Paper Trail

How Isaac Newton tracked down a counterfeiter–and helped form the modern concept of money.

One day in the middle of March 1699, the Warden of His Majesty’s Mint received a letter in his rooms at the Tower of London. It concluded,

O dear S[i]r nobody can save me but you O God my God I shall be murderd unless you save me O I hope God will move yor heart with mercy and pitty to do this thing for me.

It was signed, piteously,

I am Yo[u]r near murdered humble Servt

W. Chaloner.

William Chaloner was a prolific counterfeiter who had, in fact, been condemned to die within a few days. But the most curious fact about this letter was the man to whom it was addressed: Isaac Newton, the man who worked out the laws of motion, invented calculus, and essentially founded modern science. A notorious counterfeiter and the greatest mind of his age may seem like exceptionally unlikely correspondents, but their lives came to be deeply intertwined. Their encounter reveals, among other things, the perils and rewards on offer at the moment when England was (accidentally) inventing the modern idea of money.

Newton’s role in that revolution is not widely known, but for more than 30 years he was partially responsible for managing England’s money supply, a task he assumed with his appointment as Warden of the Mint in 1696. The job was supposed to be a sinecure, a reward for his brilliance bestowed on him by his political connections. It turned out to be one of the most demanding tasks Newton ever undertook–in large part because in 1696, England was on the verge of national bankruptcy.

The threatened disaster derived from two causes. First, England’s silver coins–the basic units of everyday economic exchange–were disappearing, because they were worth more as silver ingots to buy gold or goods on the European continent than they were as currency at home. By 1696, according to Newton’s measurements, legitimate money was down to half its legal weight, debased by the efforts of “clippers” who harvested silver from coins slice by slice. And fully 11 percent of England’s coins were fakes. At its worst, the shortage of silver coins threatened to bring daily commerce to a halt.

At the same time, the Nine Years’ War with France was consuming up to 80 percent of all government income, forcing the government to try an extraordinary range of new, complex, and sometimes plain weird financial ideas to raise the sums needed to keep King William’s armies in the field.

The effort to fund that debt in the face of the drastic shortage of hard cash turned the mid-1690s into perhaps the first golden age of financial engineering. Of all the expedients tried, the strangest were malt lottery tickets, a financial chimera invented in 1697.

In that year the government wanted to raise 1.4 million pounds–more than $300 million in current money. But with a previous issue of an early form of government bonds already in default, backers for a simple loan were difficult to recruit. So the Treasury came up with a new twist. Tickets costing 10 pounds each were entered in a drawing for cash prizes of up to several hundred pounds. At the same time, the tickets served as both bank notes and bonds. They could legally be passed as 10-pound notes. Or they could be held as interest-bearing coupons, earning one farthing a day–a return backed (in theory) by a tax on malt (which is to say, on beer).

The Bank of England had issued nominally gold-backed paper notes in 1694, but this was a step closer to true fiat money. No certain promise of precious metal appeared in the scheme. As it turned out, it was a failure–fewer than 2,000 of the 140,000 tickets were sold. But the power–and danger–of what those pieces of paper represented sparked a ferocious debate on whether or not it was a good idea to create a mechanism of exchange unconnected to any tangible, physical commodity.

Isaac Newton argued powerfully that it was. His views evolved over time, but from early on he understood that money was a unit of exchange and not, necessarily, a physical thing. In a letter to one of England’s currency conservatives, Newton displayed a strikingly contemporary outlook. “Credit,” he wrote, “is a present remedy against poverty & like the best remedies in Physick works strongly & has a poisonous quality.” Hence, Newton argued, caution was indicated–but not total rejection of what could be a useful tool. “Good physitians reject not strong remedies because they may kill,” he wrote, “but study how to apply them with safety & success.” And, Newton emphasized, credit was useful: “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 is more paper credit till by trading and business we can get more money.” Even more radically, he wrote, “ ‘Tis mere opinion that sets a value upon [metal] money; we value it because with it we can purchase all sorts of commodities and the same opinion sets a like value upon paper security.”

Mere opinion? That was much further than most of his contemporaries were prepared to go. No matter–Newton, above all people, understood that paper money, exchangeable promises, bonds, and the like are all abstractions. To understand them, to accept them, took a capacity for the kind of mathematical reasoning that was just beginning to infiltrate all kinds of fields, including Newton’s new physics. The scale of the risks associated with manipulating disembodied expressions of value was perhaps less clear to Newton than it may be now–though he would learn, to his sorrow, of the potential for catastrophe when he lost a substantial fortune in the South Sea Bubble of 1720. Even so, he grasped the idea at the heart of financial reasoning: that transforming distinct chunks of material reality (such as physical coins) into abstractions that can be manipulated numerically makes it possible to analyze the behavior of a system on a much deeper level–whether one is thinking of motion, of gravity, or of money.

What does all this have to do with Newton’s correspondent? William ­Chaloner was hardly a scientific revolutionary. But he had wit enough to seize the opportunities created by revolutionary changes in thought and practice. He recognized that there was much more to be made in printing 10-pound notes than in casting pot-metal shillings or half crowns one by one. So in the summer of 1698, he acquired a malt lottery ticket and used it to guide him as he engraved a plate that enabled him to print hundreds of copies. The first of his fakes was found in circulation that October–and the Treasury panicked at the thought of the blizzard of false paper that might follow.

It fell to Newton to stop him: the Warden of the Mint had the duty to pursue currency crime. Several hundred surviving documents detail that investigation. Among them are records of dozens of interrogations, payments to undercover informers, even accounts of Newton’s own expenses in dodgy pubs as he questioned witnesses around London.

Newton formed the pile of paper in his files into an unbreakable chain of evidence. The court took less than an hour to convict Chaloner, minutes to sentence him to death. That was when he wrote his last, piteous plea to Newton.

It didn’t work.

Around midday on March 22, 1699, Chaloner climbed the ladder to the top of the scaffold and bent to the noose. Isaac Newton, at work at the heart of England’s money supply, did not choose to watch the show.

Thomas Levenson, author of Newton and the Counterfeiter: The Unknown Detective Career of the World’s Greatest Scientist, directs MIT’s Graduate Program in Science Writing.

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