Gold and Silver: Money of the Past, Present and Future

Gold and Silver has served as money around the world, for over 5000 years. From the time of the Greek Empire, to the system of the International Gold Standard of the 1800s, It has served well as a store of value of choice across the vast generations of Man. The twentieth century however, saw the introduction of a paper derivative of gold, called paper money. It was initially pegged to a tangible asset which was Gold. Yet, when the peg was removed in 1971 by President Nixon, all paper currencies automatically became ‘Fiat’, its value only dictated by government decree with no backing from any tangible object. Now, with the discipline enforced by a tangible asset gone, Governments and Financial Institutions around the world have played games with the monetary system. This has brought the global financial system onto the precipice of doom, as the problems with the fiat monetary system began to show, and Gold and Silver will eventually prevail.

The Greek Empire

Now the above scenario might sound intimidating, but monetary history tells us that such a situation has happened for countless times in human history. To understand why Gold and Silver will eventually do an accounting of all the financial misdeeds by states and institutions on the financial system, we can start by going far back into the past. About 4500 years ago, Gold and Silver was already the most used currency around the world. But it was the Greeks who first introduced coinage of Gold and Silver. Now it was this measure that was one of the factors that started off the Greek Empire. With the stability provided by sound money of Gold and Silver, the Greeks began to engage in creating the world’s first known democracy. A free market was established and the stability allowed for long term planning and enable the building of one of the Greeks most beautiful works of architecture, The Parthenon.

The Greek empire however did not last long. As their empire grew bigger, the Greek state became more greedy and started to become involved in wars. All forms of wars are expensive, and the same thing applies 4500 years ago. The costs of war on the Greeks was higher than anticipated and eventually, this bankrupted the Greeks. To solve this, the Greeks began devaluing their own Gold and Silver coins by adding lesser metals like copper into the mix. This reduced the value of the new coins as compared to the old gold and silver coins due to the differences in its purity. This resulted in a drop of confidence in the monetary system of the Greeks. Eventually the empire declined, never to shine again. Hence Gold and Silver reign supreme in the past.

The French Livre

Another example takes us closer to contemporary times is the case of France in the 1700s and the peculiar case of a brilliant but flawed Scotsman, John Law. Upon the death of King Louis XIV, France was in debt to the count of 3 trillion Livres due to the extravagances and corruption of the monarchy as well as the aristocracy. With the Prince Regent, the Duke de’ Orleans looking for a solution, in came John Law with a proposal of introducing paper money into the system. The Duke, desperate for a solution to solve the debt problems of France, agreed to the idea, as it presents a way out for settling France’s debt. And so the Banque de Royale run by John Law was set up, with the institution being given the sole right to issue this currency. This new issue is also pegged to a weight of Gold and Silver coin, where Law himself claimed it to be criminal, if a banker prints more notes than the amount of Gold and Silver coin held by the bank.

This became an overnight success. France’s financial woes seem to have ended and this ushered a new period of prosperity in France. The Duke and John however made one key mistake in all this however. Blinded by the new prosperity that the country was now experiencing, they began to print more money, with the Duke thinking that the more paper there is in circulation, the better. However this sparked a crisis of confidence and suspicion, that it took one Prince de Conti exchanging Livres for Gold and Silver coin to begin the breakdown of confidence in the currency being issued by Law. Soon, every Frenchmen began demanding Gold and Silver in exchange for their Livres, that once Gold and Silver ran out, copper was issued. Here we see again how Gold and Silver becomes the only assured store of value in the past.

The US Empire and the World Economy?

Let us now jump forward to the present. Since World War 2, the US has been the standard bearer of the financial world, with the US Dollar being the World Reserve currency. However, with the US fighting four wars since then (Korea, Vietnam, Iraq and Afghanistan) and a $13 Trillion debt on the books of the country, we are facing eerily similar circumstances to the Greek Empire, and the French experience with John Law. I have no doubt that Gold and Silver will reclaim its traditional role as money, but whether it will be a peaceful transition to Gold and Silver from currencies remains to be seen. One thing remains clear, human history has shown that eventually, Gold and Silver will always serve and reclaim its role as money and currency of the world.

Comments are closed.