The scientist who put
England on gold
On 21 September 1717, Isaac Newton, Master of the Royal Mint, handed the Lords of the Treasury a report on the value of gold and silver. He was trying to keep silver in the kingdom; he had just set England, without meaning to, on the road to the gold standard.
Sixpence too much on the guinea
For years the Mint had watched gold pour in while silver coins disappeared, melted down or shipped to the Indies. On 12 August 1717 the Lords of the Treasury asked Newton to explain why. In England the gold guinea passed for 21 shillings and 6 pence in silver, which valued gold at more than fifteen and a half times its weight in silver. On the Continent the ratio ran between 14.8 and 15; in China and Japan it fell to 9 or 10.
For any merchant the arbitrage was simple: settling a debt abroad in English silver paid almost 4% more than settling it in gold. So silver was exported, and foreigners sent their gold to London. Newton suggested taking 10 to 12 pence off the guinea, but advised stopping at 6 pence for the time being. The government followed him: in December 1717 a royal proclamation fixed the guinea at 21 shillings.
Newton had framed the choice himself: should gold be lowered by the government, or "let alone till it falls of itself by the want of silver money"? The price that flowed from his reform, £3 17s 10½d per ounce of standard gold, would remain the Mint price until the early twentieth century, apart from the interlude of the Napoleonic wars.
A standard born of a timid correction
The correction fell short. Even at 21 shillings, gold stayed slightly overvalued against European rates, and silver kept leaving the country. With white coins scarce, payments were made more and more in gold: the kingdom lived through the eighteenth century on a de facto gold standard, which the law would only enshrine in 1816. The system that organised world finance in the following century thus came not from a doctrine, but from an official price left badly adjusted.
The episode shows the limit of any bimetallism: fixing by decree the ratio between two metals whose markets keep moving. Once the gap between the legal price and the market price exceeds the cost of shipping, the undervalued metal leaves. That is Gresham's law, applied at the scale of world trade. The same mechanism returns whenever a state holds an exchange rate against the market: it is not decrees that choose which money circulates, but arbitrageurs.
The gold standard was not born of a theory, but of sixpence no one dared to take off.