TURNING GOLD INTO PAPER
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spectre
Aug 9, 2009, 1:23:12 PM8/9/09
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http://spectregroup.wordpress.com/2009/08/07/turning-gold-into-paper/
THE LAST OF THE MAGICIANS
http://www.novapoly.com/articles/finance/fractional-reserve-banking-model/
http://www.cftech.com/BrainBank/OTHERREFERENCE/BIOGRAPHY/Newtonian.html
"In 1936 an interesting lot came on the block at Sotheby's in London
containing a cache of writings by Newton -- journals and personal
notebooks deemed to be "of no scientific value." The winning bidder
was the economist John Maynard Keynes. After perusing his purchase,
Keynes delivered a somewhat shocking lecture to the Royal Society Club
in 1942, on the tercentenary of Newton's birth. "Newton was not the
first of the age of reason," Keynes announced. "He was the last of the
magicians."
This was meant quite literally, as was a statement expressed by the
poet Wordsworth that Newton had a mind "forever voyaging through
strange seas of thought, alone." For the "secret writings" made it
clear that during the crucial part of Newton's scientific career --
the two decades between his discovery of the law of gravity and the
publication of his masterwork, the "Principia Mathematica" -- his
consuming passion was alchemy. Bunkered in his solitary live-in lab at
the edge of the fens near Cambridge, Newton indulged in occult
literature and strove to cook up the legendary "philosopher's stone"
that would convert base metals into gold."
MULTIPLIED TO INFINITY
http://inversesquare.wordpress.com/2008/02/01/friday-isaac-newton-blogging-q-how-did-newton-get-rich-a-he-mastered-a-mundane-form-of-alchemy/
Three hundred and eight years ago this Sunday, Feb. 3, Isaac Newton
finally got his hands on the one sure way to multiply gold. This time
Newton had got his hands on the real thing — not the phantom he had
pursued so deeply in his alchemical researches. It’s true that seven
years before he had convinced himself that he had discovered the
Philosopher’s stone. With it he believed, he had found the secret that
allow the adept to begin with a stock of gold and then, as he wrote in
his last alchemical manifesto, “you may multiply [it] to infinity.”
He believed — and held on to that faith for a few weeks, before
recognizing his error, and then (perhaps coincidentally) falling into
the deep depression that has led Newton historians to call 1693 his
black year.
That experience more or less cured Newton of alchemy — not that he
abandoned what he saw as its animating idea, but he did give up trying
to turn its concepts into a practical experimental program. (He did in
fact perform a few more laboratory experiments in the mid 1690s, but
with nothing approaching the intensity of his pre 1693 research). But
the failure of his alchemical ambition did not end his deep
involvement with the gold in it’s vulgar, day to day manifestation. In
1696, Newton left his academic job in Cambridge to begin life as an
officer of the Royal Mint. And then, on February 3, 1700, he managed
to make his way into the top job, taking the post of Master and Worker
of the His Majesty’s Mint.
There he had formal responsibility for the production of all England’s
coin. As of 1700, the official coinage was silver, with gold guineas
and half guineas serving as convenient high denomination tokens that
could be exchanged for “real” silver money. (How big a chunk of change
was a guinea? About one week’s wages for a skilled London craftsman.)
Over the next decade and a half, Newton would preside over the death
of the English silver currency; by the late teens, gold became the de-
facto standard — a shift driven in part by a mis-pricing of the value
of a golden guinea as measured in the value silver could command on an
increasingly globalized market for precious metals. (The full legal
switch to the gold standard came only in 1844, with the passage of the
Bank Charter Act.)
The switch from silver to gold did not bother Newton. In fact, though
he was as scrupulously honest as any man — more so than most in that
patronage and corruption ridden age — he personally gained from any
event that brought more metal into the Mint and spat more coins out.
In his first post at the Mint, he received only a stipend — a generous
one, to be sure: 500 pounds a year by 1699 — but not a foundational
fortune, not an inheritance. At the same time, it’s important to note
that he worked for his money, more than any prior holders of his Mint
offices for the previous century at least.He did the paperwork, made
himself an expert assayer, kept exceptionally accurate accounts
(shortly after coming to the Mint, he fought the Treasury over a
discrepancy of two pence. Two pence! He was, in fact, one of England’s
first real civil servants — along with his friend, the philosopher
John Locke, who earned his keep at the same time as one of the
founding eight commissioners of the Board of Trade.
This was, in other words, another side of the revolution in science —
the very first steps (a lot of the one-forward, two-back variety)
towards instituting an ideal of disinterested expertise in government.
Civil service — bureaucracy, if you will — was still in its infancy in
England when Newton became Master of the Mint, however, and there were
definitely some bugs left in the system. The job was one of the great
surviving feudal privileges left for powerful patrons to deliver to
loyal supporters. He got both a substantial stipend — and a percentage
of every pound of silver or gold minted into coins. Now you were
talking real money, an income that handily topped four figures in the
busier years. When Newton died in 1727, with almost three decades of
his cut from the Mint’s prodution in hand, he left an estate —
excluding the land inherited from his mother — worth 30,000 pounds.
That’s between four and five million pounds in contemporary currency.
Newton died rich. And thus was proved the proposition that the surest
way to make a pile of money is to make it yourself.
TURNING GOLD INTO PAPER
http://inversesquare.wordpress.com/2008/10/01/wednesday-isaac-newton-blogging-the-very-deep-roots-of-the-banking-crisis/
BY Thomas Levenson / 10.01.2008
In my book, Newton and the Counterfeiter, I tell the story of Newton’s
mostly unknown career as a criminal investigator and death penalty
prosecutor. It is as well a story that touches on the birth of the
modern financial system — it covers the period when things like the
Bank of England, fractional reserve banking, a variety of paper
instruments, debt-for equity swaps (a little later, actually) and
other such esoterica were all being tried out. Of great importance was
the development of a bunch of different approaches to financing
government expenditure. All kinds of things got a work out. The book
deals with some of them, including a marvelous chimera of an
instrument that was at once a lottery ticket, paper money, and a bond.
Weird — but creditors of the Royal Navy, among others, were compelled
to accept the notes at par.
Unsurprisingly, some writers on what was yet to be called the
discipline of political economy had grave doubts about the
transformation of money into paper, and government resources from
receipts into debt. They raised questions. And on at least one
occasion, Newton answered them. In 1700, Newton, then Master of the
Mint, got into a dispute with John Pollexfen, a member of parliament
and a founding member of the Board of Trade (with Newton’s friend and
admirer, the philosopher and theorist of money, John Locke). Pollexfen
was a hard money guy — paper might have some use in the financial
system, but everyone knew real money took the form of silver and gold
coins. He argued that use of paper instruments depended on the money
being held to support it. Not for him was this new fangled notion of
fractional reserve banking: an institution issuing a note had to have
the denominated amount in coin to back up the piece of paper that
claimed to be money. That is: paper was a convenient method of
signifying the existence of an amount of real money; it was not money
in and of itself.
Newton disagreed. His handwritten draft of a reply to Pollexfen
survives in his Mint papers, and in that draft he wrote that creation
of paper instruments — including those issued by the government as
debt — was essential to ensure that the nation’s economy did not
collapse for want of an adequate money supply. He wrote “If interest
be not yet low enough for the advantage of trade and designs of
setting the poor on work…the only proper way to lower it si more paper
and credit till trading and business we can get more money.”
Interesting ideas, no? Increase the money supply to lower the price of
money, the interest rate, and thus enhance trade and employment. What
a notion! The other Newton comment that I know of on the question of
whether government debt instruments were a good idea is even more
striking. He wrote in a different context on the question of whether
the creation of government debt instruments were inherently damaging
to government finance and the economy that, in fact, credit was
supremely useful because: “Tis mere opinion that sets a value upon
money [coined precious metal]…and the same opinion sets a value upon
paper security…All the difference is …that the value of the former is
more universal than the latter.”
Mere opinion! This was a radical idea indeed at the turn of the
eighteenth century. Newton did allow that credit was like doctor’s
physic. To a certain dose it was helpful; to excess it could be
deadly… a sentiment which also has strangely contemporary echo. None
of this to say that Newton was anything like a pioneer of economic
thought; he was not. Most of his views represented variations on
contemporary elite opinion — which was struggling to come to grips
with a transformation in finance that accompanied the global expansion
of English and European trade and economic life.
But even here there are parallels. Much of our problem today derives
from the toxic consequences of exotic variations on older financial
tricks, some of which do in fact have roots that stretch back, through
several removes, to this beginning. Now, as then, the failure of many
to grasp the implications, the risks, associated with such innovation
presented opportunities both legal and definitely criminal. Even the
smartest were not immune to the lure of occult, effortlessly
acquirable wealth, and not even Isaac Newton himself avoided the
infection...
(See G. Findlay Shirras and J.H. Craig’s article “Sir Isaac Newton and
the Currency” in The Economic Journal, Vol. 55, No. 218/219 Jun – Sep.
1945 for a fuller account of Newton’s involvement in the currency/
credit issues of his day).
FRACTIONAL RESERVE BANKING
http://www.islamic-finance.com/item1_f.htm
http://www.scribd.com/doc/8816304/Kieron-McFadden-The-Origins-of-Modern-Banking
The Origins of Modern Banking
BY Kieron McFadden / 02.01.2004
"I believe that banking institutions are more dangerous to our
liberties than standing armies. Already they have raised up a money
aristocracy that has set the government at defiance. The issuing power
should be taken from banks, and restored to the people." - Thomas
Jefferson
Money was originally invented as a convenient alternative to barter,
an alternative without which a highly developed civilisation like ours
could not exist. Imagine trying to pay the taxi driver with a bag of
coal or the grocery bill with a box of spanners and a set of golf
clubs. Imagine trying to carry all that around with you when you go
shopping. As societies grew more complex and social roles became more
specialised, the idea of money was conceived as a better and more
flexible way to exchange, and thereby distribute among men, goods and
services.
