Wednesday, September 24, 2014

A brief history of the Guinea

1685 Guinea with the bust of James II (link)

The guinea makes a fascinating story because its evolution reveals so many different monetary phenomena. It began its life in 1663 in the Kingdom of England as a mere coin, one medium of exchange in a whole sea of competing exchange media that included crowns, bobs, halfpennies, farthings, not to mention all the foreign coins that circulated in England, Bank of England paper notes, as well as the full range of portable property—like jewelery and art—and property-not-so-portable, say houses and land and such. If things had stayed that way, the guinea's life would be a boring one and I wouldn't be writing about it.

But in the late 1600s the guinea crossed a line and became a very different thing. Rather than functioning as just one exchange medium among many, the guinea suddenly emerged as one of Britain's two media of account, the items used to define a nation's unit of account, in this case the £. Within a few decades it had wrested the medium of account function for itself, holding this pre-eminent spot until 1816, at which point the guinea was decommissioned.

Interestingly, while the guinea ceased to exist in 1816, its memory was sufficiently strong that it continued to function as a unit of account, albeit a relatively unimportant one, well into the 1900s. More on that later.

Just a regular coin

Whereas most of England's coinage at the time was silver,  the guinea was a gold coin. Introduced in 1663 during the reign of Charles II, it was initially rated at 20 shillings, or one pound (£), by the monetary authorities (the mint and the king). Pounds, shillings, and pence, or £sd, comprised the English unit of account—the set of signs that merchants affixed to their wares to indicate prices. The pound unit had been defined in terms of silver coins for centuries, but the the decision by the mint to give a 1 pound (or 20 shilling) rating to the guinea meant that the pound would now be dually defined in terms of both gold and silver coins.

However, according to Lord Liverpool, both the public and the authorities ignored this 20 shilling rating so that a market-determined price emerged for the guinea. In this way the guinea was no different from any other item of merchandise; its price floated independently according to the whims of buyers and sellers.

This stands in contrast to England's silver coinage. Silver pennies, halfpennies, and farthings had an extra function; they served as the nation's medium of account. The pound unit, the £, the symbol with which merchants set prices or denominated debts, was defined by the nation's silver coinage. Put differently, by setting a farm's price at £10, a seller was stipulating that the farm was worth the amount of silver residing in a collection of pennies and farthings.

When something serves as the medium of account, it's price doesn't float independently. Rather, the whole universe of other prices shifts to accommodate changes in the value of the medium of account. For example, if the value of silver were to have risen in the 1670s due to increased demand for silver jewelery, then the entire English price level would have had to fall. Alternatively, if the amount of silver in the nation's coinage was debauched, then the English price level would have risen. A change in the demand for gold in the 1670s, however, would have produced an entirely different result; the relative price of the guinea would have shifted, but little else. That's why a medium of account is so special. Unlike all other items, the price of everything pivots around it.

The fact that the guinea's initial 1663 rating had been ignored was very important. Imagine that the authorities had been stern about enforcing it. Returning to our farm example, in setting the farm's price at £10, our seller would have been stipulating that the farm was worth either the amount of sliver residing in a collection of pennies and farthings, or the amount of gold residing in the guinea. A very different monetary system would have emerged; bimetallism. But more on that later.

Liverpool tells us that the guinea fluctuated between 21 and 22 shillings in its first decades, but in 1695 its price rose rapidly to 30 shillings. This wasn't because of an increase in the demand for gold but a function of the quickening pace of clipping and sweating of pennies, which reduced the quantity of silver in the coinage. Guineas weren't the only commodity to rise in 1695; the entire array of English prices had to pivot around the diminishing value of the silver penny. Once the silver coinage was reformed (its silver content being restored) in the Great Recoinage of 1696, the price of guineas quickly returned to 22 shillings.

The switch to bimetallism

Things all changed in 1697 when the Exchequer, the department responsible for receiving taxes, announced that all guineas were to be accepted by the Exchequer's tellers at 22 shillings. Prior to then, the Exchequer had accepted guineas at the going market rate. As Sykes points out, after 36 years of floating this was tantamount to fixing the price of the guinea relative to silver. Guinea couldn't circulate for less than this stipulated amount, say 21 shillings, because an arbitrageur would mop up those guineas at 21 shillings and use them to pay 22 shillings worth of taxes, earning him or herself a 1 shilling gain. (The next year, the Exchequer would reduce this rate to 21 shillings 6 pence.)

Britain, which had been on a silver standard up to 1697, was now on a bimetallic standard, with the £ unit defined as the amount of silver residing in the English penny, and simultaneously the amount of gold residing in the guinea.

