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Of Huntingdonshire parents, Cotton was educated at Westminster School, where he became interested in antiquarian studies under William Camden, and at Jesus College, Cambridge, where he graduated BA in 1585. Starting with his antiquarian notes on the local history of Huntingdonshire, he began to amass a library in which the documents rivalled, then surpassed, the royal Public Record Office collections.
Cotton entered the Parliament of England as MP for Newtown, Isle of Wight in 1601 and as knight of the shire for Huntingdonshire in 1604. He helped devise the institution of the title baronet as a means for King James I to raise funds: like a peerage, a baronetcy could be inherited but, like a knighthood, it gave the holder no seat in the House of Lords. Despite an early period of goodwill with King James, during which Cotton was himself made a baronet, his approach to public life, based on his immersion in old documents, was essentially based on that "sacred obligation of the king to put his trust in parliaments" which in 1628 was expressed in his monograph The Dangers wherein the Kingdom now standeth, and the Remedye. From the Court party's point-of-view this was anti-royalist in nature and the king's ministers began to fear the uses being made of Cotton's library to support parliamentarian arguments: it was confiscated in 1630 and returned only after his death to his heirs.
The Cottonian Library was the richest private collection of manuscripts ever amassed; of secular libraries it outranked the Royal Library, the collections of the Inns of Court and the College of Arms; Cotton's house near the Palace of Westminster became the meeting-place of the Society of Antiquaries and of all the eminent scholars of England; the Library was eventually donated to the nation by Cotton's grandson and now resides at the British Library.
The physical arrangement of Cotton's Library continues to be reflected in citations to manuscripts once in his possession. His library was housed in a room 26 feet (7.9 m) long by six feet wide filled with bookpresses, each with the bust of a figure from classical antiquity on top. Counterclockwise, these are catalogued as Julius (i.e., Julius Caesar), Augustus, Cleopatra, Faustina, Tiberius, Caligula, Claudius, Nero, Galba, Otho, Vitellius, Vespasian, Titus, and Domitian. (Domitian had only one shelf, perhaps because it was over the door). Manuscripts are now designated by library, bookpress, and number: for example, the manuscript of Beowulf is designated Cotton Vitellius A.xv, and the manuscript of Pearl is Cotton Nero A.x.
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