Money is quite simply an idea agreed upon among people that some
system of tokens or symbols: discs of metal (coins) paper with symbols
on it (notes) and so on, will be used by them to represent or stand
proxy for goods and services and that those tokens can be exchanged
for goods and services. One can then exchange the tokens rather than
bags of coal, boxes of spanners or what-have-you and the tokens are
easy to carry around. Its workability depends upon the participants'
confidence that those tokens are and will continue to be exchangeable
for a certain amount of goods or services. That's all money is. It is
no more complicated than that, although men may try to make it seem
complex and hard to understand. The truth however, as truths tend to
be, is simple; it is alterations of the truth - lies - that are
complicated.
Many societies have used gold and silver coins as their tokens, then
later pieces of paper to represent gold and silver coins, and later
cheques and ledger entries to represent notes and coins and in modern
times electronic money, the shifting and balancing of numbers in
computer memories, alongside or in place of coins, notes and cheques.
Thus when we receive a computer print-out of our bank statement saying
we have £500 in our current account we usually visualise a stack of
£l0 notes sitting in a vault somewhere, or perhaps a bag of gold
coins, although in reality there is no pile of notes or bag of coins,
merely the ledger-entry in an electronic memory Saying we have £500.
Should we then write a cheque in order to spend £50 of it, the numbers
in our ledger change to £450 and the payee's account increases by £50,
although no notes, gold or anything else move from one account to
another. Yet it works because we have confidence in it and trust it
and we know we can change that £500 for real notes, real coins or real
goods or services whenever we want to.
This evolution in the system of tokens we use to represent real goods
and services comes about through a succession of bright ideas in the
direction of making distribution and exchange more convenient, the
movement of wealth between people smoother and faster. However,
anything can be used for money, provided people agree to use it and
have confidence in it. For instance dried yak dung was once used in
Tibet, notched pieces of wood in Medieval England, leather discs in
Medieval Europe and even cigarettes and tins of coffee in post-war
Germany. The money in use in a country is called currency, from the
word current, meaning prevalent, in circulation or in use.
Governments firm up that agreement and confidence by enshrining a
particular system of tokens in law and demanding those tokens in
payment of taxes. A particular system of creating, denominating,
issuing and circulating money - currency - where backed by law and
deemed by law the only recognised system, and which cannot be legally
refused as payment of a debt, is called legal tender. Where barter is
no longer practised, one has to possess those tokens in order to
acquire goods and services from others. It is the medium of exchange.
Tokens, be they yak dung, metal discs or numbers with the '$' symbol
in front of them, are exchanged back and forth between people instead
of goods and exchange does now usually occur without the use of tokens
or the promise of tokens on the future.
The way one acquires tokens is by producing something and then selling
it to someone who has expressed his want for it by offering us some of
his tokens. We do the deal and receive the tokens he has offered. Now
we can go and exchange those tokens for other products that we desire,
which we do not produce ourselves. Thus money enables goods and
services to be exchanged among people and distribution of those goods
and services to occur naturally, and according to the needs and wants
of the participants. The more of those tokens one possesses or is able
to acquire through one's production, the more one can if one wishes
acquire goods and services from others. One can also store money in a
safe or bank account without having to build a couple of warehouses in
which to store container-loads of spare goods. Money therefore confers
exchange power or spending power on he who possesses it in direct
ratio to the amount of it he is able to offer up for exchange.
Goldsmiths
In the old days gold was minted into coins and those coins, along with
silver coins, formed the nation's currency. Goldsmiths had strongboxes
and vaults in which to securely store the precious metal with which
they worked. It was natural enough then that other people took to
asking the goldsmith to store their gold and gold coins in his vault
and to pay the goldsmith for the service. A merchant (for example)
would entrust to the goldsmith £20 worth of his own gold for
safekeeping. When he handed over his gold, the goldsmith would provide
him with a receipt or note promising to hand back the gold (pay the
bearer on demand) whenever the depositor returned and presented the
note. The receipt held by the depositor was in fact as good as gold
because he could exchange it for his £20 worth of gold any time he
chose. But the note was easier to carry around than heavy and bulky
amounts of gold and easier to conceal, so the depositor was often
content to leave his gold in the goldsmith's safekeeping for long
periods. In fact when the time came to pay for some commodity with his
£20 of gold, instead of returning to the goldsmith, exchanging the
receipt for the gold and then using the gold to pay for his purchase,
it was more convenient for him simply to hand over his receipt to the
seller. The seller was happy to accept the receipt in lieu of actual
gold because it was more convenient to carry around and he knew that
should he present it to the goldsmith, £20 of gold would be handed
over to him.
Thus those gold receipts began to circulate and became the first paper
money. People were happy to exchange them back and forth rather than
the cumbersome gold they represented. The receipts had value because
people were confident that in the goldsmith's vault lay the gold,
which they could redeem at any time.
Eventually the goldsmiths noticed that the gold left by depositors
remained in their vaults for longer and longer periods. People turned
up wishing to exchange their receipts for gold less and less often,
and that the receipts they had issued to depositors circulated in its
stead. It seemed a shame to have that gold just sitting there doing
nothing. Why not lend some of it out for a while? If it just sat there
for year after year the owner, the holder of the receipt, was not
going to miss it if it were loaned to someone else for a period. As
long as there was enough gold in the vaults to satisfy anyone who did
turn up with a receipt, then no-one would be any the wiser. So
depositor Joe would leave £20 of gold with the goldsmith for
safekeeping and depart with his receipt which he would then use as
money in lieu of the gold and it would circulate. It might be years
before anyone turned up with that £20 note asking for £20 of gold.
Meanwhile Tom would turn up at the goldsmith's asking to borrow £20 of
gold and the goldsmith would lend it to him, demanding that it be paid
back after a certain period at a certain amount of interest. But
instead of lending Tom actual gold, the goldsmith would draw up a £20
receipt, just like the one depositor Joe had been given. Tom was happy
to take the receipt in lieu of the gold because it was more convenient
to carry around and people were happy to accept such receipts in
payment for things.
So Tom went off with his £20 note, content that through it he was now
in temporary possession of £20 of gold. But unbeknownst to Tom, Joe
also has a receipt representing that gold. In other words there are
now two notes in circulation representing the same £20 of gold!
Clearly the goldsmith's issuance of two receipts for the same amount
of gold is fraudulent - particularly when Tom repays the gold he
believes he has borrowed in real gold. As each receipt promises to
hand over the same £20 of gold on demand, the goldsmith is making a
promise he knows he cannot keep. Several things are clear at the
moment the second receipt was issued and entered circulation: new
money has been created out of thin air; that new money has been loaned
into existence; as the loan has interest charged upon it, then a debt
has been created out of nothing that is greater than the amount of new
money created.
And another thing: Tom will eventually return to the goldsmith and
repay his £20 loan, say at 10% interest. He will therefore hand the
goldsmith, £22 in real gold. In other words, the goldsmith, in
creating that bogus receipt and lending it to Tom, is creating for
himself, albeit after a delay, real debt-free gold worth more than the
new money he loaned into existence! It gets worse. After a while the
goldsmith, seeing that his fraud is working pretty well, thinks that
if he can issue two £20 receipts against the same £20 of gold, then
why not two, three or even four? So Joe deposits £20 of gold and the
goldsmith gives him his receipt. In time four other people turn up at
his shop wanting to borrow that £20 of gold. The goldsmith obligingly
lends it to each of them at interest, giving each a receipt purporting
to represent that £20 of gold. There are now five receipts in
circulation representing the same deposit of gold, one for the
original depositor and one for each of the four borrowers. For that
deposit of £20, £80 (4x £20) of new money is created merely by writing
on a fancy piece of paper. If (say) £2 of interest (10%) is charged on
each loan, at the same time that £80 of new money is created out of
thin air, a debt of £88 is also created out of thin air.
Property is held as security against these loans so if the borrower
fails to repay with real gold the fraudulent piece of paper he
borrowed, the goldsmith takes his property. Each time the goldsmith
lends £20 of bogus gold he charges 10% interest on the loan. By
lending out £20 four times over and charging £2 interest on each loan,
the goldsmith makes a whopping 40% (four times £2) in interest on the
£20 "reserves" that were not even his to begin with! The goldsmith
cannot lose and soon begins to amass a fortune from his fraud. It is
the greatest get-rich-quick scheme ever invented. And it is, in
essence, the basis of the modern banking system. The goldsmiths of
yesteryear became the bankers of today and although paper money and
latterly electronic money took over from gold, essentially the same
fraud is being run.
Bankers
The business of lending pieces of paper pretending to be gold made the
goldsmiths very wealthy and very influential men. Their easy wealth
enabled them to move to upmarket premises. They became pillars of the
community and some even became international financiers, lending money
to kings and governments. In the seventeenth century conflict between
the bankers of the day and the Stuarts led the bankers to act in
concert with bankers in Europe. They joined forces with those in the
Netherlands to finance the invasion of England by William of Orange.
William overthrew the Stuart Kings in 1688 and became King William
III.
By the end of the 1600s England was in financial ruin, gold and silver
supplies were running low and a costly civil war followed by costly
wars with France and Holland, all in a fifty year period, had left her
heavily in debt. Government officials met with the financiers to
negotiate the loans they needed. King William was £20 million in debt
and he could not pay his army. Apparently it did not occur to William
or anyone that if William needed to pay his army or get the economy
going, all he had to do was have the government print its own money
and use that to pay the troops -something that Abraham Lincoln would
do successfully during the American Civil war nearly two hundred years
later!
King William's "friends", the bankers, were willing to loan him the
money he needed but the price they wanted for their "help" was high.
They wanted a government-sanctioned but privately owned central bank
that could; through fractional reserve lending, create money out of
nothing and loan it to the government. They got their way. In 1694 the
world's first privately owned central bank was created. It was to be
called the Bank of England. The Bank's charter included the following
immortal words: "The bank hath benefit on the interest on all monies
which it creates out of nothing."
