Gresham 's Law: Lower Canadian Style.

 

Gresham 's Law states that "Bad money drives out good", meaning that if two currencies are in simultaneous use, one more over-valued than the other, it is that currency that will circulate, the other one hoarded and little used. There was an excellent example of this Law in Lower Canada - today's Quebec - particularly in the 1820s and '30s. It involved the old "French crown" and its half.

 

After the British conquest of Canada , confirmed in 1763, the currency of Lower Canada (then just " Canada ") was greatly preferred by the habitants to be solid French coin, and not just for sentimental or cultural reasons. At the time, the "French crown" was the silver Ecu, coined since 1726 to the same standard: 29.488 grains of silver 11/12ths (or .9167) fine, therefore containing exactly .8842 Troy ounce of pure silver. It continued at this standard until the French Revolution, as did its fractional parts in proportion.

 

FRANCE . Ecu, 1753 Rennes Mint.   There were also ½ -, ¼-, 1/10th and 1/20th ecu coins struck in quantity during this period, all alike in general design.

 

There were a lot of them coined. Struck in quantity in every year 1726 to 1791 from as many as 16 different mints, they remain common even today. Collectors willing to accept lower condition pieces, say G or VG, find that many of them have a market value of only about $20 to $30 - which is to say, very little numismatic value. This being true after more than 200 years, it illustrates just how many there must have been around at one time.

 

The British - and British Americans - preferred their silver hard money to be the Spanish-American 8-reales ("dollar"). It was lighter than the "French crown", from 1772 being 27.07 grains of silver .903 fine, containing .7889 Troy ounce of pure silver. Since by this time the "dollar" was rated at an even 5s Halifax Currency, the Ecu was rated as of 1777 at 5s6d Halifax . For the time being, this was about right. But we should note: the canadiens rarely called these French coins "ecus" - and never "crowns". Habitually they were referred to as "6 livres" coins, just as they were in France . In fact, for two years (1793-4) the Republican French government struck coins of the same weight and fineness as the former "ecus" but clearly marked them "Six Livres". In Canada , then, a "livre" was taken as the equivalent of 11d Halifax .

 

FRANCE 6 Livres, L'An II (1794) Rouen Mint, one of four that coined them in this year. Others, dated 1793 were struck at ten mints.   The republican 6-Livres was the same as the royalist Ecu.

 

But times change. The French monarchy was overthrown and for the next 20 years or more, Britain and France were almost continually at war. In France , the old royalist coins were superceded in 1794 by the new decimal "franc", and the old ecu was now a shrunken 5-Franc piece. An on-going withdrawal and recoinage of the royalist coin was set in play. Obviously, any new supplies of currently minted French coins was at an end for British-held Canada - and the old ecu was dead so far as France was concerned.

Not in Lower Canada , though. This area became the only place in the world where the old French ecu and its half still retained legal tender value. Until Waterloo (1815), this didn't matter much but with the war over and peaceful transatlantic commerce again restored, there arose a profitable opportunity for those with the necessary means and scale of operation. Being originally so common, there were still a lot of these coins in the stock of bourse and bullion dealers outside Canada, presumably for sale at current bullion prices plus a little for the "spread".

All through the war, the price of "dollar silver" (about .900 fine) usually hovered from just under 6s to about 7s per Troy ounce, making "good weight" French silver equal in face and bullion value. But no sooner was the war over than such silver fell to under 5s. In July, 1816, for instance, it stood at 4s10d. At that price, the Spanish-American "dollar" contained only 45¾d sterling (50.8d Halifax) in silver, even though it passed at 5s (60d) Halifax. At the same value, a completely unworn ecu would have contained 51¼d sterling (57d Halifax ) while passing for 5s6d (66d Halifax ).

But there was a difference. The Spanish-American dollar was readily interchangeable with that of the U.S. - "legal tender to any amount", no less - and five of them would buy a U.S. gold $5 "half-eagle", no questions asked. But the ecu and its half had nothing but their own bullion value and were therefore badly overvalued, even if we overlook the wear resulting from 30 to 100 years in circulation.

Of course, not all of these "six-" and "three-livre" pieces were in circulation. A great many were in innumerable petty hoards, representing the savings of the habitants , very much distrustful of anything except hard coin. Had the British authorities tried to reduce the value of these old coins to their true worth (read "bullion value only"), they would have no doubt faced insurrection. So, they were politic in their actions: they did nothing and even went so far as to reassure the nervous population with an official ratings list of 1819 in which the "six-livres coin" was still assigned a value of 5s6d Halifax.

Which opened up profitable opportunities for the powerful and wide-awake. Buying up bullion lots of these old coins overseas or in the U.S. , they stood to gain greatly by releasing them into Lower Canadian circulation at their published rating. Since they were bought by weight, the spread was even larger when the coin was worn. We should note that this early period was also that of the first banks: the Bank of Montreal opened its doors on 3 November 1817 , less than 29 months after Waterloo and was soon followed by others in the province, both the Quebec Bank and the first Bank of Canada began operations in 1818. Quite likely all were indulging in this practice. For instance, in 1820 the Bank of Montreal refused to accept the notes of the Bank of Canada in that same city as the latter would redeem them only in worn "French half-crowns" at 2s9d each. But then the Bank of Montreal itself was accused of widespread importing of the same worn coin in 829.

 

Bank of Canada, $2, hand-dated Feby. 1, 1822.

The Bank insisted on redeeming their notes only in worn French half-ecus.

"Buy low, sell high" is obviously profitable, but subsequently honouring the same coin at full "face" is not. So banks, merchants, exchange houses - whoever - did all they could to pay out these coins at face but were just as reluctant to receive them back at that rate. "Bullion value"? - well, that was something else. In 1828, a public committee reported that an estimated £50,000 Halifax of French "crowns" and "half-crowns" were in Lower Canadian circulation, a huge amount for the time and place. As well, they were worn: the "crown", a favourite hoarded item, was on average 2.1% below mint weight (numismatically, about a VG) while the workhorse circulating "half-crown" was a full 8.9%(!) light, meaning they must have been worn to the point where they were barely identifiable.

As with so many things, time and not official action saw the passing of the old French silver. The banks' reluctance to receive the stuff at more than bullion value spread to the larger, then to the smaller merchants and then to the general public. Officially , they were still legal tender until 1841, at which time they were "demonitized" by simply not being included in the list of coin with this status. Unofficially , their day seems to have passed a number of years before.

Wayne Jacobs is numismatic expert. He is the award winning author of numerous articles. He is the secretary and editor of the "Mid-Island Coin Club Numismatic Journal"of Nanaimo, Vancouver Island , British Columbia. The MICC journal are hosted here: MICC webpages Copyright 2006 Wayne Jacobs. This article may be reprinted freely for non commercial purpose only if the resource box is left intact, linking back to us.