The History of a Currency

by Nicholas Mayhew

John Wiley & Sons, 320 pp., $ 27.95

The British pound survived the Wars of the Roses, the beheading of a king, two world wars, and the loss of an empire, but nothing short of a miracle will save it from Tony Blair after the next British election. The German deutsche mark is already on its way to join the florin and the obol in oblivion. So are the French franc, the Spanish peseta, and the Italian lira. In their place will stand the European Union's financial creation, the euro.

During the 1997 election, Blair pledged to hold a referendum before he made Britons shed their pounds, and he is hesitant to schedule that referendum before he's reelected to a second term in office. But the referendum is coming, and with the leaders of British business and almost all the British media solidly lined up in favor of the euro, it seems probable the new money will prevail.

From an American point of view, this is not an unmitigated disaster. The euro is plummeting against the dollar -- it's now worth less than 90 cents, down nearly 25 percent from its original level. If this decline continues, the day may soon return when American tourists will be able to enjoy a beer and a sandwich on the Champs Elysees for less than twenty dollars. From a European point of view, it may not be a disaster either: A depreciating currency is lowering European industry's inflated wages without upsetting its stubborn labor unions.

But for Britain, the merits of the euro are more ambiguous. It will certainly make accounting easier for importers and exporters. It will soothe the sensibilities of the French by banishing from British currency the portrait of the Duke of Wellington, who beat them at Waterloo.

But will it really enhance the prosperity of an island nation that has always lived by trading as much with the English-speaking world across the ocean as with the continent across the channel? And what will the disappearance of a thousand-year-old money do for the cohesion of a United Kingdom whose unity is steadily being unstitched by Irish, Scottish, and Welsh nationalism?

Nicholas Mayhew, a curator of the antique coin collection at Oxford University, takes a cheerful view of the demise of the pound. "It may be that it is time to trade in our old currency," he writes in Sterling: The History of a Currency, "rather as one might reluctantly say farewell to a pair of much loved, but increasingly ill-fitting, old slippers." Some might wish to reply that it would be wise to check that the new slippers fit at all before throwing the old ones away, but even those who reject Mayhew's conclusions will benefit from his clear, short, and entertaining book. Monetary history is not usually a subject for the easily intimidated. (The daunting history of the dollar by Milton Friedman and Anna Schwartz probably helped convince thousands of graduate students to write their theses on the hermeneutics of the Brady Bunch instead.) But Sterling is a book accessible to all -- a fascinating study of the thousand-year-old institution that Tony Blair is determined to abolish.

Sometime soon after the Norman Conquest of England, the new monarchy began coining a silver coin. The literate classes called the coin by the French word "denier" (derived from the lowest denomination Roman coin, the denarius). The peasants called it pence. Because the new coin had more silver in it than the money of the Anglo-Saxon kings, it also came to be called "sterling," after the Middle English word for strength.

If you had twelve of these coins, you were said to have a "shilling"; and if you had twenty shillings that hadn't been clipped or debased, their weight would total one Roman pound (or "libra") of silver. Thus the origin of the symbols £, s, d, and the 240-penny pound that baffled foreign visitors until 1971.

For more than two hundred years, these pennies were the only tangible English money: Shillings and pounds existed only in people's minds. The first gold coin was introduced into England in 1344. Given the medieval delight in confusion, it of course was equivalent to neither a shilling nor a pound but to a Florentine coin worth approximately 72 pence.

Simultaneously issuing gold and silver coins creates some extremely tricky problems, because the values of gold and silver bounce around quite independently. Over the centuries an ounce of gold has been worth as little as fifteen times and as much as eighteen times an ounce of silver.

There used to be a whole branch of economics devoted to the problem of harmonizing this unstable relationship. The English settled the issue for themselves very largely by accident at the end of the seventeenth century: In an effort to stabilize a money that had been badly inflated after half a century of civil war and revolution, Isaac Newton, whose day job was Warden of the Mint, established a value for silver that was so low that silver money disappeared from English markets. From 1696, England was on the gold standard alone, with new copper pennies replacing silver as small change.

But as silver was flowing out of England, gold was flowing in. For the next 220 years, England and then Britain would have the hardest money on earth, contributing to London's rise as the planet's banking capital -- and that unassailable financial position permitted Britain, from the reign of Louis XIV to that of Kaiser Wilhelm, to wage war more effectively than any other state.

This financial hegemony won its last and greatest victory in 1918, but, as Mayhew poignantly explains, the hegemony had to be sacrificed to win the victory. All the world's currencies were inflated to finance the twentieth century's wars, and compared with Germany, France, or Italy, the British did not suffer too badly. Against the dollar, however, the pound has eroded sadly: A pound bought $ 4.86 in 1914; it buys only about $ 1.55 today. And while an American dollar will be happily accepted anywhere from Madagascar to Moscow, the pound is barely recognized beyond the British Isles.

Mayhew cites the decline of the pound as the best justification for its abolition. But there's more to it than that. On Mayhew's own telling, money serves political as well as economic ends. The success of their post-Conquest coinage secured the position of the Norman kings. Parliament's control of the London Mint lost Charles I the English Civil War. Isaac Newton's miscalculation was as responsible as anything else for the growth of the British Empire.

Nor has money lost its political significance. The pound is one of the few remaining connectors linking an increasingly separation-minded Scotland to England. Scotland now has its own legislature as well as a distinctive legal system. Sever the financial connection and what remains? The monarchy? But that's Tony Blair's next bulldozing project. And even if the Scottish-English-Northern Irish union were to survive the disappearance of the pound, what kind of union would it have become? The use by the British of a currency that eases transactions with France and Germany but that has a jumpy and unpredictable value in relation to the U.S. dollar will only intensify the gravitational pull now drawing Britain away from the dynamic economies across the Atlantic and Pacific and toward the stagnant, bureaucratic, unionized, risk-averse, innovation-skeptical economy of a graying continent.

It is, of course, Britain's decision to make. But we on this side of the Atlantic inherited our political institutions, our laws, our literature, and our language from the British. Our concerns are linked to theirs. If Britain shrivels into insignificance, we who live in what is really the British Diaspora are bound to shrivel a little too.

David Frum is a contributing editor to THE WEEKLY STANDARD and author of How We Got Here: The 70's, The Decade that Brought You Modern Life -- For Better or Worse (Basic Books).

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