Instead of exercising its right to create money and spend it into the
economy, the government had the bank create it, then lend it to the
government so that the government could spend it into the economy,
then pay the loans back later at interest. That completely unnecessary
complication was to have devastating consequences for the futures of
the English people. As well as delivering extraordinary power over the
nation into the hands of a privately owned business corporation, it
began the National Debt, a debt that would go on increasing
remorselessly over the ensuing years until it had reached around £380
billion in 1996, costs us around £30 billion a year in interest
payments and is still climbing.
By the end of the 17th century, the goldsmiths' scam had become
respectable banking. The role of the banks in issuing money through
lending to individuals and businesses had already become widely
accepted. Thus there came to be established two routes by which money
was borrowed into the economy: private and commercial borrowing on the
one hand and government borrowing on the other. That combined debt in
the present day has now soared to well over one trillion pounds. In
1704, just ten years after the creation of the Bank of England, the
banks' promissory notes, on the recommendation of the bankers and
financiers who advised the government, were declared legal tender.
Although the new central bank was an entirely privately owned
corporation, the name chosen for it led generations of Englishmen to
believe that it was part of their government, when it most certainly
was not. Like any other privately owned corporation the new central
bank sold shares to create its initial capital. Its investors - whose
identities were never disclosed - were supposed to put up a total of
£1.25 million in gold coin to purchase their shares. Only three
quarters of a million was ever received. Nevertheless, despite that
minor technicality, the bank was chartered in 1694 and began the
business of lending out several times the money it supposedly had in
its reserves. In exchange for this unique and immensely profitable
privilege, the bank would very kindly lend the English, and later
British, government as much money as it wanted, at interest, provided
the debt was secured by direct taxation of the people.
"Whoever controls the volume of money in any country is absolute
master of all industry and commerce. And when we realize that the
entire system is very easily controlled, one way or another, by a few
very powerful men at the top, you will not have to be told how periods
of inflation and depression originate."
U.S. President James Garfield. A few weeks after making this
statement, he was assassinated on July 12, 1818.
NEWTON'S ALCHEMY NOTEBOOKS FOUND IN ROYAL SOCIETY ARCHIVES
http://www.newtonproject.sussex.ac.uk/prism.php?id=82&cat=Alchemical
http://www.pierre-marteau.com/editions/1701-25-mint-reports.html
http://www.pbs.org/wgbh/nova/newton/alch-flash.html
http://webapp1.dlib.indiana.edu/newton/about.do
http://www.guardian.co.uk/education/2005/jul/01/highereducation.uk2
Newton's alchemy manuscript found
BY Polly Curtis / July 2005
Sir Isaac Newton, famous for his revolutionary work in mathematics,
optics, gravity and the laws of motion, had a secret hobby. A
collection of his notes thought to have been lost 70 years ago reveal
his passion for alchemy and fruitless attempts to turn lead into gold.
His handwritten notes, commenting on the work of other famous 17th
century alchemists and documenting his own attempts to manufacture
precious metals, were rediscovered in the vaults of the Royal Society
and will go on display for the first time next week at the its summer
science exhibition. The notes were originally uncovered following
Newton's death in 1727, but they were never properly documented and
were thought to be lost following their sale for £15 at an auction at
Sotheby's in July 1936. But during the cataloguing of the society's
miscellaneous manuscripts collection the notes were discovered and,
with the help of Imperial College's Newton Project, were identified as
being the papers that had disappeared nearly 70 years before.
Newton kept hidden his occasional interest in alchemy during his
lifetime, in part because the making of gold or silver was a felony
and had been since a law was passed by Henry IV in 1404. But
throughout his career he, and other scientists of the time, many of
whom were fellows of the society, carried out extensive research into
alchemy. The text is written in English, but it is not easy to work
out what Newton is actually saying. Alchemists were notorious for
recording their methods and theories in symbolic language or code so
others could not understand it. One excerpt reads: "It is therefore no
wonder that - in their advice lay before us the rule of nature in
obtaining the great secret both for medicine and transmutation. And if
I may have the liberty of expression give me leave to assert as my
opinion that it is effectual in all the three kingdoms and from every
species may be produced when the modus is rightly understood: only
mineralls [sic] produce minerals and sic de calmis."
Stephen Cox, the executive secretary of the society, said: "Such an
intriguing find highlights the sheer volume of fascinating materials
contained in the Royal Society's library and archive. "Our ongoing
task is to ensure that the materials we hold are all identified and
catalogued. This will allow historians and the public to fully access
our great wealth of papers and artefacts from some of the most famous
scientists in history. At the summer science exhibition, alongside the
many exhibits featuring the cutting-edge science of today, people can
find displays throughout the building of the legacy that past fellows
have left behind, including these papers from Isaac Newton." John
Young, from the Newton Project, said: "This is a hugely exciting find
for Newton scholars and for historians of science in general. It
provides vital evidence about the alchemical authors Newton was
reading, and the alchemical theories he was investigating, in the last
decades of the 17th century. The whereabouts of this document have
been unknown since 1936 and it was a real thrill to see it preserved
in the Royal Society's archives."
A LEGITIMATE PURSUIT
http://www.pbs.org/wgbh/nova/newton/
http://www.pbs.org/wgbh/nova/newton/alchemy.html
http://www.pbs.org/wgbh/nova/newton/alch-newman.html
Magic or Mainstream Science? An interview with historian Bill Newman
NOVA: Why are people surprised when they hear that Isaac Newton—the
grand patriarch of physics—was an alchemist?
Newman: Well, I think it's because alchemy has been portrayed as the
epitome of irrationality and a sort of avaricious folly.
NOVA: Sinister, dark-robed sorcerers trying to turn lead into gold. Is
that an accurate picture of alchemists in Newton's time?
Newman: It's accurate for some alchemists. But we now know that most
of the great minds of the period were involved in alchemy, including
Robert Boyle, John Locke, Leibniz, any number of others.
NOVA: Given that so many great minds were interested in it, why was
alchemy illegal?
Newman: Well, first of all, it became legal during Newton's time. But
why was it illegal? There's a long association, for good reasons,
between alchemy and counterfeiting. It's quite likely, actually, that
medieval and early modern rulers were consciously employing alchemists
to debase their own coinage.
NOVA: But they didn't want other people doing it?
Newman: [laughter] Yeah, right; exactly, exactly.
NOVA: So what were these "legitimate" alchemists in the 17th century
trying to do?
Newman: Alchemy really encompassed all chemical technology—everything
ranging from the manufacture of pigments for paint to making
artificial precious stones. It included the manufacture of so-called
"chemical medicines." And, of course, it also included the attempt to
make the "philosophers' stone."
NOVA: Tell me about the philosophers' stone. I think of it vaguely as
some magical substance that could turn ordinary metals into gold.
Newman: The philosophers' stone was thought to be an agent of
universal transmutation. It also was viewed as a curative agent that
could "cure" metals of their impurities and cure human beings of their
illnesses. So it was a sort of universal panacea.
NOVA: Was Newton an alchemist because he wanted to make gold or find
the key to immortality? Or was his alchemy just another part of his
science—a way to gain knowledge about the material world?
Newman: If you look at the experimental notebooks that he kept for
about 30 years, it really is impossible to avoid the conclusion that
he was trying to produce the philosophers' stone. But I don't think he
was doing it to gain monetary wealth.
NOVA: Was it to gain an understanding of nature?
Newman: And power over nature. Power over nature has always been a key
element to alchemy.
Codes and Riddles
NOVA: Did alchemists think that they were going to discover powers
they wanted to keep for themselves? Is that why alchemy is so veiled
in secret codes?
Newman: That's certainly part of the reason. You find alchemical
treatises that claim that knowledge of the philosophers' stone has to
be kept secret, because if it gets out to the world that a particular
alchemist has it, he'll be strangled in his bed to extract the secret.
NOVA: It seems that Newton also wanted to hold tight to his secrets—he
never published any of his alchemical work.
Newman: I think that, like other alchemists, he thought that alchemy
promised tremendous control over the natural world. It would allow you
to transmute virtually anything into anything else, not just lead into
gold. There are other things, too, that probably were in Newton's
mind. For example, alchemists realized that if the philosophers' stone
were real and it got out to the public, it would ruin the gold
standard. [laughter]
NOVA: I think what makes a lot of people think of alchemy as black
magic is this bizarre language—phrases like "the Green Dragon" or the
"menstrual blood of the sordid whore."
Newman: Yes.
NOVA: It's mind-boggling to think of Newton writing those phrases.
Newman: Well, this was the enigmatic language of alchemy. I mean
"enigmatic" in a quite strict sense: it was a riddling language. The
best way to look at these metaphors is in the light of riddles. So the
"menstrual blood of the sordid whore" is decipherable. It means simply
the metalline form of antimony. That is the "menstrual blood" that's
extracted from the "sordid whore," which is the ore of antimony. [See
more of Newton's alchemy decoded in our interactive manuscript.]
NOVA: It's a coded language.
Newman: It is a code, and it's clear that the alchemists delighted in
this code. It's almost a form of poetry. In fact, lots of alchemists
wrote in the form of poetry, quite literally.
NOVA: Did all alchemists share the same code, use the same
terminology?
Newman: They shared lots of common elements, but it did vary from
alchemist to alchemist. It's extremely tricky for Newton. He was
reading alchemists over a period of time, ranging over perhaps a
thousand years, and there was a lot of development in these treatises.
But Newton generally thinks they're all saying the same thing, so
that's a problem.
NOVA: Why did Newton spend so much time copying the writing of other
alchemists?
Newman: He wasn't for the most part just copying verbatim. What he was
doing in many cases was weaving together extracts from different
authors, trying to make sense out of them. I think alchemy was the
ultimate riddle. Newton delighted in riddles, and this provided a
challenge to him that he just couldn't resist.
Revealed Wisdom For a Chosen Few
NOVA: Why did Newton think that Greek myths somehow encoded alchemical
recipes and a path to the philosophers' stone?
Newman: That theory had been in existence for quite a long time.
Newton's major source in alchemy, George Starkey, shared this theory.
Michael Maier is a famous writer of the early 17th century who tried
to decipher as much Greek mythology as he could get his hands on. So
it was a common belief.
