The History Of The British Pound
Chapter Two
Story Highlights:
In this examination of the history of sterling, we look at the changes in coinage and currency with information about:
- What money is
- The limitations of bartering
- The theory of gift economies
- The development of coinage
- What Celtic ring money was
- The spread of coinage into England
- The threat of Viking invasions
- The origins of the phrase ‘paying through the nose’
- Minting in Medieval England
- The dangers of being a moneyer
- The introduction of sterling silver and the Trial of the Pyx
- Currency debasement in the 16th century
- Widespread changes in the 17th century
- The origins of the phrase ‘It’ll cost you an arm and a leg’
- Sir Isaac Newton and the unofficial gold standard
- What the first pound notes were like
The beginnings of the British currency
This chapter is devoted to the early history of Britons from the bartering and gift economies of early societies to the development of coinage and Celtic ring money – what was it exactly? Our examination of the history of sterling continues with the resulting changes caused by successive invasions of Romans, Saxons, Vikings and Normans, all of which had an influence on the currency. From a description of minting in Medieval England and the role of moneyers, we look at the main developments up to the end of the 18th century.
Let’s start with a basic question – a definition of money itself.
What is money?
Living in a country with a sophisticated financial system, asking what money is might seem an obvious question and you’d probably reply by showing a handful of coins or sterling banknotes in your wallet or purse. However, would it surprise you to learn that in the past different objects were used as money varying from shells to large stones?
The main criteria for what money is from an economists’ point of view is that it should be durable, portable, easily divisible and recognised by the whole community as having a specific uniform value. Early primitive communities had problems with the money system they put in place since it didn’t necessarily meet all of these criteria.
The limitations of bartering
Anthropologists explain that the first agrarian communities were based on bartering. The simplest example being that you would have exchanged your cereals for livestock. However, the obvious drawback of this system is that you’d have to find someone who wanted what you had to sell (also known as a coincidence of wants). The bartering aspect meant there was no agreed measure to the relative value of such commodities. And what would happen if you wished to barter something which was easily spoilt such as foodstuffs? One explanation is that they would barter for an intermediate commodity as a way to store their ‘wealth’.
The theory of gift economies
The anthropologist David Graeber has put forward the idea that early communities were gift economies. In other words, two parties would agree to give/take something with the understanding that this ‘I owe you’ (or the earliest form of credit) would be paid back in the future – whether by giving a commodity or by offering a service. It might seem altruistic but it could have worked as an informal social insurance system (“I’ll pay you back when you need something”) or might even have been a sign of social status.
The development of coinage
As soon as communities became larger and labour became more specialised with fewer people working on the land, people had to find another way to exchange the relative values of goods and services. Metal-based coinage was the solution to the problem of paying and being paid since coins could be weighed, broken down into divisible parts (i.e. give change) and could be easily recognised by the whole community. The main benefit was that the coins carried their value within themselves in the form of precious metals like silver. Not everyone accepted the idea of coinage, however. Let’s look at the early Celts.
What was celtic ring money?
Around the 2nd century B.C. (the Late Iron Age) the Celts used iron currency ‘bars’ shaped like swords, spits, plough-shares and bay leaves. They also traded neck torcs and armbands made of gold, silver or bronze. Some historians claim that this ornamentation was purely decorative and a sign of high status. However, although these body ornaments were of different weights, they have been proven to be multiples of a standard unit which tends to suggest that a monetary principle regulated their size. These wearable items were roughly made with marks so they could be cut easily into segments for smaller transactions. They were the ultimate in portable wealth!
Summary:
The definition of the ideal money is that it should be portable, durable, easily divisible and widely recognised.
Early agrarian communities probably used bartering and gift economies to exchange goods and services.
Metal coinage met the criteria as the ideal basis for monetary exchange and could be used in societies with fewer people working in agriculture.
The early Celts used both iron bars and decorative wearable items for financial transactions.
The spread of coinage into England
When The Romans invaded the British Isles, they did a great deal to ensure the use of coinage received widespread acceptance. However, after they left in the early 5th century – and the subsequent invasion of the Saxons – the Britons stopped using coins for 200 years.
King Offa of Mercia was the one who introduced the silver penny and here we can see the beginning of the British currency.
