In my more recent newsletters, I have been delving deeper into the evolution of modern money and how this relates to the development of Bitcoin, as it is helpful to understand where we have been to know where we are going.
Napoleon is believed to have said,
“History is a set of lies agreed upon”,
And Winston Churchill is thought to have said,
“History is written by the victors”.
As far back as the early 1700s, Robert Walpole, Britain’s first Prime Minister, is quoted as saying,
“Oh, I do not read history for I know that it must be false.”
So, establishing what exactly happened all those years ago with the beginning of modern money is a delicate task at best. It is hazardous to draw definitive conclusions.
Nevertheless, the information we do know paints an illuminating picture worth exploring.
In my newsletter, Bitcoin and the Gold Standard. I explain what is known about how the Bank of England was set up, particularly concerning the basis for a fractional reserve. I also mention how Sir Isaac Newton had a pivotal role in establishing the new currency of England by being made Warden of the Royal Mint and his role in beginning the transition of the nation’s currency from silver to gold.
The Enlightenment
The 17th century was characterised by a transition from the scientific revolution to the Enlightenment era. Wikipedia states that some authors define the peak of the Scientific Revolution and the beginning of the Age of Enlightenment as coinciding with the publication of Isaac Newton’s ‘Principia Mathematica’ in 1687.
The Age of Enlightenment is thought to have ended in 1804 with the death of Immanuel Kant.
The Age of Enlightenment was a time when new forms of thinking were rapidly taking shape, and the movement proliferated through local meetings and correspondence between notable figures throughout Europe and America.
Disputes over religion had much blighted the previous decades. Many Enlightenment scholars remained deeply religious but sought to understand their faith in new ways without the limitations, as they saw it, of the dogma of the Catholic Church, which had held substantial power for many centuries.
Isaac Newton had a pivotal role in this with the publication of his Principia Mathematica in 1687, just nine years before the establishment of the Bank of England. His influence as a scientist and his support for the Great Revolution, which saw the expulsion of the reigning Catholic King, James Stuart, and the invasion and establishment on the throne of England of the Dutch William of Orange, as a way of moving forward into a new Protestant era, tied in very neatly with the establishment of the Bank of England.
Joint Stock Companies
With the establishment of a fractional reserve at The Bank of England, new ideas and methods began in finance, and the careful administration of these new ideas built the foundations of the British Empire.
In the beginning, though, it was a rocky journey. Overspending quickly led to government debt – a topic I will explore more in my following newsletter. Attempts to repay that debt led to innovative schemes such as the Southsea Company, as discussed in my last newsletter, ‘Bitcoin and The Southsea Bubble’. In those days, unpaid debt would have enormous consequences in the life of the average person who could end up in a debtor’s prison, so debt was seen as a severe crime, and the accumulation of debt by the country had political implications that needed careful handling, which usually meant in secret.
Just before the culmination of the Southsea Bubble, the Bubble Act passed, which forbade the formation of a joint stock company unless the company had a royal charter. Wikipedia argues that the government did this to stave off competition for the Southsea Company in terms of investment. The government extended the Bubble Act to include British colonies in 1740. This legislation strangled the development of companies and company finance until it was repealed over one hundred years later, in 1825.
Currency Debasement
While company finance was an innovation the population would not explore for another 100 years, much work was needed to develop a banking system. Since ancient times, there have been many recoinages and debasements, usually associated with a king’s or emperor’s wasteful spending, a famous one being that of Henry VIII, leading to a recoinage issued under his daughter Elizabeth I to rectify the situation.
A similar crisis faced William of Orange when he ascended to the throne thanks to the spending required under the reign of the previous Stuart Kings fighting the English Civil War.
With the establishment of the Bank of England and efforts to route out counterfeiting undertaken with the careful and disciplined eye of Isaac Newton – Britain laid down a firm financial foundation. The Mississippi bubble that brought France to its knees and damaged its currency for decades, leading to the French Revolution, was avoided in England thanks to these advantages.
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