NOVA: Was it part of a broader belief in some sort of "revealed
wisdom" about the natural world?
Newman: Oh, yes. There's a tradition of scholarship that was very
popular in the Renaissance called the prisca sapientia, the primal
wisdom. It claimed that there was a secret wisdom that was first
transmitted by an archetypical figure—say, for example, Moses—and then
passed down through a line of successors, usually including
Pythagoras, Plato, and so forth, and that this wisdom was really the
ultimate tool for understanding the universe. Newton clearly believed
that.
NOVA: Did Newton view himself as one of these chosen few, one of the
people ordained to receive this wisdom?
Newman: I suspect he did, yes. I don't think he would have admitted it
publicly, but one of his pastimes was concocting alchemical pseudonyms
for himself. And one of these pseudonyms was Jehovah Sanctus Unus—that
is, Jehovah, the Holy One.
NOVA: That's how Newton described himself?!
Newman: Yes!
NOVA: Did Newton think that he made progress in developing the
philosophers' stone?
Newman: Yes, I think that's quite clear. If you look at his
manuscripts, there are stages of development that you can isolate. In
his experimental notebooks, there are entries where he says "I found
the caduceus of Mercury today" and this sort of thing that reflect
real discoveries that he's made in the laboratory.
Newton Under Wraps
NOVA: After Newton's death, why did none of his writings on alchemy
come to light? Certainly people going through his papers came across
this writing. Was it viewed as not worthy of him?
Newman: Oh, yeah. There's no question that they were considered to be
borderline scandalous. Newton died in 1727. By that time you're well
into the Enlightenment, and alchemy had become the domain of dunces;
it was associated with all sorts of useless medieval knowledge. So the
fact that Newton had been a serious student of this obsolete and
idiotic field was really problematic.
NOVA: Do you think that today we should think less of Newton, knowing
how deeply devoted he was to alchemy?
Newman: No. On the contrary, I think that this opens up a side of
Newton that makes him a much more fascinating figure. And I think also
the fact that so many of these very, very seminal figures in the
Scientific Revolution were heavily involved in alchemy opens up a new
historiographical area that really promises to throw quite a different
light on the whole period.
NOVA: It opens our eyes to the incredibly wide range of Newton's
intellectual pursuits.
Newman: Yeah, it's very important to see the full breadth of Newton's
inquiries. And the dreams that were embodied in his alchemical
pursuits explain to some degree how and why he was such a driven man.
I think he really thought that alchemy provided a sort of limitless
power over nature.
NOVA: And even though he recognized that he hadn't solved all the
problems in alchemy, he truly felt that he had made strides.
Newman: Well, of course, he's famous for having said that he felt as
though he were only a boy on a seashore, having picked up a pretty
shell, and that there were many, many other shells remaining to be
discovered on the edge of this vast sea. That's what he said about his
scientific endeavor as a whole, not just his alchemy.
Remaining Puzzles
NOVA: You've said that Newton's alchemy is still a great unsolved
mystery. Why?
Newman: In part because his experimental notebooks are so cryptic.
These experimental notebooks pick up in 1678, and there is a story
that there was a fire in Newton's laboratory immediately before that.
So it's likely that we would have more materials if they hadn't been
destroyed in this conflagration. Also, Newton doesn't bother to
explain his terminology; being Newton, he expects to know his
terminology. And the terminology is very perplexing. He uses standard
alchemical decknamen—cover-names like the Green Lion and the
Babylonian Dragon, and so forth—but he seems to be using them in ways
that don't correspond to how his immediate sources used them. So we
have to carry out a huge combined effort, both in our laboratory and
in studying the texts, to determine what these substances were. Beyond
that, Newton doesn't tell us why he's doing the experiments. He just
says, "I did this and that, and I produced a volatile substance here,"
and so forth. He doesn't say the purpose of the experiment! So all of
this has to be inferred and put together. It's really a gigantic
jigsaw puzzle, and we're only at the beginning of having solved it.
NOVA: Wow. Do you enjoy actually getting into the lab and trying to
reproduce what he might have been doing with his crucible?
Newman: Oh, absolutely. And in many cases, you can reproduce the
products very clearly. It's satisfying, but it's a heck of a lot of
work. [laughter]
NOVA: As you continue studying the manuscripts and replicating his
experiments, what do you hope to find?
Newman: Well, there are a number of different things. One thing I'm
trying to do is determine the chronology of the different manuscripts,
so that we can say exactly how his ideas developed over time. Like I
said, it's a gigantic jigsaw puzzle. I would just like to be able to
put all the pieces together and see what he was really trying to do,
what his goals were, and how this fit with his natural philosophy.
NOVA: And if you succeed in making the philosophers' stone, you'll let
us know?
Newman: [laughter] If I succeed, I'll disappear.
THE ALCHEMIST VS THE COUNTERFEITER
http://www.bloomberg.com/apps/news?pid=20601088&sid=a8aXsxUg4tdw
Newton Hangs Forger, Invents Banking, Loses Millions in Bubble
Interview by Manuela Hoelterhoff / July 23, 2009
On March 22, 1699, the forger William Chaloner was dragged to the
execution grounds at Tyburn, London, and hanged in front of a cheerful
crowd, while his nemesis puttered away in his offices at the Mint.
That would be Isaac Newton, the famed inventor of calculus, apple
dropper and author of the “Principia,” once a hot seller. A terrific
new book, “Newton and the Counterfeiter,” describes the scientist’s
little-known later years when, luckless in love and alchemy, he left
Cambridge for London to become warden of the Royal Mint. Forgers,
chiselers and melters had seriously undermined Britain’s money supply.
To deal with the shortfall, King William had ordered up the Great
Recoinage, which wasn’t going so well when Newton arrived to take up
his post. How the Cambridge don laid the groundwork for modern banking
makes for a riveting story told with verve and humor by Thomas
Levenson, a professor at Massachusetts Institute of Technology in
Cambridge, Massachusetts. We spoke on the phone.
Hoelterhoff: All those years hoping to turn lead into gold must have
been pretty good preparation?
Levenson: Newton’s alchemical work was a perfect preparation for a
post that demanded an understanding of the processes of working metal.
He had built his own furnaces, melted down plenty of substances,
weighed, combined, assayed -- all the skills one could hope for in a
mint official. He was also one of the most rigorous observers of his
day. If you wanted someone who could watch the flow of precious metal
from the melting houses to the final coin presses, Newton was your man
-- and in fact his accounts at the end of the Great Recoinage
demonstrate that he managed the passage of millions of pounds worth of
silver through the mint with scrupulous honesty.
Hoelterhoff: What did the Great Recoinage entail?
Levenson: Recalling the old coins and re-minting them into new
currency. Newton took up his post just as the first crucial milestone
in the recoinage was about to pass. That was the moment when the
Treasury would cease to accept the old coinage as legal tender for the
payment of taxes. By that time, the recoinage effort was in a
shambles, with almost none of the new silver coins needed to keep
daily business going yet produced. Before he arrived, the Mint failed
to meet even the modest goal of producing 15,000 pounds sterling worth
of currency a week -- a drop in the bucket against a total silver
money supply of several million (roughly seven by most counts). By
late summer, after Newton had been on the job for about four months,
the Mint hit a then-European record of 100,000 pounds sterling minted
in a six-day week. Not too shabby.
Hoelterhoff: What was the urgency?
Levenson: As the shortage of ready money persisted, minor riots broke
out, and such sober men as John Evelyn, a founder of the Royal Society
and one of that era’s great diarists, worried seriously about the
possibility of a more general insurrection.
Hoelterhoff: Why had silver disappeared?
Levenson: For the fundamental reason that any mispriced commodity
disappears. The amount of silver that was legally required to be in
say, a shilling, was worth slightly more melted down: three or four
percent more -- despite the fact that it was against the law.
Hoelterhoff: That was enough to ship coins to where? Amsterdam?
Levenson: Which was a big banking center.
Hoelterhoff: Then there were clippers who shaved coins for their
silver or what? Turned them into fake gold coins?
Levenson: Some counterfeiters would use silver as a gilding material
or to coat a base metal.
Hoelterhoff: Chaloner comes off as a dashing, reckless talent who
hopes to the end his facility and connection will save him.
Considering the horrific punishment for counterfeiters -- you were
lucky if you just got hung and not also quartered -- I’m amazed how
many people chose this line of work.
Levenson: One of the funny things is that because the penalties were
so severe, they were less likely to be imposed. And you might get a
reprieve for offering information. At this time, there was a huge
criminal world running in parallel to the respectable world and it was
sometimes quite porous. And London was a hard place to be poor, a
horrible town to be poor in. If you had any talent, you tried in any
possible way to better yourself, and Chaloner was smart and capable.
Hoelterhoff: How many counterfeiters did Newton catch? Any sign that
he ever regretted sending his nemesis to his death?
Levenson: Maybe a couple of dozen were sent to the gibbet. There’s no
record he had any feelings about Chaloner, though his handwriting
becomes increasingly cramped and angry in some of the notes he took
for the case.
Hoelterhoff: How much fake money did Chaloner make?
Levenson: In prison, Chaloner boasted of having counterfeited about
30,000 pounds of false guineas and other denominations. That’s between
four or five million pounds, or around $7 million in today’s currency.
Hoelterhoff: Newton ends up getting a promotion from warden to Master
of the Mint, which made him rich. Then, in 1720 he lost millions in
today’s currency in the infamous South Sea Bubble. It seems incredible
that his brain didn’t tell him the returns were nuts.
Levenson: I try not to preach, but it is one of the arguments for
intelligent and robust regulations when even someone as brilliant as
Isaac Newton is taken. He hated being reminded of any mistake. The
only reference that people have found to his South Sea losses is in
the comment: “I can calculate the orbit of a comet, but I cannot
calculate the madness of the people.” He was swept up in the mania of
the moment.
