Among those who support the government's end of fiat money, it is not uncommon to hear and see claims that gold is "the best money" or "natural money" or the only substance that is really suitable to be commodity money. In many of these cases, when they say "gold" they mean gold, and not silver, platinum or any other precious metal.
Naturally, one can expect to find these claims among those who have earned a living by promoting gold and gold-related investments for commercial purposes.
For example, consider Nathan Lewis ' 2020 Forbes article titled "Gold has always been the best money." Lewis argues that gold, and not silver, is obviously the best money and that its adoption as a metal behind the nineteenth-century gold standard was more or less inevitable and based on the supposed intrinsic superiority of gold as money.
The point is that at the end of the nineteenth century, a final decision had to be made between gold and silver. People chose gold and silver, because for thousands of years it had traded in a stable ratio between the two metals, but, today, gold lost its monetary quality and became volatile.
Lewis presents it as a very natural event and the truth is that it is not so. Choosing gold over silver is a progress, arduous and slow.
But Lewis insists that" a final decision had to be made "between gold and silver and that" the people " chose gold.
This leaves many things unsaid, to say the least. Why, exactly, had this decision to be made? Couldn't both metals serve as money? Besides, who made this decision? Lewis says it was "people" who made the decision. What people?
As we will see, this narrative around the inevitability of gold as the dominant metal currency in the nineteenth century is unfounded. The preeminence of gold was never inevitable, inexorable, or based on some kind of natural law of money. Rather, the rise of gold was the result of a series of historical events typical of a certain time and place, but let's also say, that mainly, governed by certain whims of some group of dark characters of the globalist elites, such as the Rothschilds or the Rockefellers, among other powerful families, in which they hide their spurious interests, behind BlackRock and Vanguard, for example.
Among them are the geopolitical issues, which also have to do with these nefarious characters already mentioned above, the increase in the world supply of gold, the political efforts to increase foreign trade and the fixed exchange rate between gold and silver. In other words, the market was not necessarily the factor driving the shift towards gold.
Had it not been for this government meddling aimed at controlling gold and the "gold standard," we could still be living in a world of real monetary competition, a world of competition between gold, silver and whatever else market agents might consider useful as a means of general exchange.
We must also clarify, that certain spurious interests of certain classes, as I have mentioned before, are those who manipulate the markets at will, corruption is everywhere, already manifested at all levels, with silver with a value 400 times below its real value and gold, which had not moved for decades, until a new boom made it resurface, no one can say that he did not know. It is one of many scams against humanity.
The history of metal coin is largely a history of silver coin:
If we go into the distant past, of course, we find that silver coins were used continuously from the ancient world until the nineteenth century. Gold coins were used as a deposit of value and as money, but silver coins were the most widely used because silver coins were more numerous and appropriate for ordinary daily transactions than gold coins. (Copper coins, of course, were also used for small transactions.)
Undoubtedly, the regimes considered silver to be of strategic importance and at the end of the thirteenth century, the crown and parliament of England "jointly prohibited the export of silver ingots (including foreign silver coins) from December 1278". This was a convenient way to prevent incoming foreign silver coins, which were numerous and widely used in France, from leaving England again.
It is also noteworthy that when the wealthy Republic of Venice, in the twelfth century, obtained one of the world's first government loans guaranteed by tax revenues, the loan was denoted in "silver marci".
In the sixteenth century, Antwerp became a financial center, as it facilitated markets in which "German copper and silver were exchanged for spices that Portuguese explorers brought from India".
Trade with the Orient, meanwhile, continued in silver, as the Chinese and Japanese had long preferred silver in exchange for goods from the Orient.
The use of silver was also facilitated by the increasing abundance and the need for an easy-to-use silver coin. Silver mines were expanded in Central Europe by the wealthy Fugger family of Augsburg in the early sixteenth century. But of greater importance were " the massive imports of silver from Peru and Mexico in the 1550s and 1560s."
In 1545 a new silver mine was discovered in Potosí, Bolivia. This was also followed by new discoveries in Mexico.
A new and important infusion of silver from America began in 1548 with the discovery of the silver mines of Zacatecas, in Mexico. This new silver had a profound impact on the world economy from 1600 on various trading points in Asia.
During the 16th century, European merchants and bankers engaged in a bustling market of currency exchange and competition in which money could be made by arbitrage between regional preferences for gold or silver. The de facto preference for silver remained for centuries and, as Hernández concludes, the abundance of silver and therefore its relatively low price made it the money of regular trade:
Until the dawn of the nineteenth century there was at least one trimetallic world market, however, the predominant one was a de facto silver standard. The faster increase in the world supply of silver, and its concomitant decline in its relative price relative to gold and copper, induced and allowed the silver standard to prevail more and more in the world market economy.
