A Ramble 'Round Old Birmingham


This "missing chapter" is excerpted from an early draft of Professor Selgin’s new book, Good Money, the true and remarkable story of private coinage and banking in Britain in the early years of the Industrial Revolution (1775–1850). Making money was a business in demand. The needs of business for small denominations were changing. Merchants needed small-denomination coins in copper and silver.

The Royal Mint couldn’t be bothered. It made coins to serve the elites, not the new and burgeoning working class. Free enterprise stepped in with a new industry that truly saved the day – before the Crown cruelly stamped it out and ended one of the most beautiful experiences with private money in world history.

It is very likely you have never heard of this episode. You can read dozens of histories of the early years of capitalism and know nothing of this spectacular industry – to say nothing of its lessons for today.

What is going on here? George Selgin, professor at West Virginia University, has discovered the monetary equivalent of the lost city of Atlantis. He has written a full-scale historical narrative – one that is deeply interesting and engaging – that has been largely unknown, even to scholars of the Industrial Revolution.

It is not only the first full-scale history of this episode ever written. It is likely to maintain a place as the definitive work for many decades. It is 400 pages, but always and everywhere very interesting. It includes 20 pages of color photos. The prose is elegant, and the method of analysis is thoroughly Rothbardian: this is flesh-and-blood history of real human beings.

He tells the stories – of the merchants, the button makers who turned into coin makers, the way the system worked, its wonderful innovations, and its evolution – and reveals the cruelty and destructiveness behind the government’s suppression of the industry.

The small-denomination-coin industry had developed to the point at which 20 independent mints were involved in making coins. These private coins served the merchants and the workers, while the government’s currency served only the landed rich. The new industry was like capitalism itself: it was designed for everyone to the benefit of everyone.

The private coins tended to be better quality than the government’s coins. Why? Because private merchants could refuse them – and consumers could too. There was competitive control over them and an inexorable tendency for currency to improve in every way. That’s why the book is called Good Money.

And what of Gresham’s Law, the tendency of "bad money" to drive out good money? Selgin’s account demonstrates something striking: it only holds under government systems of money that overvalue bad money. In a private system, good money – like all good products and services in a free market – outcompetes the low-quality money. In a market-based money system, there is an inexorable tendency for good money to win out.

The story is riveting in its own right, not only as monetary history but as business history. Selgin has highlighted a fantastic industry that has long gone unnoticed. But beyond that, there is a massively important economic point. What he has done here is help us to understand something critically important: were it not for the state, a wholly private money system would emerge from market exchange – that means private coinage, private weights and measures, market-driven exchange rates between different kinds of monies, and a fully private banking system to go along it with it.

In fact, this is precisely how money originates: from within the market. Why does the state intervene? The British case is typical. The state wants to control the economy, tax the economy, and control the people. If a fully private system comes about, the state finds its job all but impossible. That is why the state takes over at the expense of private enterprise.

In other words, the state is not responding here to a market failure but to a market success. It is not a "public goods" rationale that leads to state intervention but old-fashioned jealousy over power and wealth. Selgin’s book shows this not through polemics but through a completely new telling of real-life events about which we’ve previously known next to nothing.

The story alone is engaging and entertaining. But readers will have to brace themselves for the conclusion: "The episode compels one to ask, first of all, whether modern governments should be in the coin-making business at all." He is right that "economists tend to take governments’ monetary prerogative for granted." This spectacular book by Selgin could change that forever.

The impact of this book – one of the most important historical narratives ever written by an Austrian economist – will be felt for many years. He has shown us the real history behind what has been largely theory in previous works. Think of this as a historical application of Mises’s Theory of Money and Credit or Rothbard’s What Has Government Done to Our Money?

Selgin was the first Mises Institute scholarship student, and the publication of this book by the University of Michigan Press was made possible in part by the Mises Institute.

One has no great hopes from Birmingham. I always say there is something direful in the sound.

The World’s Toyshop

Birmingham shown within EnglandBirmingham, Brummagem, Bromwicham, Brymingham, Bermingeham…. Spell it or say it however you please, there is something queer about the place. Even before the canal boom, it managed to become England’s preeminent industrial city, and was well on its way to becoming the "the workshop of the world." Yet it was located far from sources of the principal raw materials – especially copper and zinc – that most of its manufacturers relied upon; and transport was a problem, since it was also a good distance from any port or navigable river. The place didn’t even have all that many streams capable of being reliable sources of power for its hammers and rolling mills.

How, under the circumstances, did Birmingham manage to attract and to breed such a disproportionate share of Great Britain’s outstanding entrepreneurs, inventors, and skilled artisans? Why, in particular, did it – and not London or Bristol or Sheffield – become Great Britain’s leading center for all kinds of metal work, including commercial coinage? Although numismatists have had plenty to say about the tokens and other numismatic products made there, they’ve had relatively little to say about the town itself, and the mints it nurtured.

Soho, of course, has gotten plenty of attention from numismatists. Yet the Soho mint was the only important commercial mint that wasn’t located in Birmingham (though it was just a stone’s throw away). In other respects also the Soho mint was hardly representative of commercial mints generally. It has come to overshadow the rest not because its commercial coins were distinctly superior, or because there were more of them, but because of its association with Great Britain’s most famous steam-engine manufactory, its participation in regal coinage, and its role as the prototype for the Tower Hill Mint. The Birmingham Reference Library’s huge stash of archival materials from Soho has also allowed scholars to document Soho’s undertakings, including its coining activities, in what is often extraordinary detail.

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October 25, 2008

George Selgin, professor at West Virginia University, has discovered the monetary equivalent of the lost city of Atlantis. He has written a full-scale historical narrative – one that is deeply interesting and engaging – that has been largely unknown, even to scholars of the Industrial Revolution.