The guinea takes over

The problem with the new standard was that in setting the guinea at 21s 6p, the Exchequer had overvalued gold relative to the market price, more specifically the silver-to-gold ratio prevalent in the rest of the world. By how much? In 1702 Sir Isaac Newton, Master of the Mint since 1699, concluded that 'Gold is therefore at too high a rate in England by about 10 pence or 12 pence in the Guinea.' In other words, the Exchequer should have announced it would only accept guineas at around 20s 6p, or 4.6% less than it had.

What were the consequences of this over-valuation? All of the silver pennies began to leave Britain, gold coins filling the void. Given the choice between paying a debt or a tax in either an overvalued or undervalued instrument, people will always select to use the overvalued one. After all, buying 20 shillings 6 pence's worth of gold in France and using it to discharge a 21s 6p shilling tax liability in England resulted in a 4.6% profit (less transportation and minting costs). The undervalued instrument, in this case silver, is best used in other parts of the world where it is capable of purchasing a larger real amount of goods (or discharging a larger real quantity of taxes) than in the country in which it is artificially undervalued. This is, of course, Gresham's law; the bad drives out the good.

So our guinea, which had started its young life as a mere medium of exchange, had not only graduated to becoming one of only two English media of account, but was responsible for the mass flushing out of silver from England.

By 1717, the silver outflow was getting significantly bad that the authorities decided to do something about it. Newton, still Master of the Mint, noted that the market price for the guinea was around 20s 8d, given the exchange rate between silver and gold in other European markets, and suggested an initial rate reduction from 21s 6d to 21 shillings.

But even at this lower price the English authorities were still overvaluing the yellow metal. They had now fixed the silver to gold ratio at 15.069 to 1, but because the rate was 14.8 to 1 in Holland and France, a profit still remained on exporting silver and importing gold. This silver outflow would continue over the decades until most silver was gone. England had gone from a bimetallic standard to a monometallic standard. Though it was still de jure bimetallic, de facto it had become a gold standard. And the guinea, which was now the controlling element in English prices, was to blame (or at least the decision to misprice it was).(1)

The end of the guinea

For the next century, the English price level pivoted around the value of the gold guinea, until the Great Recoinage of 1816, at which point the guinea's life suddenly came to an end. Since the days of Isaac Newton, the guinea had been awkwardly rated at 21 shillings, or one pound one shilling. This must have made payments somewhat arduous since there was no coin that could satisfy an even 1 pound bill or debt, and people like round numbers. The decision was made to introduce a less awkward gold coin, the sovereign, with slightly less gold. The sovereign was conveniently rated at exactly 1 pound, or 20 shillings, the upshot being that the pound unit of account still contained just as much physical gold as before, but now a coin existed that corresponded with the exact pound unit. The guinea was dead.


Well, not entirely. Though is was no longer being minted, the guinea continued to be used as a way to price items. According to Willem Buiter (pdf), auction houses and "expensive and pretentious shops" continued to set prices in terms of guineas through the 1800s and 1900s. Bespoke tailoring and furniture, for instance, was quoted in the legacy gold coin. The unit used was g, or gn, with the plural being gs or gns, although payments were made in sovereign coins or Bank of England notes.

Gillette advertisement (link)

Doctor's and lawyer's fees, often known as "Guinea fees" we're advertised in terms of the legacy gold coin. Whereas common laborers were paid in pounds, payments in guineas was considered more gentlemanly. You can see it pop up in the literature of the time. In Arthur Conan Doyle's Sherlock Holmes tale the Adventure of the Engineer's Thumb a stranger offers Mr Hatherly, a hydraulic engineer who is down on his luck, a unique proposal. "How would fifty guineas for a night's work suit you?"

An ad from 1929 (link)

The standard rate paid by Charles Dickens for contributions to his weekly periodicals Household Words and All The Year Round was half a guinea a column or a guinea a page. In his novels, the guinea pops up often. In Oliver Twist (set in the 1840s), a 5 guinea reward for information on Oliver is posted by the kind Mr. Brownlow.

In more modern times, horses continue to be auctioned in terms of guineas.

Dancing Rain sold for 4 million guineas (link)

Now of course this is a bit of a come-down for the once almighty guinea. Serving as the unit at Tattersalls isn't the same as underpinning the entire price level. But at least its better than the sovereign, the coin that replaced the guinea, which has gone silent, or most other medieval coins for that matter, which neither circulate nor serve as legacy units.

(1) The 1717 reduction of the guinea to 21 shillings was accompanied by the requirement that those guineas be accepted as legal tender at that price. Prior to then, only silver had functioned as legal tender, meaning that a debtor could only discharge a debt with silver coins. After the change, a debtor could choose to use either guineas or silver coins to pay off their debt, a decision made easier given gold's overvaluation.

Some References:

Lord Liverpool, A Treatise on the Coin of the Realm, 1805.
Sargent & Velde, The Big Problem Of Small Change, 2001.
Selgin, Good Money, 2008.
Sykes, Banking and Currency, 1905. 
Macleod, Bimetallism, 1894.


