Category: History

An article in The Economist (from which I have nabbed the title of this post) argues that money, particularly coins, had to have “developed not as a private-sector attempt to minimise the costs of trading, but as a government operation.” In fact, there are many examples of private coinage. In an earlier post on George Selgin’s excellent book Good Money I wrote about private coinage in Britain:

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.

The Royal Mint had neither the will nor the technology to meet demand. In a story reminiscent of the Soviet nail factory one historian explained the incentives of the Royal Mint:

The public coiner, the Royal Mint, was charged with providing a stipulated amount of coinage each year rather than a stipulated number of coins. It did not take the eighteenth-century equivalent of rocket science to figure out that it was far easier to strike, say, a thousand golden guineas than 504,000 copper halfpence (24 x 21 x 1,000). The less-than-overworked denizens of Tower Hill cheered the discovery… But even had the Royal Mint been more co-operative, more inclined to rise to the challenge presented by the new wage earners, it would have been hard-put to assist. It still relied on antiquated machinery inherited from an earlier epoch….

The private sector responded, if the public sector would not.

To meet this shortage, Birmingham button makers started to coin tokens which circulated widely as money. Counterfeits and forgeries were common, however. Frustrated with the shortage of good money, Matthew Boulton, James Watt’s business partner, hit on the idea of using Watt’s steam engine to create steam presses. The new presses could apply more force thereby creating precise edging that would be difficult to forge or clip and they could do so on a mass scale. You can read the fascinating story in Selgin’s Good Money but suffice it to say that Boulton was eventually successful in producing the best coinage the world had ever seen not only for Great Britain but also for India, Singapore, Bermuda and elsewhere. Nor was Boulton’s the only example of private coinage. See Selgin’s post at Free Banking for U.S., Japanese and other examples.

Here are some of the coins from Boulton’s Soho Mint.

John Cochrane presents a good point:

But we’ve heard the defense over and over again: “recoveries are always slower after financial crises.”  Most recently (this is what set me off today) in the Washington Times,

Many economists say the agonizing recovery from the Great Recession…is the predictable consequence of a housing market collapse and a grave financial crisis. … any recovery was destined to be a slog.

“A housing collapse is very different from a stock market bubble and crash,” said Nobel Prize-winning economist Peter Diamond of the Massachusetts Institute of Technology. “It affects so many people. It only corrects very slowly.”This argument has been batted back and forth, but a new angle occurred to me: If it was so obvious that this recovery would be slow, then the Administration’s forecasts should have reflected it.  Were they saying at the time, “normally, the economy bounces back quickly after deep recessions, but it’s destined to be slow this time, because recoveries from housing “bubbles” and financial crises are always slow?”

No, as it turns out…

You will find further background here.  That said, my read on this is quite different than Cochrane’s.  He blames post-crash policy, whereas I blame (mostly) “The Great Stagnation.”