This week we celebrate the birthday of a genius, the founder of modern physics, Sir Isaac Newton. Few people recognize that Newton also was the father of the gold standard that served to foster world prosperity for two centuries. It’s true.
Ted Cruz’s call for the gold standard, it turns out, has profoundly great roots.
As recently presented by Biography.com:
Sometimes called the father of modern science, Isaac Newton revolutionized our understanding of our world. He was a real Renaissance man with accomplishments in several fields, including astronomy, physics and mathematics. Newton gave us new theories on gravity, planetary motion and optics. With the publication of Philosophiae Naturalis Principia Mathematica in 1687, Newton lay the groundwork for modern physics. It also cemented his position as one of the leading minds of his age.
Today we celebrate Newton’s birthday as January 4th. Originally, according to the “old” Julien calendar, he was born on Christmas Day in 1642. No matter what the case, Newton lived an amazing life.
In his later life, Newton enjoyed a political career. He was elected to Parliament as a representative for Cambridge in 1689 and returned to Parliament from 1701 to 1702. Newton was also active in the economic life of his country. In 1696, he was appointed warden of the Royal Mint. Newton became the master of the mint three years later and actually changed the English pound from a sterling to gold standard.
Many rigorous economic historians believe that shifting the pound from sterling (silver) to gold was an artifact of a miscalculation by Newton. As the erudite Dr. George Selgin generously noted in a comment to one of my columns at Forbes.com:
In the famous 1696 Locke vs Lowndes debate over the new silver coinage, Newton sided squarely with Locke in upholding silver as the “true and only monetary standard of England,” and in insisting that that standard not be altered. He was made Master of the Mint that same year for the precise purpose of seeing to the preservation of the silver standard. In fact he recommended setting the value of the gold guinea at 21s on the grounds that such a rating might suffice to arrest the exportation of silver that was then threatening to put England on a de-facto gold standard. In the event, the rating was to prove too high for the purpose. The government’s failure to further reduce the guinea’s official rating thus resulted, via Gresham’s Law, in England’s inadvertent switch to a gold standard–a switch that would not be officially acknowledged until 1816.
And yet, whether intentionally or by happy accident, Sir Isaac indeed set up a monetary system that in fact evolved into the classical gold standard. It proved to be a monetary system that was enormously beneficial to Great Britain, her people, and the world economy. As Forbes.com columnist Nathan Lewis astutely observed:
During the 18th and 19th centuries, the premier leader in gold-based monetary discipline was the Bank of England. From 1694 to 1914 (excepting wartime), the British pound was reliably fixed to gold at 3 pounds, 17 shillings and 10 pence per troy ounce.
Britain – which in the 17th century had been an economic backwater of no great significance – then became the financial capital of the world, the birthplace of the Industrial Revolution, and ruler of the greatest global empire of the era.
It is worth noting in passing that contemporaneously Scottish economist John Law persuaded France to move to a paper currency. This lasted only about three years, ruining France’s finances, and that of many formerly affluent citizens, in the process, very much including John Law. Perhaps it is fair to infer that economic policy is too important to be left to economists.
Also worth noting in passing: another scientific icon Nicholas Copernicus, who made the radical realization that the Earth goes around the Sun, rather than vice versa, also understood and stood for the classical gold standard. He wrote a tract, On the Minting of Money (a well-received modern translation of which I co-commissioned and co-edited) in 1525 on the subject of the gold standard that is as clear and valid as anything ever written on the topic and which may even have inspired a famous observation by Keynes contained in The Economic Consequences of the Peace.
Those who tediously still ridicule the gold standard, and presidential aspirant Ted Cruz for proposing it, seem gravely deficient in their knowledge of history. To reiterate Nathan Lewis’s observation: under the gold standard “Britain – which in the 17th century had been an economic backwater of no great significance – then became the financial capital of the world, the birthplace of the Industrial Revolution, and ruler of the greatest global empire of the era. Not bad.”
Nobody ridicules the laws of physics because they were discovered in the 17th century. The Earth still revolves around the sun almost half a millennium after Copernicus’s 1532 completion of his manuscript of of Dē revolutionibus orbium coelestium (Wikipedia notes: “but despite urging by his closest friends, he resisted openly publishing his views, not wishing—as he confessed—to risk the scorn “to which he would expose himself on account of the novelty and incomprehensibility of his theses.”)
The elites then were — as they now are — full of scorn. Still, to quote a phrase attributed to another great scientist: Eppur si muove. “And yet it moves.” Scorn for those who depart from the conventional wisdom seems a constant among elites of all ages.
Ted Cruz demonstrates exceptional intellectual depth and has shown true depth of character by risking, apropos of Copernicus, “the scorn to which he would expose himself on account of the novelty and incomprehensibility of his theses.”
Laws of nature, whether of physics or astronomy or economics (such as supply-and-demand or the practical virtues of the gold standard) are immune to the passage of time. Those who ridicule the gold standard quietly really should take to heart the immortal words of songwriter Herman Hupfeld:
The fundamental things apply
As time goes by.
Ralph Benko, internationally published weekly columnist, co-author of The 21st Century Gold Standard, lead co-editor of the Gerald Malsbary translation from Latin to English of Copernicus’s Essay on Money, is American Principles Project’s Senior Advisor, Economics.