In today’s issue:

  • Drunk and homeless in The System of the World
  • The cycle of monetary mayhem is peaking… or bottoming out?
  • Who will get the keys to the printing press next?

You probably don’t think of Sir Isaac Newton as an undercover cop. Let alone as a central banker. And yet, he was both, at the same time.

As Warden and then Master of the Mint, Newton was responsible for the country’s coinage. And he didn’t like coin clippers or other counterfeiters interfering with his monopoly to create high quality money.

But Newton didn’t try to track them down from the comfort of his office inside the Tower of London, which you can still visit today. The London Mint Office reports on how he took matters in his own two hands:

Newton began to devote more and more of his time to his main duty of investigating and bringing to justice the counterfeiters and clippers that had bought the currency into disrepute. He went undercover himself and visited notorious bars, taverns and other dens of iniquity where criminals gathered, in order to recruit informants and obtain information.

If you like the idea of Sir Isaac Newton lying by the fire in a den of iniquity disguised as an inebriated homeless man, read Neal Stephenson’s The System of the World books. They are exceptional. And don’t worry, Isaac was just eavesdropping on the coin clippers.

But it wasn’t just ordinary coin clippers that Newton was after. He had to deal with a full-on currency crisis too. The credibility of the nation’s money was teetering. A bit like it is today, after 20% inflation since 2021 alone.

Except that we all know who the counterfeiter is this time, don’t we? There’s no need to dress up as a homeless man and eavesdrop on criminals at a house of ill-repute. A trip to the pub and everyone will tell you openly: it’s Governor Andrew Bailey of the Bank of England who debased the currency. He’s the one who created all the money that fuelled the inflationary fire.

Under Newton, maintaining the value of the currency was all about the integrity of gold and silver coinage. Dilution was a crime. Things were simple.

Under Bailey, there is nothing backing the currency to dilute. The counterfeiters at the Bank of England just create more money itself.

It’s a radically different system. One that economics textbooks tell us is built on nothing more than trust and confidence.

But trust and confidence in what… or whom?

No economics textbook ever explains that part. Luckily for you, I have a theory…

The cycle of monetary mayhem

Back in Newton’s time, we had trust and confidence in gold to retain its value. A belief based on thousands of years of history.

It was the government’s job to make sure that nobody committed the crime of diluting the gold.

The trust and confidence which our modern monetary system is built on is a little different. We trust that central bankers won’t do anything stupid with the money supply. And if they do, we lose confidence in money.

That loss of confidence is measured in inflation. Just as clipped coins lost their value too. So the end result was the same.

The economist F.A. Hayek claimed all this is rather important: “I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.”

Hayek spent much of his career explaining the evils of inflation. And he even played a part in ending the UK’s inflation of the 70s. A bit like Newton three hundred years before.

But Hayek’s not quite right. The history of money is not just a history of government and central bank money causing inflation. There have been plenty of private currencies too.

That’s why Scotland still has so many note-issuing banks – remnants of the good old days when people trusted each other instead of the government.

To put a spin on Hayek’s quote, I do not think it is an exaggeration to say history is largely a cycle of different monetary systems.

Sometimes we trust the private sector to provide our money.

Sometimes we trust the government with the keys to the mint. After all, who would trust the greedy bankers?

And sometimes we trust an independent institution with the printing press – something like the Bank of England. After all, who would trust the government?

Each system fails eventually, of course.

Politicians can’t be trusted with the printing press – they’ll spend too much. That’s why we turn to independent central bankers.

But independent central bankers can’t be trusted with the printing press – they’re not democratically accountable… because they’re independent.

The private sector can’t be trusted with the printing press because…

Actually, history is not too clear what’s wrong with a monetary system that lets banks issue their own currency. But let’s not go down that rabbit hole.

My point today is that we are at a turning point. The old monetary system is dying. And there is a war for control of the new one.

Who will get the key to the printing press next?

The failure of the existing system was pointed out by Daniel Hannan in the House of Lords recently. The YouTube video is called “The Bank of England has been a disaster”. Which might suggest you don’t’ need to watch it. I mean, who doesn’t’ know the Bank of England has been a disaster? It’s just that we can’t do anything about it. Andrew Bailey isn’t even on the ballot.

Liz Truss suggested reforming the Bank of England. But when she got elected, the Bank of England hiked rates and began dumping government bonds. We all know what happened next.

Despite the Bank of England escaping democratic accountability, you need to realise why Hannan is still willing to pipe up. And what remedies he’s come up with. Because they’re a rhyme that history has repeated many a time. Which gives us a chance to guess what comes next.

The question now is whether there will be radical change in how our monetary system works.

The cryptocurrency enthusiasts have been harping on about this for decades.

The sound money advocates have been harping on about hit for decades longer.

More recently, the International Monetary Fund’s SDRs and the BRICS’ BRICS currency are getting attention.

With CBDCs bringing up the rear.

More and more politicians are questioning the viability of the current monetary system. Is having independent central banks at its centre really a good idea? Is something else better?

Does bitcoin’s apolitical design and limited supply make it the best currency system?

Or should we go back to the stability of gold and resurrect Isaac Newton to catch any coin clippers?

Should we trust an international institution like the IMF with the money supply instead of central bankers?

We all have different answers to those questions. A currency system that suits our beliefs and inclinations. But the fact that questions are being asked is a signal of change.

We are at a turning point in the cycle of monetary systems. On Thursday, I will reveal what happens next. Unless you’re a Fleet Street Letter subscriber. In which case, keep your eyes on your inbox.

Until next time,

Nick Hubble
Editor, Fortune & Freedom