Gresham’s Law by John Guy — man with the Midas touch

The perennial fascination with all things Tudor — from the lives of its monarchs to the literature and art of Shakespeare and Hilliard — tends to skirt the one issue that held everything together: money.

Henry VIII left his kingdom in crippling debt, while the reigns of Edward VI then Elizabeth I faced Catholic-controlled markets and rulers prepared to squeeze the economic life out of the fledgling Protestant state. The man who stood between Tudor England and financial insolvency was Thomas Gresham.

Government banker to three English monarchs, founder of two of London’s most enduring institutions, the Royal Exchange and Gresham College, he was also attributed with formulating Gresham’s Law — that “bad money drives out good money”. But as John Guy points out in his definitive biography, this “law” was an inaccurate Victorian invention that misunderstood the true brilliance of Gresham’s ability over nearly four decades to manipulate exchange rates, settle his sovereigns’ debts and smuggle just about every commodity, from bullion to munitions, across the Low Countries, Spain and even Muslim Morocco in an attempt to keep the state afloat — while also lining his own pockets.

Gresham’s outlook was shaped by his father Richard, a ruthless fixer for Henry VIII, dealing in arms and tapestries. On his death in 1549, Richard was regarded as “one of the most hated men in London”, having supported the king’s worst excesses, including coinage debasement and defaulting on loans charged at increasingly extortionate rates from European banking families.

Enter Cambridge-educated Gresham. Appointed a liveryman in the Mercers’ Company, he began making a name for himself at Antwerp’s Bourse, where he was the first Englishman to use double-entry bookkeeping. He started smuggling money for Henry VIII and generated nearly £2.5m in today’s values.

Following Henry’s death Gresham proposed to the new king Edward VI a bold method for “how his majesty might grow out of debt”. He would use a weekly royal float of £1,200 to fund smaller transactions in different currencies that would swing exchange rates in his favour just before he closed larger credit deals or loan repayments. He advised placing a temporary “stop” on English merchants travelling to the Low Countries, forcing loans from them, as well as a prohibition on the private export of lead (for munitions) to maximise the state’s profits. The results were spectacular: he halved the national debt in nine months in a remarkable manipulation of Europe’s markets that would dazzle today’s Brexiters (even though the gains proved to be shortlived).

Unsurprisingly, Elizabeth appointed Gresham as her government banker, and he immediately proposed even more radical financial innovations, including a recoinage of debased currency worth £1bn in today’s money and his most enduring legacy: shifting the crown’s borrowing requirement away from the more expensive and increasingly volatile short-term credit markets of Europe to London, where more pliable merchants could lend money for up to a year on more favourable terms.

He began funding Elizabeth’s overseas wars, rigging the markets through Antwerp (until it was ravaged by religious conflicts), smuggling munitions, raising loans, moving weapons, ammunition, bullion and money (often using beer barrels) in elaborate networks only he could understand. By the 1560s his profits from land alone were £2.5m in today’s value and he was able to build the Royal Exchange, England’s first stock exchange, based on the design of Antwerp’s Bourse.

Yet not everything Gresham touched turned to gold. He overstepped the mark in advising Elizabeth on her marriage and unsuccessfully demanding lands from her, and his forays into Spanish bullion smuggling often left him in the red. He married unhappily, lost a son, swindled his brother and son-in-law out of their inheritances, had two affairs and fathered an illegitimate daughter. They were all left struggling with his innumerable creditors and bequest to build Gresham College, even though Elizabeth wiped out Gresham’s official debts of £10,000 (£10m today).

Though he wasn’t a likeable man, Gresham’s financial achievements were, as Guy concludes, “a harbinger of a world to come: one in which national sovereignty is answerable to the machinations of the market”. Guy isn’t always successful: there is an unconvincing attempt to find Gresham in Shakespeare’s misanthropic Timon of Athens and the veiled pro-Brexit argument evoking Margaret Thatcher at the end strikes a false note.

But Guy makes this unappealing character and his dry account books come to life as he hustles back and forth between London and Antwerp. He captures the excitement and danger of liquid markets, rigging rates and closing deals, showing that Tudor kings and queens were nothing without their bankers.

Gresham’s Law: The Life and World of Queen Elizabeth I’s Banker, by John Guy, Profile, RRP£25, 302 pages

Jerry Brotton is the author of ‘This Orient Isle: Elizabethan England and the Islamic World’

Join our online book group on Facebook at FTBooksCafe. Listen and subscribe to Everything Else, the FT culture podcast, at ft.com/everything-else or on Apple Podcasts