The Trial of the Pyx
Jan Skoyles looks at an age-old trial which worked to assess the value of the money supply. She suggests that in times of such blatant monetary debasement, the scope of the trial should be expanded so as to make the stewards of the monetary system less susceptible to the temptations of easy monetary policy.
The Trial of the Pyx, perhaps one of the oldest legal events in Great Britain, took place earlier this week.
Since 1282, the Trial of the Pyx, which is a full judicial trial, has taken place every year in order to check the integrity of new coins produced by the Royal Mint.
Taking place at the Goldsmith’s Hall in the City of London, the trial is done in three-stages and involves a jury of goldsmiths counting and weighing the new coins which are transported in the Pyx, Latin for ‘chest’.
The trial has legal implications for the Royal Mint who is on trial. The jury is made up of Goldsmith’s members who are summoned to the Goldsmith’s Hall by the Queen’s Rememberancer, a senior judge in the Courts of Justice.
Checks and balances
We often write on these pages how much safer our monetary system was when it was backed by precious metals. This doesn’t mean it didn’t require checks and balances, particularly when it came to coins.
It was acknowledged even in the 13th century what the temptations to clip coins for personal gain, and the damages of such debasement, could cause to an economy.
Yet it may well be doubted whether all the misery which had been inflicteth on the English nation in a quarter of a century by bad Kings, bad Ministers, bad Parliaments and bad Judges, was equal to the misery caused in a single year by bad crowns and bad shillings.’ Lord Macauly
We are reminded of the damage of ‘clipped coins’ when in the last 17th Century a coin clipping epidemic occurred throughout the country prompting inflation to follow. Clippers were convicted of counterfeiting or ‘mutilating the money of the realm’ through various punishments. Some were hanged, others burned and some let off easily when they were burned with a red-hot iron on their cheek.
It wasn’t just inflation which followed coin clipping but also but also increasing mistrust in the currency. This in turn affected trade. It wasn’t until a new Coinage Act was passed, voiding the legality of old coins, that the issue of currency credibility was restored and inflation brought under control.
Archaic or necessary?
At first glance the Trial of the Pyx seems like an archaic tradition, something which is done for the sake of pomp and ceremony, after all since the late seventeenth century the Royal Mint had all but perfected mechanised coin minting. And now we live in an age of electronic money. But, perhaps at second glance this is a ceremony which doesn’t go far enough. Why not take into account all money’s integrity?
One of the main reasons for the Trial of the Pyx’s existence is because it was believed to be ‘tempting for the Master of the Mint to steal precious metals’ i.e. debase the coins.
For instance, in 1799, one guinea was required (by the Coinage Act) to weigh 128 grains. Because the Master of the Mint had an incentive to make the coins weigh less the punishments open to him were terrifying.
We must remember that for as long as governments have taken the monopoly on issuing coins, they have also been able to debase not only the coinage but the currency as well. The same holds true today.
‘…for in every country of the world, I believe, the avarice and injustice of princes and sovereign states, abusing the confidence of their subjects, have by degrees diminished the real quantity of metal which had been originally contained in their coins.’ Adam Smith, The Wealth of Nations.
The Telegraph quotes the deputy clerk of the Goldsmith’s Company, ‘This sort of assessment does maintain the standards of the Royal Mint.’
The current Master of the Mint is otherwise known to most of us as George Osborne, Chancellor of the Exchequer.
Luckily for the Chancellor, coins are no longer made of precious metals and the majority of the money supply doesn’t exist in a physical sense, let alone in gold and silver coins. As Adam Smith reminded us above, we shouldn’t just consider the damage of the debasing of coins but also of the currency.
Race to Debase
George Osborne, along with his contemporaries across the globe has been debasing the in currency ways other than stealing a few slivers of silver per coin.
He’s helped of course by the Governor of the Bank of England, who has a huge influence in choosing and managing.
Since 2000 gold has gained 516% against the British pound. During that time Sir Mervyn King has been both Deputy Governor and then Governor of the Bank of England.
Elsewhere others in charge of the money supply are unable to maintain its value.
The US dollar has also fallen by 516% against gold since 2000, for half of that period Bernanke has been Chairman of the Federal Reserve. He continues to advocate endless rounds of quantitative easing and has earnt the nickname Helicopter Ben thanks to support of inflation creation.
Mark Carney, King’s successor, has during his stewardship of the Bank of Canada seen the Loonie depreciate by nearly 300% against gold.
Osborne, King and Carney ontinue to be well compensated for their roles and sought after in their opinions. King has led us into a triple-dip recession and will be leaving us to flounder as he hands us to Mark Carney who believes we can aim for more inflation.
In Carney’s homeland they decided this week to remove the ‘pennie’ from circulation. If there was ever a demonstration of devaluation of a currency this is it. The copper plated coin was costing the Royal Mint an extra 0.6 cents over face value which added up to C$11m a year, citizens were discarding them into change pots and businesses admitted to never even counting them.
Clever Carney has negotiated a shorter term as Bank of England governor, a high salary and a no-pension salary, meaning his incentives to protect the value of the pound in the long-term remain low. Perhaps if instead of just appreciating the Trial of the Pyx, we should bring them out to the open and make them all encompassing we might get our money’s worth out of Mr Carney.
Perhaps the stability of the years prior to 1913 weren’t just down to a gold-backed currency, or the lack of government interference. Maybe it was because those in control of the money supply had (as Nassim Taleb calls it) ‘skin in the game’ their livelihoods and lives were affected by the quality of the money supply.
Those checks and balances meant something, they stood trial every year to account for their decision. However, this now only applies to a limited area of their remit.
Perhaps it’s time to move the Trial of the Pyx into the 21st century?
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