credibility.  Modern issuers of digital cash face the same problems and thus Selgin’s history is a valuable reminder about the scope and potential of alternative monetary institutions.

Full Disclosure: I was enthusiastic about Good Money when I read it in manuscript which is why it is published by the University of Michigan Press and co-published by the Independent Institute where I am director of research (n.b. you can buy Good Money at the previous link at a small discount to the Amazon price).

Tyler Cowen September 2, 2008 at 7:56 am

I read an earlier version of the manuscript and I thought it was very good.

Michael Webster September 2, 2008 at 9:38 am

That sounds like a very interesting book, to be put on the wish list immediately.

Why were small bills banned? Or do I have to read the book?

Allan Friedman September 2, 2008 at 10:27 am

I’m curious whether the book gets into digital cash and cryptographically secure payments, which has its own storied history full of characters and a noted absence of success.

Is the issue here “the primary problem faced by private firms was how to create trust and credibility.”?

Also, “the big problem of small change is no longer such a big problem”

Those who support micropayments have been struggling with this in their own way. If there should be a market that allows such small transactions, it is hobbled by both usability issues and steep overhead costs when it interacts with the traditional payment mechanisms (credit cards, etc).

Xmas September 2, 2008 at 12:37 pm

VC,

If you had bought the check (if the amount wasn’t something completely unaffordable), you could have increased the liquidity of everyone in the village.

If you’d bought the check with quarters, you would have done something really nice for them.

Anonymous September 2, 2008 at 3:40 pm

Laws may vary by country, but a check that’s several years old is surely expired and will not be honored by any bank you present it to.

Cashing even a valid check written on an American bank account is enough of a hassle even in Europe, let alone in some developing country, and sure to have hefty fees.

You could have explained it to the guy using analogies. Tell him, let’s say you wanted someone’s daughter in marriage, and it was agreed, but then you waited several years before showing up for the wedding. Too late, he tells you, she already married someone else a long time ago. And not only that but it was some complete stranger’s daughter promised to some other complete stranger, so why are you showing up here with a note in your hand?

Maybe you should have bought the check… with counterfeit money. Out of curiosity, what was the amount?

VC September 2, 2008 at 4:40 pm

I think it was $250 which was three months salary for me (not counting my readjustment allowance) at the time. He wanted half that.

George Selgin September 2, 2008 at 9:59 pm

Nick,

Although the Darbys figure only tangentially in the story told in Good Money, their rival and occasional partner John Wilkinson plays a prominent part in it.

andy September 5, 2008 at 7:48 am

e-gold moves more money each day, even after being attacked by the feds, than any other non-dollar-denominated e-currency.

You can see their stats in real time:
http://www.e-gold.com/stats.html

They also offer the cheapest micro payments… there’s even a black market in Second Life operating with e-gold… set up after SL cracked down on gambling…

bluece May 14, 2009 at 1:41 am

I want a lot of money I can buy all the things what i want

bluece May 14, 2009 at 1:42 am

we should make more think about these things

porno izle May 23, 2010 at 10:31 pm

it is so complicated

porno izle October 15, 2010 at 5:35 pm

سلم على الأهل والأحباب راجيا من الله أن يكونوا بخير. ماهي أخبارك؟ أتمنى أنك بأحسن الأحوال. هل من جديد؟ يسعدني أن أكتب لك هذه الرسالة راجيا من الله أن تلقاك بألف خير. بسم الله الرحمان الرحيم. السلام عليكم ورحمة الله وبركاته. مع السلامة و في رعاية الله. إن شاء الله تعالى. الحمد لله رب العالمين. سلم على الأهل والأحبابporno izle راجيا من الله أن يكونوا بخير. ماهي.أ أتمنى أنك بأحسن الأحوال. هل من جديد؟ يسعدني أن أكتب لك هذه الرسالة راجيا من الله أن تلقاك بألف خير. بسم الله الرحمان الرحيم. السلام عليكم .ورحمة الله وبركاته. مع السلامة و في رعاية الله. إن شاء الله تعالى. الحمد لله رب العالمين.

Comments on this entry are closed.

Previous post:

Next post: