The Sterling Era
The end of pounds, shillings, and pence
May 15, 2000, Vol. 5, No. 33 • By DAVID FRUM
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).