NEW BOOK: GRESHAM'S LAW

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V23 2020 INDEX E-SYLUM ARCHIVE

The E-Sylum: Volume 23, Number 12, March 22, 2020, Article 7

A review in the weekend Wall Street Journal by James Grant alerted me to a book by John Guy published in 2019 on Sir Thomas Gresham of 'Gresham's Law" fame. Here's an excerpt. -Editor

Sir Thomas Gresham, it turns out, didn't say: "Bad money drives out good money." But he did live by those wise words. What the adage, so often credited to him, means is this: If you have two coins of equal legal value, one of them worn and debased and the other mint-fresh, you'll save the new one and spend the old one. Bad money drives good money out of circulation and into safe-deposit boxes, a fundamental truth worth remembering even if your bank account consists of nothing but digital ones and zeros.

Gresham, by rehabilitating the English coinage of the 1550s and preaching fiscal probity to sovereigns who didn't want to hear it, was a kind of Elizabethan Paul V, though he was a councilor just as interested in his own net worth as he was in that of his royal patrons. John Guy's fine and learned biography, "Gresham's Law," reminds us how much has changed about finance in 500 years. For instance, nowadays, rather than raising funds by pillaging monasteries or shaking down defenseless merchants, governments sell bonds.

Then again, much remains the same in the very human business of lending and borrowing. The brilliant, corner-cutting, high-living, cold-blooded titan who lives and breathes between the covers of this concise volume would not be out of place in a sit-down interview on CNBC.

Gresham's story, in Mr. Guy's expert hands (the author is a historian of Tudor England at the University of Cambridge), is the chronicle of the stirrings of modern finance in a time of religious and political upheaval. As Catholics faced off against Protestants and contending descendants of Henry VIII fought for the English crown, Gresham effected a quiet revolution of his own. Not until he began to keep his ledger in the format of debits and credits had any Briton known to Mr. Guy employed the Italian innovation of double-entry bookkeeping.

The son of Richard Gresham, a textile merchant and "one of the most hated men in London" (a reputation burnished by the eviction of a widow from a house on which Gresham held a mortgage), Thomas was apprenticed to the family business and proceeded to make an independent career as banker to a succession of English sovereigns. For Elizabeth I, whom he served longest, he floated loans, manipulated foreign exchange rates, conducted espionage, dealt in armaments and acted as a kind of personal shopper. He served the queen well enough so that, by 1574, he could proudly announce the full repayment of England's once outsize foreign debt.

At this writing, though, rock-bottom interest rates constrain few governments from borrowing and spending in the grand Tudor style. And as to the distinction between "good" money and "bad," it's all paper, or digital scrip, which a modern central bank can print by the trillions with a tap or two on a keyboard. What would the ever adaptable Gresham make of our current financial arrangements? Dollars to donuts, he'd turn them to profit.