SOUTH SEA BUBBLE
http://www.library.hbs.edu/hc/ssb/index.html
http://www.library.hbs.edu/hc/ssb/history.html
http://www.library.hbs.edu/hc/ssb/collection.html
PREVIOUSLY ON SPECTRE
http://spectregroup.wordpress.com/2008/01/04/making-money/
THE LAST OF THE MAGICIANS
http://www.novapoly.com/articles/finance/fractional-reserve-banking-model/
http://www.cftech.com/BrainBank/OTHERREFERENCE/BIOGRAPHY/Newtonian.html
"In 1936 an interesting lot came on the block at Sotheby's in London
containing a cache of writings by Newton -- journals and personal
notebooks deemed to be "of no scientific value." The winning bidder
was the economist John Maynard Keynes. After perusing his purchase,
Keynes delivered a somewhat shocking lecture to the Royal Society Club
in 1942, on the tercentenary of Newton's birth. "Newton was not the
first of the age of reason," Keynes announced. "He was the last of the
magicians."
This was meant quite literally, as was a statement expressed by the
poet Wordsworth that Newton had a mind "forever voyaging through
strange seas of thought, alone." For the "secret writings" made it
clear that during the crucial part of Newton's scientific career --
the two decades between his discovery of the law of gravity and the
publication of his masterwork, the "Principia Mathematica" -- his
consuming passion was alchemy. Bunkered in his solitary live-in lab at
the edge of the fens near Cambridge, Newton indulged in occult
literature and strove to cook up the legendary "philosopher's stone"
that would convert base metals into gold."
MULTIPLIED TO INFINITY
http://inversesquare.wordpress.com/2008/02/01/friday-isaac-newton-blogging-q-how-did-newton-get-rich-a-he-mastered-a-mundane-form-of-alchemy/
Three hundred and eight years ago this Sunday, Feb. 3, Isaac Newton
finally got his hands on the one sure way to multiply gold. This time
Newton had got his hands on the real thing — not the phantom he had
pursued so deeply in his alchemical researches. It’s true that seven
years before he had convinced himself that he had discovered the
Philosopher’s stone. With it he believed, he had found the secret that
allow the adept to begin with a stock of gold and then, as he wrote in
his last alchemical manifesto, “you may multiply [it] to infinity.”
He believed — and held on to that faith for a few weeks, before
recognizing his error, and then (perhaps coincidentally) falling into
the deep depression that has led Newton historians to call 1693 his
black year.
That experience more or less cured Newton of alchemy — not that he
abandoned what he saw as its animating idea, but he did give up trying
to turn its concepts into a practical experimental program. (He did in
fact perform a few more laboratory experiments in the mid 1690s, but
with nothing approaching the intensity of his pre 1693 research). But
the failure of his alchemical ambition did not end his deep
involvement with the gold in it’s vulgar, day to day manifestation. In
1696, Newton left his academic job in Cambridge to begin life as an
officer of the Royal Mint. And then, on February 3, 1700, he managed
to make his way into the top job, taking the post of Master and Worker
of the His Majesty’s Mint.
There he had formal responsibility for the production of all England’s
coin. As of 1700, the official coinage was silver, with gold guineas
and half guineas serving as convenient high denomination tokens that
could be exchanged for “real” silver money. (How big a chunk of change
was a guinea? About one week’s wages for a skilled London craftsman.)
Over the next decade and a half, Newton would preside over the death
of the English silver currency; by the late teens, gold became the de-
facto standard — a shift driven in part by a mis-pricing of the value
of a golden guinea as measured in the value silver could command on an
increasingly globalized market for precious metals. (The full legal
switch to the gold standard came only in 1844, with the passage of the
Bank Charter Act.)
The switch from silver to gold did not bother Newton. In fact, though
he was as scrupulously honest as any man — more so than most in that
patronage and corruption ridden age — he personally gained from any
event that brought more metal into the Mint and spat more coins out.
In his first post at the Mint, he received only a stipend — a generous
one, to be sure: 500 pounds a year by 1699 — but not a foundational
fortune, not an inheritance. At the same time, it’s important to note
that he worked for his money, more than any prior holders of his Mint
offices for the previous century at least.He did the paperwork, made
himself an expert assayer, kept exceptionally accurate accounts
(shortly after coming to the Mint, he fought the Treasury over a
discrepancy of two pence. Two pence! He was, in fact, one of England’s
first real civil servants — along with his friend, the philosopher
John Locke, who earned his keep at the same time as one of the
founding eight commissioners of the Board of Trade.
This was, in other words, another side of the revolution in science —
the very first steps (a lot of the one-forward, two-back variety)
towards instituting an ideal of disinterested expertise in government.
Civil service — bureaucracy, if you will — was still in its infancy in
England when Newton became Master of the Mint, however, and there were
definitely some bugs left in the system. The job was one of the great
surviving feudal privileges left for powerful patrons to deliver to
loyal supporters. He got both a substantial stipend — and a percentage
of every pound of silver or gold minted into coins. Now you were
talking real money, an income that handily topped four figures in the
busier years. When Newton died in 1727, with almost three decades of
his cut from the Mint’s prodution in hand, he left an estate —
excluding the land inherited from his mother — worth 30,000 pounds.
That’s between four and five million pounds in contemporary currency.
Newton died rich. And thus was proved the proposition that the surest
way to make a pile of money is to make it yourself.
TURNING GOLD INTO PAPER
http://inversesquare.wordpress.com/2008/10/01/wednesday-isaac-newton-blogging-the-very-deep-roots-of-the-banking-crisis/
BY Thomas Levenson / 10.01.2008
In my book, Newton and the Counterfeiter, I tell the story of Newton’s
mostly unknown career as a criminal investigator and death penalty
prosecutor. It is as well a story that touches on the birth of the
modern financial system — it covers the period when things like the
Bank of England, fractional reserve banking, a variety of paper
instruments, debt-for equity swaps (a little later, actually) and
other such esoterica were all being tried out. Of great importance was
the development of a bunch of different approaches to financing
government expenditure. All kinds of things got a work out. The book
deals with some of them, including a marvelous chimera of an
instrument that was at once a lottery ticket, paper money, and a bond.
Weird — but creditors of the Royal Navy, among others, were compelled
to accept the notes at par.
Unsurprisingly, some writers on what was yet to be called the
discipline of political economy had grave doubts about the
transformation of money into paper, and government resources from
receipts into debt. They raised questions. And on at least one
occasion, Newton answered them. In 1700, Newton, then Master of the
Mint, got into a dispute with John Pollexfen, a member of parliament
and a founding member of the Board of Trade (with Newton’s friend and
admirer, the philosopher and theorist of money, John Locke). Pollexfen
was a hard money guy — paper might have some use in the financial
system, but everyone knew real money took the form of silver and gold
coins. He argued that use of paper instruments depended on the money
being held to support it. Not for him was this new fangled notion of
fractional reserve banking: an institution issuing a note had to have
the denominated amount in coin to back up the piece of paper that
claimed to be money. That is: paper was a convenient method of
signifying the existence of an amount of real money; it was not money
in and of itself.
Newton disagreed. His handwritten draft of a reply to Pollexfen
survives in his Mint papers, and in that draft he wrote that creation
of paper instruments — including those issued by the government as
debt — was essential to ensure that the nation’s economy did not
collapse for want of an adequate money supply. He wrote “If interest
be not yet low enough for the advantage of trade and designs of
setting the poor on work…the only proper way to lower it si more paper
and credit till trading and business we can get more money.”
Interesting ideas, no? Increase the money supply to lower the price of
money, the interest rate, and thus enhance trade and employment. What
a notion! The other Newton comment that I know of on the question of
whether government debt instruments were a good idea is even more
striking. He wrote in a different context on the question of whether
the creation of government debt instruments were inherently damaging
to government finance and the economy that, in fact, credit was
supremely useful because: “Tis mere opinion that sets a value upon
money [coined precious metal]…and the same opinion sets a value upon
paper security…All the difference is …that the value of the former is
more universal than the latter.”
Mere opinion! This was a radical idea indeed at the turn of the
eighteenth century. Newton did allow that credit was like doctor’s
physic. To a certain dose it was helpful; to excess it could be
deadly… a sentiment which also has strangely contemporary echo. None
of this to say that Newton was anything like a pioneer of economic
thought; he was not. Most of his views represented variations on
contemporary elite opinion — which was struggling to come to grips
with a transformation in finance that accompanied the global expansion
of English and European trade and economic life.
But even here there are parallels. Much of our problem today derives
from the toxic consequences of exotic variations on older financial
tricks, some of which do in fact have roots that stretch back, through
several removes, to this beginning. Now, as then, the failure of many
to grasp the implications, the risks, associated with such innovation
presented opportunities both legal and definitely criminal. Even the
smartest were not immune to the lure of occult, effortlessly
acquirable wealth, and not even Isaac Newton himself avoided the
infection...
(See G. Findlay Shirras and J.H. Craig’s article “Sir Isaac Newton and
the Currency” in The Economic Journal, Vol. 55, No. 218/219 Jun – Sep.
1945 for a fuller account of Newton’s involvement in the currency/
credit issues of his day).
FRACTIONAL RESERVE BANKING
http://www.islamic-finance.com/item1_f.htm
http://www.scribd.com/doc/8816304/Kieron-McFadden-The-Origins-of-Modern-Banking
The Origins of Modern Banking
BY Kieron McFadden / 02.01.2004
"I believe that banking institutions are more dangerous to our
liberties than standing armies. Already they have raised up a money
aristocracy that has set the government at defiance. The issuing power
should be taken from banks, and restored to the people." - Thomas
Jefferson
Money was originally invented as a convenient alternative to barter,
an alternative without which a highly developed civilisation like ours
could not exist. Imagine trying to pay the taxi driver with a bag of
coal or the grocery bill with a box of spanners and a set of golf
clubs. Imagine trying to carry all that around with you when you go
shopping. As societies grew more complex and social roles became more
specialised, the idea of money was conceived as a better and more
flexible way to exchange, and thereby distribute among men, goods and
services.