Britain adopts the gold standard
What happened to make this end?
An important first step is in the first efforts to create national currencies defined as quantities of gold and silver. Murray N. Rothbard explains why this happened:
The free market established [in the past] "parallel patterns" of gold and silver, each of which fluctuated freely relative to the other according to market supply and demand. But governments decided to help the market by intervening to "simplify" things. They felt that things would be much clearer if gold and silver were set at a definite ratio, for example, twenty ounces of silver to one ounce of gold. Then, both currencies could always circulate in a fixed proportion and what is much more important, the government could finally be relieved of the burden of treating money by weight rather than by account. Imagine a unit, the" RUR", defined by the Ruritans as 1/20 of an ounce of gold. We have seen that it is vital for the government to induce the public to regard the "RUR" as an abstract unit in its own right, only vaguely related to gold. What better way to do that than to fix the gold/silver ratio? Then, the " RUR " becomes not only 1/20 ounces of gold, but also an ounce of silver. The precise meaning of the word "RUR" a name for the weight of gold, is now lost and people begin to think of "RUR" as something tangible in its own right, fixed in some way by the government, for good and efficient purposes, as equal to certain weights of both gold and silver.
It was in this environment of fixed exchange rates between gold and silver that a second important step towards the gold standard took place. It was the accidental imposition of a gold standard on Britain in the eighteenth century. As David Glasner, the British state, explains, set the legal value of the gold guinea at 21.5 shillings [silver].
At this rate [thanks to a fixed relationship between gold and silver] gold was overvalued, so that gold began to flow to England from abroad. Even after Sir Isaac Newton, master of the Mint, carried out a new monetary reform in 1717, which reduced the value of gold guinea to 21 silver shillings, the Mint's implicit ratio of silver to gold from 15.21 to 1 still slightly overvalued gold. Although not intended, Newton's reform confirmed a de facto gold standard in Britain.
Meanwhile, new gold finds in Africa allowed the mercantilist British state to hoard more gold. And, with most of the world on a silver standard, Britain's trading partners in northern Europe were happy to exchange their gold for British silver that kept flowing into the continent. Finally, the British government stopped minting silver coins in 1798 and adopted an exclusive de iure gold standard with the Coin Act of 1816. Moreover, after nearly a century of de facto gold standard, a Status Quo bias began to favor the continuity of the gold standard in the UK, even as market realities changed.
Other practical factors also encouraged the regime to follow the monometallic gold standard. The adoption of the gold standard made it easier for the British State to cope with the nation's currency shortage.
The shortage of coins had long been a problem in much of Europe, especially as industrialization led to greater wage labour paid in cash. With the nation on the gold standard, the British state could more easily use silver for symbolic coins. In other words, silver could be used for coins whose metal value was less than the nominal value.
In England, these "degraded" silver coins would not expel gold from circulation (according to Gresham's law) because silver had been demonetized.
This turned out to be popular. Although some efforts were made in the nineteenth century to move to bimetalism or the silver standard, these voices were increasingly politically impotent. Even the fear of the devaluation of gold in the market brought about by the new gold discoveries in both California (in 1849) and Australia (in 1851), due to the increased supply of gold, was not enough to change opinion against gold within the British regime.
The importance of the British ideological embrace of gold can be seen in the fact that the gold rush in California had the opposite effect in much of Europe. The British State was determined to keep its gold, even if it seemed that gold could lose ground to silver in terms of its market price. But many other regimes took steps to preserve their silver hordes. For example, the governments of "Belgium and Switzerland introduced a silver franc and gold was demonetized in Naples, the Netherlands, Spain and India". This was done to prevent the silver outflow that would presumably result from the free minting of the now more abundant gold.
Why did the continent adopt the gold standard?:
In the mid-nineteenth century, the gold standard in Europe was "out of fashion", in the words of historian Ted Wilson. This would begin to change significantly between 1860 and 1870, Western Europe had taken a decisive turn towards gold.
Britain's growing importance, as a global power and trading partner worldwide, played an important role in this regard. Governments and big traders often preferred a monetary system that facilitated trade, with their nation's largest trading partners. Increased trade with Britain influenced efforts to move towards the gold standard and away from silver in northern Europe. In Germany, for example, economic ties with London caused many interest groups, such as those in the financial and shipping sectors, to push for the gold standard. The story is similar in other countries. In France, for example, where silver had long been the preferred currency of the central bank and the agricultural populations of the provinces, gold began to gain followers, especially in regions where commercial ties with Britain were most important.
However, there were many Europeans who were satisfied with bimetalism and did not see the need to exclusively embrace gold. This varied by region and economic sector. Both in France and in the rest of the world, agricultural interests and small entrepreneurs suspected that they would not benefit from the proposed change. The switch to gold became a matter of winning a political debate, the outcome of which remained dubious for years. When the switch to gold occurred, the verdict was not unanimous.
