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“This is
the end of Western civilisation.”
Lewis Douglas (US
Budget Director), remark to James P. Warburg after President Roosevelt
announced that the US was going off the gold standard, April 18, 1933.
Douglas was wrong, of
course. The end of Western civilisation had already come sixty years
earlier, when the United
States demonetised silver.
In the last eight months I
have been forced to recognize a huge gap in my understanding. I
know that I am not alone, since over and over I read phrases like,
“Gold is the money that has withstood the test of time” and
“Gold has always been the only money,” and “Gold is the
only money with intrinsic value.”
This, of course, is all
wrong. 100% wrong. The gold standard by itself is a
problem, because it is essentially
monistic. A gold standard alone is just a fiat standard in
disguise. Bimetallism is the only answer, with gold defined in terms of
silver and silver in terms of gold. That offers a self-correcting
mechanism to keep the currencies honest. A gold standard is just fiat
money defined in terms of gold and gold defined in terms of fiat,
without any independent valuation to keep the system honest.
That
the bimetallic system is self-correcting can be induced from the 45 centuries
men used it. Since what date have we had the greatest monetary and
financial instability? Since the introduction of the monometallic gold
standard in the 19th century (not to mention the introduction of Central
Banks, beginning with the Bank of Sweden in the 1650s).
I am embarrassed to admit
it, but this never quite lodged in my mind until I read an article,
“Gold Standard = Fiat in Disguise” by one J.N. Tlaga that appeared on
LeMetropoleCafe.com. Why I never saw the real issue in bimetallism,
namely, it keeps the whole system honest and makes fiat impossible, I can't
explain, but it is considerably embarrassing. If nothing else, I should
have seen it from a philosophical/theological standpoint, because a gold standard system is monist, and the
universal matrix of truth is Trinitarian, not monist. Anyway, I didn't
see it, but do now.
The gold/silver system
governed itself for nearly thirty centuries, without any governments fixing
ratios. The first reference I remember to fixing ratios was the Spanish
mint upping the ratio about 1496, so that argues they had been regulating it
since the Middle Ages. The Romans also issued coins at fixed ratios, but
deferring to the existing market, not trying to maintain some arbitrary ratio
in the face of it. Meanwhile, the ancient East operated on a far different
ratio, and the world was not destroyed or disrupted.
Today the market's
operation on the bimetallic ratio ought to be far more efficient than ever
before, in view of technological advances in communications.
Once again, we see that the
issue of money is far too delicate and crucial to mankind's health to be left
to government. Frankly, I believe the American Founding Fathers thought
exactly that way, reading from the monetary system they set up.
That system was actually trimetallic, with copper, silver, and gold.
The ratio was 840.21
ounces of copper equal 15 ounces of silver
equals one ounce of gold, and that’s what the coins gave. They intentionally
set up a system with a lower gold/silver ratio than the prevailing world
rate (15:1 when the French mint rate was 15.5:1) in order to draw silver, the
metal of daily commerce, into the country. They were right, since the
colonies had suffered from a dearth of specie for two centuries.
The system they set up was
one that Ed Vieira calls “symmetallism,”
although I'm not sure that is the precise term, since others use that
differently. Anyway, he means a system where one metal is the standard
coin (in our case, the dollar of silver) and the coins of the other metal
(“Eagles”, not even denominated in “dollars” per the
1792 Coinage Act, but “valued in” dollars) are periodically
adjusted to answer changes in the market ratio. That exactly was done
in 1834, without cheating anyone.
And through all this,
everyone was free to contract for payment in silver, or gold, or anything
else, without compunction. And they couldn’t be forced to take
inflated bank notes. And there was no central bank.
But didn’t the
fluctuations in value of gold versus silver wreak havoc with world
commerce? From 1833 through 1873 – four decades –
the London price of silver valued in gold
ranged from $1.297 an ounce (1833, against an official US price of
$1.2929 an ounce) to $1.36 an ounce (1859). That’s a gigantic,
colossal deviation of – 4.86 percent! Today a 4.86%
fluctuation in fiat money exchange rates in one day would put
everybody to sleep, let alone four decades that quiet.
The cure for our monetary
woes is not a gold standard, but a return to a sound, self-correcting
bimetallic gold and silver standard.
By :
Franklin Sanders
www.the-moneychanger.com
Reprinted
with permission from The Moneychanger. Franklin Sanders lives on a farm in
Middle Tennessee by choice, deals in physical gold & silver, and has been
writing and publishing The Moneychanger for nearly 26 years. In 1993 he wrote
Silver Bonanza for Jim Blanchard. Last year he published "Why
Silver Will Outperform Gold 400% and & The Professional Trading Secrets
That Will Make the Most of Your Silver & Gold Investments," still
available at www.the-moneychanger.com/order/publications.html.
You can sign up for Mr. Sanders' free daily e-mail
commentary on gold & silver at www.the-moneychanger.com, and download your free portfolio calculator to
keep up with your gold and silver investments.
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