  1. IIRC (and I was very young at the time) when we bought our farm at auction, in 1964, the bidding was in guineas. I think my father told me that the buyer paid X guineas, the seller received X pounds, and the auctioneer kept the X shillings as a commission.

    I never knew the "bob" actually existed. "5 bob" was slang for "5 shillings", aka "one crown", or even "one dollar". Crown coins were very rare, and did not circulate, but half crown coins (2 shillings and sixpence) were common. They continued with decimalisation, becoming 12.5p

    Maths was hard in those days, at junior school.

    1. Nick, thanks for the story. That sounds like some of the account I read when researching this article.

      The old £sd system sounds just awful. I can understand why you immigrated ;)

  2. Minor point - the Bank of England wasn't established until 1694, so BoE notes wouldn't have been in circulation when the guinea made its entrance.

    Speaking of BoE notes, do you know if were they redeemable in gold or silver as the holder desired, and whether a pound bank note (if they existed then, I know the BoE was, at least for a time, opposed to small note issue) traded in the market at the gold or silver price?

    1. That's an interesting question. Off the top of my head, I don't know in what way BoE notes were initially redeemable, or at what price they traded at. I'd suggest you check


      Or anything by MacLeod:"Henry+Dunning+Macleod"

      ...then get back to me with your findings.

  3. Fascinating article, thank you.

    I'm British and was born in 1978. I remember old rich people using prices in guineas when I was a small child. I think it (or rather they) have completely died out now except in the racing world.

    The sovereign continues to be minted and collected by both goldbugs and numismatists. The Royal Mint supplies both groups with separate "bullion" and "proof" sovereign products - the latter being very shiny and much more expensive.

    I don't the average Brit is very aware of sovereigns, but adults who remember the inflation of the 70s definitely are. During the gold price run-up of 2010/11/12, many towns in Britain sprouted "cash for gold" stores, and large numbers of sovereigns were brought out of private collections and sold.

    1. Glad you liked it, strowger. Thanks for the interesting anecdotes.

  4. Hi, I am from Asia. Interesting story!

    "Things all changed in 1697 when the Exchequer, the department responsible for receiving taxes, announced that all guineas were to be accepted by the Exchequer's tellers at 22 shillings..Britain, which had been on a silver standard up to 1697, was now on a bimetallic standard, with the £ unit defined as the amount of silver residing in the English penny, and simultaneously the amount of gold residing in the guinea"...

    I thought England has issued gold Nobel at 1344 and Sovereign at 1489 by fixing its first value at 80 Pense and 20 Shillings, respectively. In that sense, England has already been on bimetallic standard since then, not since 1697?


  5. Great article. Just come across it.
    Have you heard this one about the guinea?
    A member of the legal profession once told me that the guinea used to be used for fees by barristers. The barrister received one pound and the Chief Clerk at his Chambers received the shilling.
    Any credence to the story?

  6. Nice article JP. I am working may way through this part of the English monetary system. One thing I find unconvincing, and that I have read many times to believe that it is the common language, is this characterization: “The pound unit had been defined in terms of silver coins for centuries, but the the decision by the mint to give a 1 pound (or 20 shilling) rating to the guinea meant that the pound would now be dually defined in terms of both gold and silver coins.”
    My issue is that this blurs monetary instruments and unit of account when the two ought to be clearly separated. Monetary instruments and unit of accounts are two distinct elements of a monetary system, and the former cannot exist without the latter so the former cannot define the latter. In other words, coins do not define the unit of account but rather coins are defined in a unit of account. A coin is called a penny because it is worth 1d., we do not say that 1d. is called penny because a coin was called that way first.
    The guinea is a denominational unit equal to 21s. and the pound is a denominational unit equal to 20 s. They have existed without a coin and there is nothing strange about that. They are just a unit of measurement. A dollar is a dollar even if no dollar coin/note exists.
    Of course medieval times are full of cases where accounts would be kept in a unit referring to a specific coin because merchants and creditors cared about the content of metal. But again the unit would persist even if the coin had disappear, and this means of hedging for debasement would only work if metalism prevailed in the law.

    1. Hi Eric, glad you like it.

      When I say that the penny defined the unit of account, I'm relying on John Munro, Peter Spufford, Ernst Weber and others. According to them, the money of account was always based on some real coin (ie a "link coin" or "index coin"), whether that be an existing one or a ghost coin that once existed but no longer does. Here is Spufford, for example:

      See paragraph beginning with "The misnomer 'imaginary money' has often been applied to late medieval money of account, perhaps because the real coin... "

      Here is Munro, see discussion on A and B type money of accounts:

      Here is Weber:

    2. Thanks. Yes indeed, I am just not convinced yet on this analytical blurring. Munro is one of my favorite authors.

    3. Yes, I like Munro a lot, perhaps to the point that I over-rely on him. Maybe you can give me a peek into why you are not convinced?