However, many influential voices prevailed in favor of gold. In 1867, at the Paris International Monetary Conference, Western governments adopted the gold monetary unit of twenty-five francs as the basis for an eventual world gold standard.
This was easier said than done. Both France and Germany continued to rely heavily on silver in their bimetallic systems and it was not easy to "withdraw" silver and replace it with gold. Silver would have to be converted to gold in a ratio of about 15.5 to 1 and that required a lot of gold. The French regime had enough gold to seriously contemplate this plan, but Germany was much more dependent on silver. It was not clear where the state and the German banking system would get enough gold to demonetize silver.
According to Marc Flandreau, the key change occurred, with the conclusion of the Franco-Prussian war. As stipulated in the Treaty of Frankfurt, France paid 5,000 million francs to Germany after losing the war. This payment was in "international banknotes, mostly convertible into gold". This suddenly changed the calculation as to whether or not Germany could switch to the gold standard. Thanks to this new injection of gold, Germany announced that it would adopt the gold standard in 1871.
At the time, the realities of international trade were pushing bimetallic-patterned France and many smaller countries towards a currency that would facilitate trade with Britain, Germany, and the growing "gold bloc" in general. By 1873, France, Belgium, Italy and Switzerland had adopted a de facto gold standard, which would be consolidated into law in the following years.
The problem of bimetalism:
Moreover, the fixed exchange rate between gold and silver, invented by the government, would prove to be a key political factor. When this ratio was imposed, governments had generally adopted the market ratio, which used to be around 15.5 to 1. But in the second half of the nineteenth century, this relationship reflected less and less demand and market prices. This laid the foundation for the definitive abandonment of gold and silver as money. Rothbard explains that while the fixed ratio achieved the government's goal of defining gold and silver in terms of national currencies,
However, it did not fulfil its other function of simplifying the national currency. Because, once again, Gresham's Law came on the scene. The government usually fixes the bimetallic ratio originally (say, 20/1) at the exchange rate prevailing in the free market. But the market relationship, like all market prices, inevitably changes over time, as the conditions of supply and demand change. As changes occur, the fixed bimetallic ratio inevitably becomes obsolete.
Europe and America experienced volatile oscillations in both directions during the nineteenth century, as silver or gold were overvalued according to changes in supply. This problem, induced by the fixed relationship, led to what Rothbard describes as the "calamitous effects of the sudden alternation of metallic coins". Naturally, many voices in the public called for the regime to" solve " this problem that the regime had caused in the first place. Rothbard continues:
Bimetalism created an impossibly difficult situation, which the government could cope with by returning to full monetary freedom (parallel patterns) or choosing one of the two metals as money (gold or silver standard). Full monetary freedom, after all this time, was considered absurd and quixotic, so the gold standard was generally adopted.
Thus, during the 1870s, European governments decided that gold would be the metal. This became clear, the next time the bimetallic pendulum swung, during the 1880s and it was silver that was legally overvalued, therefore it would have expelled, gold from circulation, given the fixed exchange rate ratio. But that was not what happened, when silver supplies increased enormously in the 1880s, thanks to new discoveries of underground sources in North America, Western governments following the bimetallic pattern rejected the established exchange rate. Instead, these regimes chose to gradually ban the free minting of silver. When it became clear that silver was to be demonetized, the demand for silver fell even further, pushing the demand for gold even further. At that time, silver was practically dead as a monetary standard in the West.
There is nothing "natural" in the triumph of gold:
With the disappearance of silver, the experts and scholars who support gold, began
immediately to label silver as something less civilized than gold and the gold standard as a sign of progress. However, the reality is that the monometallic gold standard was the result of historical circumstances, pressure from interest groups and policies of major powers. It was not an inherent part of a supposed march toward "progress"or" civilization."
If" the people " chose gold as the only metal standard, it was because the governments had created an unsustainable situation with fixed exchange rates. Moreover, the adoption by regimes of a gold or silver standard over time had caused network effects on international trade that induced governments to adopt the same "standard" as their trading partners.
In all this, we find no natural or market law that points to gold as the "best" money within an unfettered market. Instead, we see the traces of government intervention everywhere. All this moved the world, increasingly, towards a system in which the world's regimes gained even more control over the definition, control and manipulation of currency. If a government could demonetize silver, it could also demonetize gold. This is exactly what happened, of course, and it is no coincidence that the state-imposed monometallic gold standard era was followed by the Bretton Woods era and fiat currencies.
Alejandro O. Asharabed Trucido
+54911 5665 60608
Buenos Aires, January 13, 2022