Money is quite simply an idea agreed upon among people that some
system of tokens or symbols: discs of metal (coins) paper with symbols
on it (notes) and so on, will be used by them to represent or stand
proxy for goods and services and that those tokens can be exchanged
for goods and services. One can then exchange the tokens rather than
bags of coal, boxes of spanners or what-have-you and the tokens are
easy to carry around. Its workability depends upon the participants'
confidence that those tokens are and will continue to be exchangeable
for a certain amount of goods or services. That's all money is. It is
no more complicated than that, although men may try to make it seem
complex and hard to understand. The truth however, as truths tend to
be, is simple; it is alterations of the truth - lies - that are
complicated.
Many societies have used gold and silver coins as their tokens, then
later pieces of paper to represent gold and silver coins, and later
cheques and ledger entries to represent notes and coins and in modern
times electronic money, the shifting and balancing of numbers in
computer memories, alongside or in place of coins, notes and cheques.
Thus when we receive a computer print-out of our bank statement saying
we have £500 in our current account we usually visualise a stack of
£l0 notes sitting in a vault somewhere, or perhaps a bag of gold
coins, although in reality there is no pile of notes or bag of coins,
merely the ledger-entry in an electronic memory Saying we have £500.
Should we then write a cheque in order to spend £50 of it, the numbers
in our ledger change to £450 and the payee's account increases by £50,
although no notes, gold or anything else move from one account to
another. Yet it works because we have confidence in it and trust it
and we know we can change that £500 for real notes, real coins or real
goods or services whenever we want to.
This evolution in the system of tokens we use to represent real goods
and services comes about through a succession of bright ideas in the
direction of making distribution and exchange more convenient, the
movement of wealth between people smoother and faster. However,
anything can be used for money, provided people agree to use it and
have confidence in it. For instance dried yak dung was once used in
Tibet, notched pieces of wood in Medieval England, leather discs in
Medieval Europe and even cigarettes and tins of coffee in post-war
Germany. The money in use in a country is called currency, from the
word current, meaning prevalent, in circulation or in use.
Governments firm up that agreement and confidence by enshrining a
particular system of tokens in law and demanding those tokens in
payment of taxes. A particular system of creating, denominating,
issuing and circulating money - currency - where backed by law and
deemed by law the only recognised system, and which cannot be legally
refused as payment of a debt, is called legal tender. Where barter is
no longer practised, one has to possess those tokens in order to
acquire goods and services from others. It is the medium of exchange.
Tokens, be they yak dung, metal discs or numbers with the '$' symbol
in front of them, are exchanged back and forth between people instead
of goods and exchange does now usually occur without the use of tokens
or the promise of tokens on the future.
The way one acquires tokens is by producing something and then selling
it to someone who has expressed his want for it by offering us some of
his tokens. We do the deal and receive the tokens he has offered. Now
we can go and exchange those tokens for other products that we desire,
which we do not produce ourselves. Thus money enables goods and
services to be exchanged among people and distribution of those goods
and services to occur naturally, and according to the needs and wants
of the participants. The more of those tokens one possesses or is able
to acquire through one's production, the more one can if one wishes
acquire goods and services from others. One can also store money in a
safe or bank account without having to build a couple of warehouses in
which to store container-loads of spare goods. Money therefore confers
exchange power or spending power on he who possesses it in direct
ratio to the amount of it he is able to offer up for exchange.
Goldsmiths
In the old days gold was minted into coins and those coins, along with
silver coins, formed the nation's currency. Goldsmiths had strongboxes
and vaults in which to securely store the precious metal with which
they worked. It was natural enough then that other people took to
asking the goldsmith to store their gold and gold coins in his vault
and to pay the goldsmith for the service. A merchant (for example)
would entrust to the goldsmith £20 worth of his own gold for
safekeeping. When he handed over his gold, the goldsmith would provide
him with a receipt or note promising to hand back the gold (pay the
bearer on demand) whenever the depositor returned and presented the
note. The receipt held by the depositor was in fact as good as gold
because he could exchange it for his £20 worth of gold any time he
chose. But the note was easier to carry around than heavy and bulky
amounts of gold and easier to conceal, so the depositor was often
content to leave his gold in the goldsmith's safekeeping for long
periods. In fact when the time came to pay for some commodity with his
£20 of gold, instead of returning to the goldsmith, exchanging the
receipt for the gold and then using the gold to pay for his purchase,
it was more convenient for him simply to hand over his receipt to the
seller. The seller was happy to accept the receipt in lieu of actual
gold because it was more convenient to carry around and he knew that
should he present it to the goldsmith, £20 of gold would be handed
over to him.
Thus those gold receipts began to circulate and became the first paper
money. People were happy to exchange them back and forth rather than
the cumbersome gold they represented. The receipts had value because
people were confident that in the goldsmith's vault lay the gold,
which they could redeem at any time.
Eventually the goldsmiths noticed that the gold left by depositors
remained in their vaults for longer and longer periods. People turned
up wishing to exchange their receipts for gold less and less often,
and that the receipts they had issued to depositors circulated in its
stead. It seemed a shame to have that gold just sitting there doing
nothing. Why not lend some of it out for a while? If it just sat there
for year after year the owner, the holder of the receipt, was not
going to miss it if it were loaned to someone else for a period. As
long as there was enough gold in the vaults to satisfy anyone who did
turn up with a receipt, then no-one would be any the wiser. So
depositor Joe would leave £20 of gold with the goldsmith for
safekeeping and depart with his receipt which he would then use as
money in lieu of the gold and it would circulate. It might be years
before anyone turned up with that £20 note asking for £20 of gold.
Meanwhile Tom would turn up at the goldsmith's asking to borrow £20 of
gold and the goldsmith would lend it to him, demanding that it be paid
back after a certain period at a certain amount of interest. But
instead of lending Tom actual gold, the goldsmith would draw up a £20
receipt, just like the one depositor Joe had been given. Tom was happy
to take the receipt in lieu of the gold because it was more convenient
to carry around and people were happy to accept such receipts in
payment for things.
So Tom went off with his £20 note, content that through it he was now
in temporary possession of £20 of gold. But unbeknownst to Tom, Joe
also has a receipt representing that gold. In other words there are
now two notes in circulation representing the same £20 of gold!
Clearly the goldsmith's issuance of two receipts for the same amount
of gold is fraudulent - particularly when Tom repays the gold he
believes he has borrowed in real gold. As each receipt promises to
hand over the same £20 of gold on demand, the goldsmith is making a
promise he knows he cannot keep. Several things are clear at the
moment the second receipt was issued and entered circulation: new
money has been created out of thin air; that new money has been loaned
into existence; as the loan has interest charged upon it, then a debt
has been created out of nothing that is greater than the amount of new
money created.
And another thing: Tom will eventually return to the goldsmith and
repay his £20 loan, say at 10% interest. He will therefore hand the
goldsmith, £22 in real gold. In other words, the goldsmith, in
creating that bogus receipt and lending it to Tom, is creating for
himself, albeit after a delay, real debt-free gold worth more than the
new money he loaned into existence! It gets worse. After a while the
goldsmith, seeing that his fraud is working pretty well, thinks that
if he can issue two £20 receipts against the same £20 of gold, then
why not two, three or even four? So Joe deposits £20 of gold and the
goldsmith gives him his receipt. In time four other people turn up at
his shop wanting to borrow that £20 of gold. The goldsmith obligingly
lends it to each of them at interest, giving each a receipt purporting
to represent that £20 of gold. There are now five receipts in
circulation representing the same deposit of gold, one for the
original depositor and one for each of the four borrowers. For that
deposit of £20, £80 (4x £20) of new money is created merely by writing
on a fancy piece of paper. If (say) £2 of interest (10%) is charged on
each loan, at the same time that £80 of new money is created out of
thin air, a debt of £88 is also created out of thin air.
Property is held as security against these loans so if the borrower
fails to repay with real gold the fraudulent piece of paper he
borrowed, the goldsmith takes his property. Each time the goldsmith
lends £20 of bogus gold he charges 10% interest on the loan. By
lending out £20 four times over and charging £2 interest on each loan,
the goldsmith makes a whopping 40% (four times £2) in interest on the
£20 "reserves" that were not even his to begin with! The goldsmith
cannot lose and soon begins to amass a fortune from his fraud. It is
the greatest get-rich-quick scheme ever invented. And it is, in
essence, the basis of the modern banking system. The goldsmiths of
yesteryear became the bankers of today and although paper money and
latterly electronic money took over from gold, essentially the same
fraud is being run.
Bankers
The business of lending pieces of paper pretending to be gold made the
goldsmiths very wealthy and very influential men. Their easy wealth
enabled them to move to upmarket premises. They became pillars of the
community and some even became international financiers, lending money
to kings and governments. In the seventeenth century conflict between
the bankers of the day and the Stuarts led the bankers to act in
concert with bankers in Europe. They joined forces with those in the
Netherlands to finance the invasion of England by William of Orange.
William overthrew the Stuart Kings in 1688 and became King William
III.
By the end of the 1600s England was in financial ruin, gold and silver
supplies were running low and a costly civil war followed by costly
wars with France and Holland, all in a fifty year period, had left her
heavily in debt. Government officials met with the financiers to
negotiate the loans they needed. King William was £20 million in debt
and he could not pay his army. Apparently it did not occur to William
or anyone that if William needed to pay his army or get the economy
going, all he had to do was have the government print its own money
and use that to pay the troops -something that Abraham Lincoln would
do successfully during the American Civil war nearly two hundred years
later!
King William's "friends", the bankers, were willing to loan him the
money he needed but the price they wanted for their "help" was high.
They wanted a government-sanctioned but privately owned central bank
that could; through fractional reserve lending, create money out of
nothing and loan it to the government. They got their way. In 1694 the
world's first privately owned central bank was created. It was to be
called the Bank of England. The Bank's charter included the following
immortal words: "The bank hath benefit on the interest on all monies
which it creates out of nothing."
Instead of exercising its right to create money and spend it into the
economy, the government had the bank create it, then lend it to the
government so that the government could spend it into the economy,
then pay the loans back later at interest. That completely unnecessary
complication was to have devastating consequences for the futures of
the English people. As well as delivering extraordinary power over the
nation into the hands of a privately owned business corporation, it
began the National Debt, a debt that would go on increasing
remorselessly over the ensuing years until it had reached around £380
billion in 1996, costs us around £30 billion a year in interest
payments and is still climbing.
