Gold – according to Dominic Frisby: The Great Inflator

I always had Henry VIII down as one of the good guys. Boldly standing up to papal supremacy in the way that he did enabled a much free-er Britain to go on and do many wonderful things. However, I doubt Henry knew at the time what the long-term consequences of his actions would be.

Having just read about his attack on sound money, the Great Debasement, which must be one of the greatest inflationary thefts by a ruler in British history, I’m rather revising my views. Never speak ill of the dead and all that, but extravagant (and not in a good way), power-mad, greedy and hypocritical are the adjectives currently springing to mind about Henry VIII.

Historian Simon Montefiore goes further, declaring him egotistical, paranoid and tyrannical, and listing him as one of History’s 101 Monsters, alongside Vlad the Impaler and Adolf Hitler.

When Henry VIII was crowned king in 1509 the national finances were in rare good shape. His predecessor Henry VII had broken the mould of medieval English monarchs by pursuing marriages and alliances overseas instead of war. His reign saw just one overseas conflict.

Henry VII’s many achievements lay in his business brain. Rather than resist economic change and new technology, he encouraged it (and then taxed it). Rather than wage war, he avoided it. He built up an extraordinary wealth.

His taxation and legislation of the nobility effectively ended the power of the barons and thus feudalism itself, while establishing the freedom of the mercantile classes to trade. He became the first English king for centuries to run a surplus. Imagine!

The wool trade blossomed, serfdom was disappearing and the country was changing to a money- rather than land-based economy. England got its first blast furnace, and so began its iron industry.

Of greater relevance to us gold bugs, Henry VII had new coins issued to ensure a standard currency. Weights were also standardised.

Things however changed with his son, Henry VIII – and rapidly. One of his first acts, two days after his coronation, was to arrest the two men responsible for collecting his father’s taxes, Sir Richard Empson and Edmund Dudley. They were charged with high treason and duly executed.

Henry ushered in the idea that kings had divine right, an issue that would cause a civil war 100 years on. Never mind Henry VIII’s Great Debasement, which we will come to in a moment, the idea that a king was appointed by God and had Divine Right must be another of the greatest frauds perpetrated on a nation by its rulers. Anyone who dissented was treasonous or heretical, often executed without a formal trial – or simply banished.

He got involved in numerous costly and largely unsuccessful wars on the continent and in Scotland and these, coupled with a personal extravagance that people are still talking about, meant he was constantly on the verge of financial ruin.

To pay for it all he introduced numerous new taxes, including a tax on beards, which has to go down as one of the ruling classes’ greatest ever do-as-I-say-not-as-I-do moments. He dissolved monasteries, sold crown land and “redirected” any money formerly paid to Rome and the pope to the royal coffers.

But still he couldn’t get enough money – and so he ordered what became known as the Great Debasement. The amount of gold and silver in coins was reduced and, in some cases, replaced entirely with copper.

It began in 1542 with a secret indenture. Production of current coins would continue, but meanwhile new coins would be secretly minted, including the previously unsuccessful testoon, with significantly less gold and silver and stockpiled in Westminster Palace.

In 1544, a lack of bullion arriving at the mint prompted the government into phase two of the scam and the debased coins were allowed to enter general circulation. Within months merchants began to discover the new silver groats had been debased, and in the Low Countries they began fetching a lower price. Coins of a similar value but with a higher precious metal content were hoarded and so disappeared from circulation – a classic case of bad money driving out good, aka Gresham’s Law.

Henry’s stockpiled testoons were copper coins with a thin layer of silver on top. Over time the silver would wear off, especially around the nose on Henry’s face on the coin, which protruded a little and so wore quicker, and the copper underneath would be exposed. So Henry VIII got the nickname ‘Old Coppernose’.

The debasement continued after Henry’s death in 1547, and was eventually revoked by his successor Edward VI in 1551. Over the course of the seven year debasement, the purity of gold coins slipped from 23 carat (96%) to 20 carat (83%), while silver coins steadily fell from 92.5% (sterling silver) as low as 25% – that’s a theft of 83% of the silver.

When Elizabeth I came to power in 1558, the debasement had affected both trading relationships (foreign merchants often refused to accept English coins) and confidence in the monarchy. Elizabeth’s advisors William Cecil and Thomas Gresham persuaded her that these problems could be solved with sound money.

Following Gresham’s advice, the government passed a law which ended the legal tender status of debased coins and forbad “good” coins from entering foreign markets. Then in 1560 Elizabeth had all debased coinage removed from circulation, melted down and replaced with higher fineness, newly minted coins – soon to be harder-to-clip milled rather than hammer struck coins. The crown made some £50,000 from the re-coinage.

*Dominic Frisby is the author of Daylight Robbery – How Tax Shaped The Past And Will Change The Future, out now at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.