King Offa of Mercia (757-796) was the one who introduced the silver penny and here we can see the beginning of the British currency. He adapted the system which had been introduced by Charlemagne in the Frankish Empire (the French livre). Each pound weight of silver (£1) was made up of 240 silver pennies, there were 4 farthings to a penny, 12 pennies were equal to one shilling and there were 20 shillings to every pound. Their abbreviations came from the Latin words libra (£), solidus (s) and denarius (d) and were used to denote pounds, shillings and pennies for over a thousand years until decimalisation in 1971.
The threat of Viking invasions
Many innovations are instigated because of military threats and the increase in the number of mints in England is no exception. King Alfred the Great (849-899) increased the number of mints to 8 as he needed enough coinage to pay his soldiers who fought successfully to prevent a Viking invasion. His grandson King Athelstan was also an important figure in the development of the British currency because he increased the number of mints to 30 and passed a law that there should be only one type of currency across the whole of England.
Although there was the constant threat of Viking invasion in this period, successive rulers of the British Isles found that the payment of ‘Danegeld’ could be given as a bribe to discourage the Viking invaders. By the reign of Athelred in the 11th century, there were 75 mints active and they were enough to produce a bribe of 40 million pennies.
Athelred the Unready was later defeated by the Viking leader King Knut, who went on to become the King of England, Denmark and Norway. Upon his ascension to the crown in England, he had to give his soldiers 20 million pennies before sending them home. It’ll come as no surprise to learn that modern-day archaeologists find more Anglo-Saxon coins in Scandinavia than they find in the British Isles.
Did you know that the origins of the common phrase ‘paying through the nose’ comes from the times of Viking invasions? In 9th century Ireland, they used to collect a tax to bribe the would-be invaders. Anyone refusing to pay would have their nose slit from lip to eyebrow – hence the idiom “He paid through the nose for it”.
Minting in Medieval England
With its origins in the Roman office of monetarius, moneyers were the craftsmen responsible for minting coins, which were made on the express orders of the king. At the time, many market towns in England could have anything from 1-15 mints depending on their size and relative importance. Dies would be sent to the mints bearing the name of the mint and the moneyer as well as a portrait of the king and a design such as a cross.
Moneyers had to serve an apprenticeship of 7 years before they became salaried employees (or journeymen) and had to swear an oath to serve the crown. To work as moneyers, they also had to be a member of a guild, which served a number of purposes. Medieval guilds protected their monopoly against outsiders; oversaw standards; ensured that fair prices were charged; disciplined their members; took part in their town’s civic duties and offered an early social welfare system for both guild craftsmen and their dependants.
All minting was done by hand. Moneyers’ tools of the trade were 2 iron dies (a trussel and pile) to mint the coins; a mallet, tongues and shears to shape the coins and burins and punches for the engraving. It was their responsibility to make sure that all coins were of a uniform size and weight or they could be punished. What was their punishment?
Summary:
King Offa of Mercia based his currency on Charlemagne’s livre (pound) and the abbreviations for pounds, shillings and pennies were in use till 1971.
Mass production of coins in mints became important for the Anglo-Saxons either to pay for armies to fight the Vikings or to mint coinage to bribe them.
Moneyers were craftsmen and members of a guild responsible to the crown for minting coins.
Coins were hand-made and moneyers had to ensure they were all the same size and weight.
The dangers of being a moneyer
By 1125, the coinage of England had become debased and some people wouldn’t accept the silver pennies in payment. When the money arrived in Normandy for Henry I to pay his soldiers in his fight against his nephew William for the Norman crown, the coins were found to be debased to the point they were only a third silver and the rest was tin. Henry I was outraged and demanded that all the moneyers in England should be mutilated.
By 1125, the coinage of England had become debased and some people wouldn’t accept the silver pennies in payment.
How much was this debasement the fault of the moneyers? Partly is the answer. Fines and royal rents could only be paid in new coins. Therefore, those who wanted to pay their debts had to pay the moneyer to re-mint or exchange their coins, for which they were charged a fee. It also gave the moneyers ample opportunities to cheat on the coins’ silver content.
On the other hand, no large new silver deposits had been discovered since 1040 while a lot of silver had been leaving the Continent for trade with the Far East (where they preferred silver to gold).
And their punishment? All the moneyers were invited to Winchester, where Bishop Roger of Salisbury carried out the King’s order for mutilation – they had their right hands cut off and were castrated.
The introduction of Sterling silver and the Trial of the Pyx
Until 1158, coins were minted from silver as pure as could be found. Henry II introduced a new coinage, the Tealby penny, which was struck from 92.5% silver and 7.5% copper. The advantage of this sterling silver (as it came to be known) was that it was harder than pure silver and therefore much more durable.
