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).