By the end of the 17th century, the goldsmiths' scam had become
respectable banking. The role of the banks in issuing money through
lending to individuals and businesses had already become widely
accepted. Thus there came to be established two routes by which money
was borrowed into the economy: private and commercial borrowing on the
one hand and government borrowing on the other. That combined debt in
the present day has now soared to well over one trillion pounds. In
1704, just ten years after the creation of the Bank of England, the
banks' promissory notes, on the recommendation of the bankers and
financiers who advised the government, were declared legal tender.
Although the new central bank was an entirely privately owned
corporation, the name chosen for it led generations of Englishmen to
believe that it was part of their government, when it most certainly
was not. Like any other privately owned corporation the new central
bank sold shares to create its initial capital. Its investors - whose
identities were never disclosed - were supposed to put up a total of
£1.25 million in gold coin to purchase their shares. Only three
quarters of a million was ever received. Nevertheless, despite that
minor technicality, the bank was chartered in 1694 and began the
business of lending out several times the money it supposedly had in
its reserves. In exchange for this unique and immensely profitable
privilege, the bank would very kindly lend the English, and later
British, government as much money as it wanted, at interest, provided
the debt was secured by direct taxation of the people.
"Whoever controls the volume of money in any country is absolute
master of all industry and commerce. And when we realize that the
entire system is very easily controlled, one way or another, by a few
very powerful men at the top, you will not have to be told how periods
of inflation and depression originate."
U.S. President James Garfield. A few weeks after making this
statement, he was assassinated on July 12, 1818.
NEWTON'S ALCHEMY NOTEBOOKS FOUND IN ROYAL SOCIETY ARCHIVES
http://www.newtonproject.sussex.ac.uk/prism.php?id=82&cat=Alchemical
http://www.pierre-marteau.com/editions/1701-25-mint-reports.html
http://www.pbs.org/wgbh/nova/newton/alch-flash.html
http://webapp1.dlib.indiana.edu/newton/about.do
http://www.guardian.co.uk/education/2005/jul/01/highereducation.uk2
Newton's alchemy manuscript found
BY Polly Curtis / July 2005
Sir Isaac Newton, famous for his revolutionary work in mathematics,
optics, gravity and the laws of motion, had a secret hobby. A
collection of his notes thought to have been lost 70 years ago reveal
his passion for alchemy and fruitless attempts to turn lead into gold.
His handwritten notes, commenting on the work of other famous 17th
century alchemists and documenting his own attempts to manufacture
precious metals, were rediscovered in the vaults of the Royal Society
and will go on display for the first time next week at the its summer
science exhibition. The notes were originally uncovered following
Newton's death in 1727, but they were never properly documented and
were thought to be lost following their sale for £15 at an auction at
Sotheby's in July 1936. But during the cataloguing of the society's
miscellaneous manuscripts collection the notes were discovered and,
with the help of Imperial College's Newton Project, were identified as
being the papers that had disappeared nearly 70 years before.
Newton kept hidden his occasional interest in alchemy during his
lifetime, in part because the making of gold or silver was a felony
and had been since a law was passed by Henry IV in 1404. But
throughout his career he, and other scientists of the time, many of
whom were fellows of the society, carried out extensive research into
alchemy. The text is written in English, but it is not easy to work
out what Newton is actually saying. Alchemists were notorious for
recording their methods and theories in symbolic language or code so
others could not understand it. One excerpt reads: "It is therefore no
wonder that - in their advice lay before us the rule of nature in
obtaining the great secret both for medicine and transmutation. And if
I may have the liberty of expression give me leave to assert as my
opinion that it is effectual in all the three kingdoms and from every
species may be produced when the modus is rightly understood: only
mineralls [sic] produce minerals and sic de calmis."
Stephen Cox, the executive secretary of the society, said: "Such an
intriguing find highlights the sheer volume of fascinating materials
contained in the Royal Society's library and archive. "Our ongoing
task is to ensure that the materials we hold are all identified and
catalogued. This will allow historians and the public to fully access
our great wealth of papers and artefacts from some of the most famous
scientists in history. At the summer science exhibition, alongside the
many exhibits featuring the cutting-edge science of today, people can
find displays throughout the building of the legacy that past fellows
have left behind, including these papers from Isaac Newton." John
Young, from the Newton Project, said: "This is a hugely exciting find
for Newton scholars and for historians of science in general. It
provides vital evidence about the alchemical authors Newton was
reading, and the alchemical theories he was investigating, in the last
decades of the 17th century. The whereabouts of this document have
been unknown since 1936 and it was a real thrill to see it preserved
in the Royal Society's archives."
A LEGITIMATE PURSUIT
http://www.pbs.org/wgbh/nova/newton/
http://www.pbs.org/wgbh/nova/newton/alchemy.html
http://www.pbs.org/wgbh/nova/newton/alch-newman.html
Magic or Mainstream Science? An interview with historian Bill Newman
NOVA: Why are people surprised when they hear that Isaac Newton—the
grand patriarch of physics—was an alchemist?
Newman: Well, I think it's because alchemy has been portrayed as the
epitome of irrationality and a sort of avaricious folly.
NOVA: Sinister, dark-robed sorcerers trying to turn lead into gold. Is
that an accurate picture of alchemists in Newton's time?
Newman: It's accurate for some alchemists. But we now know that most
of the great minds of the period were involved in alchemy, including
Robert Boyle, John Locke, Leibniz, any number of others.
NOVA: Given that so many great minds were interested in it, why was
alchemy illegal?
Newman: Well, first of all, it became legal during Newton's time. But
why was it illegal? There's a long association, for good reasons,
between alchemy and counterfeiting. It's quite likely, actually, that
medieval and early modern rulers were consciously employing alchemists
to debase their own coinage.
NOVA: But they didn't want other people doing it?
Newman: [laughter] Yeah, right; exactly, exactly.
NOVA: So what were these "legitimate" alchemists in the 17th century
trying to do?
Newman: Alchemy really encompassed all chemical technology—everything
ranging from the manufacture of pigments for paint to making
artificial precious stones. It included the manufacture of so-called
"chemical medicines." And, of course, it also included the attempt to
make the "philosophers' stone."
NOVA: Tell me about the philosophers' stone. I think of it vaguely as
some magical substance that could turn ordinary metals into gold.
Newman: The philosophers' stone was thought to be an agent of
universal transmutation. It also was viewed as a curative agent that
could "cure" metals of their impurities and cure human beings of their
illnesses. So it was a sort of universal panacea.
NOVA: Was Newton an alchemist because he wanted to make gold or find
the key to immortality? Or was his alchemy just another part of his
science—a way to gain knowledge about the material world?
Newman: If you look at the experimental notebooks that he kept for
about 30 years, it really is impossible to avoid the conclusion that
he was trying to produce the philosophers' stone. But I don't think he
was doing it to gain monetary wealth.
NOVA: Was it to gain an understanding of nature?
Newman: And power over nature. Power over nature has always been a key
element to alchemy.
Codes and Riddles
NOVA: Did alchemists think that they were going to discover powers
they wanted to keep for themselves? Is that why alchemy is so veiled
in secret codes?
Newman: That's certainly part of the reason. You find alchemical
treatises that claim that knowledge of the philosophers' stone has to
be kept secret, because if it gets out to the world that a particular
alchemist has it, he'll be strangled in his bed to extract the secret.
NOVA: It seems that Newton also wanted to hold tight to his secrets—he
never published any of his alchemical work.
Newman: I think that, like other alchemists, he thought that alchemy
promised tremendous control over the natural world. It would allow you
to transmute virtually anything into anything else, not just lead into
gold. There are other things, too, that probably were in Newton's
mind. For example, alchemists realized that if the philosophers' stone
were real and it got out to the public, it would ruin the gold
standard. [laughter]
NOVA: I think what makes a lot of people think of alchemy as black
magic is this bizarre language—phrases like "the Green Dragon" or the
"menstrual blood of the sordid whore."
Newman: Yes.
NOVA: It's mind-boggling to think of Newton writing those phrases.
Newman: Well, this was the enigmatic language of alchemy. I mean
"enigmatic" in a quite strict sense: it was a riddling language. The
best way to look at these metaphors is in the light of riddles. So the
"menstrual blood of the sordid whore" is decipherable. It means simply
the metalline form of antimony. That is the "menstrual blood" that's
extracted from the "sordid whore," which is the ore of antimony. [See
more of Newton's alchemy decoded in our interactive manuscript.]
NOVA: It's a coded language.
Newman: It is a code, and it's clear that the alchemists delighted in
this code. It's almost a form of poetry. In fact, lots of alchemists
wrote in the form of poetry, quite literally.
NOVA: Did all alchemists share the same code, use the same
terminology?
Newman: They shared lots of common elements, but it did vary from
alchemist to alchemist. It's extremely tricky for Newton. He was
reading alchemists over a period of time, ranging over perhaps a
thousand years, and there was a lot of development in these treatises.
But Newton generally thinks they're all saying the same thing, so
that's a problem.
NOVA: Why did Newton spend so much time copying the writing of other
alchemists?
Newman: He wasn't for the most part just copying verbatim. What he was
doing in many cases was weaving together extracts from different
authors, trying to make sense out of them. I think alchemy was the
ultimate riddle. Newton delighted in riddles, and this provided a
challenge to him that he just couldn't resist.
Revealed Wisdom For a Chosen Few
NOVA: Why did Newton think that Greek myths somehow encoded alchemical
recipes and a path to the philosophers' stone?
Newman: That theory had been in existence for quite a long time.
Newton's major source in alchemy, George Starkey, shared this theory.
Michael Maier is a famous writer of the early 17th century who tried
to decipher as much Greek mythology as he could get his hands on. So
it was a common belief.
NOVA: Was it part of a broader belief in some sort of "revealed
wisdom" about the natural world?
