Toby Birch

Articles:

Hold Gold or Fold

By Toby Birch April 2007

It is fascinating to follow the consistency of human behaviour down the ages, where the rivalry for resources is concerned. The Roman invasions of Gaul, by Julius Caesar, and of Dacia by Emperor Trajan, had one thing in common: both countries were laden with gold mines. One sees throughout history that wars and empire-building lead to a loss of financial discipline and indebtedness abounds. The psychology of winning at any cost takes precedent and eventually costs everything. There appears to be a blueprint of events whereby the methods of debt creation and devaluation change but the motives do not. When debt and inflation combine then currency debasement becomes inevitable. Nevertheless, the two ingredients may peacefully co-exist for some time, particularly if one has the world’s dominant or reserve currency. Like the constituents of dynamite, the compounds are stable and inert until a detonating factor sets off a reaction.

To fund wars and colossal construction, the Romans began devaluing their coins from the time of Nero. When precious metals were substituted with cheap base metals, the term debasement came into being. Two centuries later it required Emperor Aurelian to fight a pitched battle with the crooked moneyers (coin producers) of Rome to beat back hyperinflation. These same features of war and debt have been repeated time and again down the ages. In the thirteenth century, Henry I was forced to mutilate two thirds of England’s moneyers in a bid to restore discipline. The lack of silver in coins was not entirely their fault as continual crusades were drawing precious metals out of circulation. It came to a head when the monumental ransom for the ‘never-present’ Richard the Lionheart drained England’s Treasury. Henry VIII, was to follow the same path of debasement as he sought to fund military campaigns against the French.

The inclusion in the American Constitution of 1789 for precious metals to be the only acceptable legal tender was no accident. The Founding Fathers well understood the principles of sound money, in spite of their varied backgrounds. Anyone with an eye for dates will notice that the Constitution’s introduction coincided with the French Revolution. The cost of backing America in the War of Independence had ruined France and rebellion resulted. The country seems to have been the whipping-boy of finance as they had already been bankrupted by their first dalliance with paper money, following the Mississippi Bubble in the 1720s. It would at first appear to be irrelevant to compare the devaluations of history with the US dollar of today. However, if one understands that the mass-production of debt is equivalent to the dilution of the gold content in coins, then the parallels become all-too-clear. Moving into modernity, the cost of the Vietnam War lead to the break-up of the last vestige of financial discipline: known as the gold exchange standard. Since America cut itself free from
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