To prevent debasement occurring without the knowledge of the crown, the Royal Mint began the Trial of the Pyx, when a random selection of coins is taken out of circulation to be tested for weight and purity. The pyx refers to the boxwood chest where the coins are placed before the ceremony. This ceremony, presided over by a judge and jury of assayers, has taken place every year since 1282.
Although the gold noble was introduced in 1344, silver remained the legal base for the sterling currency until 1816.
Currency debasement in the 16th century
During the reign of Henry VIII, mints run by monasteries were closed and so the Royal Mint based in the Tower of London had a monopoly on minting coins. Both Henry and his successor Edward VI debased silver currency so that by 1544 sterling silver was only a third silver and the rest was copper. The coinage wasn’t restored until 1561 during the reign of Elizabeth I.
Although attempts were made to modernise the way that coins were minted in the 16th century, moneyers were upset by the loss of their trade and successfully resisted the change until after the Restoration.
Summary:
Moneyers were mutilated for the 12th century debasement of silver coins in England although other factors also played a role in the impurity of the currency.
In 1158, sterling silver replaced pure silver for the minting of coins because it was harder and so longer-lasting.
The Trial of the Pyx has taken place every year since 1282 to test the weight and purity of coins in circulation.
During the 16th century coins were debased by the monarchs themselves and moneyers resisted efforts to change their manufacturing methods.
Widespread change in the 17th century
From 1662 the procedure for making coins was mechanised using rolling mills and coining presses with an immediate impact on the specialised craft of moneyers.
During the late 17th century, the lack of silver to mint coins reached crisis point since further sizeable amounts of silver had been lost to countries like China to pay for imports like tea. It’s estimated that 28 million kilograms of silver left Europe during this period but in return European traders were paid in gold.
The other reason for the unavailability of silver was that affluent merchants wanted tableware made of silver so that they could show off their wealth and often coins were melted down to provide them with this status symbol. The 1697 Act of Parliament stipulated that such plate had to be 95.83% silver (purer than sterling coins) and prevented the coinage from being used in this way.
Once again, military demands shaped the development of financial affairs in England. Much to the nation’s shock, the English lost the naval battle of Beachy Head in 1690. In order to fund the continuing war with France, William III created the Bank of England in 1694. Its establishment raised £1.2 million in 12 days, half of which was used to rebuild the English navy. For the very first time banknotes were issued although they were hand-written.
Sir Isaac Newton and the unofficial gold standard
In 1699 Sir Isaac Newton was awarded the position of Master of the Mint in reward for his services to science. This position was meant to be a sinecure – for him to draw a salary but not do anything in particular. Imagine everyone’s surprise when he took his job seriously and actually turned up for work!
During Newton’s tenure as Master of the Mint, he was the one who noted with concern the lack of silver and was responsible for pricing sterling in terms of gold for the very first time. He set the price of gold at £4.25 per ounce, which is where it stayed for the next 200 years. With this step in 1717, Great Britain was on an unofficial gold standard.
Did you know that although Newton is best known for his work on gravity, calculus and optics, he spent over half of his working life interested in alchemy (trying to turn base metals into gold)?
The first Pound notes – What were they like?
And for the first time, there is talk of Great Britain – instead of England – since the 1707 Act of Union meant that no more Scottish coins were ever minted again. The Bank of Scotland had been established a year after the Bank of England; this Scottish bank was seen as more of a trading bank although it was allowed to issue its own banknotes.
From 1725 banknotes began to be partially printed but cashiers still had to sign each note and make them payable to someone – often for irregular amounts. You probably wouldn’t recognise them as banknotes as we have them today; they were printed in black and white and on only one side. In fact, they resembled more like early cheques than standard notes. Banknotes also tended to be issued in greater numbers during times of war. The lowest value of note was £10 during the Seven Years’ War (1759) and the first five-pound note was issued in 1793 during the war against revolutionary France. Four years later, banknotes worth £1 and £2 were printed but their use was stopped after the end of the war when the government’s need for money was less urgent.
Summary:
The 17th century saw major changes: in the mechanisation of minting coins, a lack of silver to mint coins as well as the establishment of the Bank of England.
Sir Isaac Newton was appointed the Master of the (Royal) Mint and oversaw Great Britain being put on an unofficial gold standard.
The 1707 Act of Union saw the unification of Scotland with England and the last coins were minted in Scotland.
The first sterling banknotes were more like cheques and tended to be issued in greater numbers and in lower denominations when the government needed to finance wars.
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