Newman: Oh, yes. There's a tradition of scholarship that was very
popular in the Renaissance called the prisca sapientia, the primal
wisdom. It claimed that there was a secret wisdom that was first
transmitted by an archetypical figure—say, for example, Moses—and then
passed down through a line of successors, usually including
Pythagoras, Plato, and so forth, and that this wisdom was really the
ultimate tool for understanding the universe. Newton clearly believed
that.
NOVA: Did Newton view himself as one of these chosen few, one of the
people ordained to receive this wisdom?
Newman: I suspect he did, yes. I don't think he would have admitted it
publicly, but one of his pastimes was concocting alchemical pseudonyms
for himself. And one of these pseudonyms was Jehovah Sanctus Unus—that
is, Jehovah, the Holy One.
NOVA: That's how Newton described himself?!
Newman: Yes!
NOVA: Did Newton think that he made progress in developing the
philosophers' stone?
Newman: Yes, I think that's quite clear. If you look at his
manuscripts, there are stages of development that you can isolate. In
his experimental notebooks, there are entries where he says "I found
the caduceus of Mercury today" and this sort of thing that reflect
real discoveries that he's made in the laboratory.
Newton Under Wraps
NOVA: After Newton's death, why did none of his writings on alchemy
come to light? Certainly people going through his papers came across
this writing. Was it viewed as not worthy of him?
Newman: Oh, yeah. There's no question that they were considered to be
borderline scandalous. Newton died in 1727. By that time you're well
into the Enlightenment, and alchemy had become the domain of dunces;
it was associated with all sorts of useless medieval knowledge. So the
fact that Newton had been a serious student of this obsolete and
idiotic field was really problematic.
NOVA: Do you think that today we should think less of Newton, knowing
how deeply devoted he was to alchemy?
Newman: No. On the contrary, I think that this opens up a side of
Newton that makes him a much more fascinating figure. And I think also
the fact that so many of these very, very seminal figures in the
Scientific Revolution were heavily involved in alchemy opens up a new
historiographical area that really promises to throw quite a different
light on the whole period.
NOVA: It opens our eyes to the incredibly wide range of Newton's
intellectual pursuits.
Newman: Yeah, it's very important to see the full breadth of Newton's
inquiries. And the dreams that were embodied in his alchemical
pursuits explain to some degree how and why he was such a driven man.
I think he really thought that alchemy provided a sort of limitless
power over nature.
NOVA: And even though he recognized that he hadn't solved all the
problems in alchemy, he truly felt that he had made strides.
Newman: Well, of course, he's famous for having said that he felt as
though he were only a boy on a seashore, having picked up a pretty
shell, and that there were many, many other shells remaining to be
discovered on the edge of this vast sea. That's what he said about his
scientific endeavor as a whole, not just his alchemy.
Remaining Puzzles
NOVA: You've said that Newton's alchemy is still a great unsolved
mystery. Why?
Newman: In part because his experimental notebooks are so cryptic.
These experimental notebooks pick up in 1678, and there is a story
that there was a fire in Newton's laboratory immediately before that.
So it's likely that we would have more materials if they hadn't been
destroyed in this conflagration. Also, Newton doesn't bother to
explain his terminology; being Newton, he expects to know his
terminology. And the terminology is very perplexing. He uses standard
alchemical decknamen—cover-names like the Green Lion and the
Babylonian Dragon, and so forth—but he seems to be using them in ways
that don't correspond to how his immediate sources used them. So we
have to carry out a huge combined effort, both in our laboratory and
in studying the texts, to determine what these substances were. Beyond
that, Newton doesn't tell us why he's doing the experiments. He just
says, "I did this and that, and I produced a volatile substance here,"
and so forth. He doesn't say the purpose of the experiment! So all of
this has to be inferred and put together. It's really a gigantic
jigsaw puzzle, and we're only at the beginning of having solved it.
NOVA: Wow. Do you enjoy actually getting into the lab and trying to
reproduce what he might have been doing with his crucible?
Newman: Oh, absolutely. And in many cases, you can reproduce the
products very clearly. It's satisfying, but it's a heck of a lot of
work. [laughter]
NOVA: As you continue studying the manuscripts and replicating his
experiments, what do you hope to find?
Newman: Well, there are a number of different things. One thing I'm
trying to do is determine the chronology of the different manuscripts,
so that we can say exactly how his ideas developed over time. Like I
said, it's a gigantic jigsaw puzzle. I would just like to be able to
put all the pieces together and see what he was really trying to do,
what his goals were, and how this fit with his natural philosophy.
NOVA: And if you succeed in making the philosophers' stone, you'll let
us know?
Newman: [laughter] If I succeed, I'll disappear.
THE ALCHEMIST VS THE COUNTERFEITER
http://www.bloomberg.com/apps/news?pid=20601088&sid=a8aXsxUg4tdw
Newton Hangs Forger, Invents Banking, Loses Millions in Bubble
Interview by Manuela Hoelterhoff / July 23, 2009
On March 22, 1699, the forger William Chaloner was dragged to the
execution grounds at Tyburn, London, and hanged in front of a cheerful
crowd, while his nemesis puttered away in his offices at the Mint.
That would be Isaac Newton, the famed inventor of calculus, apple
dropper and author of the “Principia,” once a hot seller. A terrific
new book, “Newton and the Counterfeiter,” describes the scientist’s
little-known later years when, luckless in love and alchemy, he left
Cambridge for London to become warden of the Royal Mint. Forgers,
chiselers and melters had seriously undermined Britain’s money supply.
To deal with the shortfall, King William had ordered up the Great
Recoinage, which wasn’t going so well when Newton arrived to take up
his post. How the Cambridge don laid the groundwork for modern banking
makes for a riveting story told with verve and humor by Thomas
Levenson, a professor at Massachusetts Institute of Technology in
Cambridge, Massachusetts. We spoke on the phone.
Hoelterhoff: All those years hoping to turn lead into gold must have
been pretty good preparation?
Levenson: Newton’s alchemical work was a perfect preparation for a
post that demanded an understanding of the processes of working metal.
He had built his own furnaces, melted down plenty of substances,
weighed, combined, assayed -- all the skills one could hope for in a
mint official. He was also one of the most rigorous observers of his
day. If you wanted someone who could watch the flow of precious metal
from the melting houses to the final coin presses, Newton was your man
-- and in fact his accounts at the end of the Great Recoinage
demonstrate that he managed the passage of millions of pounds worth of
silver through the mint with scrupulous honesty.
Hoelterhoff: What did the Great Recoinage entail?
Levenson: Recalling the old coins and re-minting them into new
currency. Newton took up his post just as the first crucial milestone
in the recoinage was about to pass. That was the moment when the
Treasury would cease to accept the old coinage as legal tender for the
payment of taxes. By that time, the recoinage effort was in a
shambles, with almost none of the new silver coins needed to keep
daily business going yet produced. Before he arrived, the Mint failed
to meet even the modest goal of producing 15,000 pounds sterling worth
of currency a week -- a drop in the bucket against a total silver
money supply of several million (roughly seven by most counts). By
late summer, after Newton had been on the job for about four months,
the Mint hit a then-European record of 100,000 pounds sterling minted
in a six-day week. Not too shabby.
Hoelterhoff: What was the urgency?
Levenson: As the shortage of ready money persisted, minor riots broke
out, and such sober men as John Evelyn, a founder of the Royal Society
and one of that era’s great diarists, worried seriously about the
possibility of a more general insurrection.
Hoelterhoff: Why had silver disappeared?
Levenson: For the fundamental reason that any mispriced commodity
disappears. The amount of silver that was legally required to be in
say, a shilling, was worth slightly more melted down: three or four
percent more -- despite the fact that it was against the law.
Hoelterhoff: That was enough to ship coins to where? Amsterdam?
Levenson: Which was a big banking center.
Hoelterhoff: Then there were clippers who shaved coins for their
silver or what? Turned them into fake gold coins?
Levenson: Some counterfeiters would use silver as a gilding material
or to coat a base metal.
Hoelterhoff: Chaloner comes off as a dashing, reckless talent who
hopes to the end his facility and connection will save him.
Considering the horrific punishment for counterfeiters -- you were
lucky if you just got hung and not also quartered -- I’m amazed how
many people chose this line of work.
Levenson: One of the funny things is that because the penalties were
so severe, they were less likely to be imposed. And you might get a
reprieve for offering information. At this time, there was a huge
criminal world running in parallel to the respectable world and it was
sometimes quite porous. And London was a hard place to be poor, a
horrible town to be poor in. If you had any talent, you tried in any
possible way to better yourself, and Chaloner was smart and capable.
Hoelterhoff: How many counterfeiters did Newton catch? Any sign that
he ever regretted sending his nemesis to his death?
Levenson: Maybe a couple of dozen were sent to the gibbet. There’s no
record he had any feelings about Chaloner, though his handwriting
becomes increasingly cramped and angry in some of the notes he took
for the case.
Hoelterhoff: How much fake money did Chaloner make?
Levenson: In prison, Chaloner boasted of having counterfeited about
30,000 pounds of false guineas and other denominations. That’s between
four or five million pounds, or around $7 million in today’s currency.
Hoelterhoff: Newton ends up getting a promotion from warden to Master
of the Mint, which made him rich. Then, in 1720 he lost millions in
today’s currency in the infamous South Sea Bubble. It seems incredible
that his brain didn’t tell him the returns were nuts.
Levenson: I try not to preach, but it is one of the arguments for
intelligent and robust regulations when even someone as brilliant as
Isaac Newton is taken. He hated being reminded of any mistake. The
only reference that people have found to his South Sea losses is in
the comment: “I can calculate the orbit of a comet, but I cannot
calculate the madness of the people.” He was swept up in the mania of
the moment.
SOUTH SEA BUBBLE
http://www.library.hbs.edu/hc/ssb/index.html
http://www.library.hbs.edu/hc/ssb/history.html
http://www.library.hbs.edu/hc/ssb/collection.html
PREVIOUSLY ON SPECTRE
http://spectregroup.wordpress.com/2008/01/04/making-money/
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