When We Contemplate the gold coins from previous
centuries we are painfully reminded to what extent modern man has lost
his monetary freedom and hence an important aspect of his economic
freedom. For thousands of years, with only relatively few and brief
exceptions prior to 1915 (or 1934 in the case of the United States)
nearly all nations in the main stream of human progress have enjoyed the
advantages of the use of gold coinage as a monetary medium. Cowrie
shells, stone wheels, rolls of bright bird feathers, salt, bronze ingots
and the like were generally the monetary media of only the least
advanced peoples.
Restraints on the use of gold as a monetary medium were
rare in previous centuries, so rare, in fact, that we are tempted to
speculate that many of the social and economic problems besetting the
world in recent decades might not simply be concomitant phenomena of the
decline of the public monetary use of gold, but even the results of this
decline. In our own case, it is probably not a mere coincidence that
since 1934, when the monetary use of gold was prohibited to U.S.
citizens, the public debt has climbed to levels that could scarcely have
been imagined forty years ago, the purchasing power of the national
monetary unit has deteriorated so badly that this decline has become a
major national problem, export trade has declined, the centers of large
cities have been rotting at an accelerated pace and the problem of
overpopulation has begun to threaten the very quality of life to which
we had become accustomed.
Prior to 1934 the use of gold as a monetary medium had
been deeply rooted in our economic and legal traditions. Undoubtedly as
a reaction to the chaos caused by excessive issues of paper
money1 before and during the Revolution, the Constitution
provided in Article 1, Section 10, that "No state shall . . . make any
Thing but gold and silver Coin a Tender in Payment of
Debts."2 A handsome U.S. gold coinage was commenced in 1795
to supplement the foreign gold in circulation, which continued to have
the status of legal tender until 1857 on the basis of laws of 1793,
1816, 1834 and 1843. It was this sort of legal precedent that was the
basis for the monetary stability of the country (and probably its
economic progress) down to recent years.
Fiat Money in France
There is an interesting parallel in French monetary
history. When the revolutionary government of France at the end of the
18th century tried to substitute paper money (assignats) supposedly
based on the value of confiscated church properties, economic chaos
resulted.3 Later on, Napoleon I saw the need of a reform to
overcome the paralysis and reinstated the use of the precious metals.
His introduction of the twenty franc piece (the "napoleon") in 1803 was
an act of far-reaching consequences, as we shall see below. Russia had
also tried paper money, likewise designated by a similar word,
assignashii.4
Although a number of governments make every desperate
attempt to suppress the monetary use of gold, faith in the sun metal as
a store of value is deeply ingrained in the economic common sense of
human beings all over the world. When I was in Russia in the summer of
1970, a young man explained to me that the old five rouble pieces struck
on the standard used beginning with 1897 are now fetching about 90 paper
roubles, nearly a typical month's wages in the present Soviet State. The
grimly strict monetary laws and energetic propaganda of the Soviet
State5 had not been able to eradicate a desire for and a
trust in gold. During and immediately after World War II many a family
was able to avoid starvation by gradually giving up one gold piece after
the other to purchase food that could otherwise not be obtained in
economies paralyzed by war and postwar controls.
A Coin at Work
Let us contemplate a half eagle struck by the young
United States in 1800. As in the case of the vast majority of gold coins
struck in the world before 1800, there is also no designation of value
or weight on this piece. Gold coins need no designation of value or
legal tender status to function well. The piece we are contemplating is
worn, so badly worn that its designs are only slightly above the level
of the fields, but its weight is 8.50 grams, only about 3 per cent below
its legal weight of 135 grains (8.748 grams).
Now let us reconstruct the tremendous economic task
that this gold piece performed so well and so long. The wear on this
piece would suggest that it was in circulation at least until the weight
reduction of 1834 and perhaps quite a bit longer. If it changed hands on
the average of just once a week over a period of 50 years, it changed
hands more than 2,500 times and was thus involved in an exchange of more
than $12,500. However, the really remarkable aspect of this performance
lies in the fact that every time it changed its owner, the new owner was
guaranteed a stable value as long as he wished to keep the piece. What
were the costs of this remarkable performance? About 15 cents' worth of
gold lost through wear and the very modest cost of striking the piece.
To have printed paper money for this period of circulation would have
approached or exceeded the minting and gold loss costs. Far more
important, however, is the fact that the costs of the gold loss and
minting were a very trivial consideration in relation to the social and
economic benefits of the gold piece. Modern paper money, without a
connection with the precious metals, simply cannot fulfill the
traditional capacity of gold coinage to function both as a medium of
exchange and a store of value.
Not only does gold coinage go back to the early days of
the American Republic, but it covers some twenty-seven centuries of
Western Civilization. It was, -in turn, antedated by an even earlier,
specifically monetary use of gold, a use that can be readily documented.
Thus, a mural painting from Thebes, Egypt, assigned to the reign of
Thutmosis III, 1501 - 1447 B.C., shows the weighing of gold rings and
holed disks.6 Details of this painting reveal the status that
gold had attained as a monetary medium. The weights on the balance pan
are in the form of bovine heads and sheep! This illustrates the fact
that a transition had been made from an economy in which cattle were
used as exchange to one in which the precious metals had taken their
place, but the tradition of the cattle exchange is preserved in the very
shape of the weights. To mention a later parallel, the earlier Latin
word for money, pecunia, developed from pecus, meaning "cattle." In the
case of the Teutonic languages, the German word for cattle, Vieh, is a
cognate of English fee.
American Indian civilizations never developed a gold
coinage as did the Europeans, but gold was used as a medium of exchange
in the form of quills filled with gold dust. Undoubtedly, too, the many
pre-Columbian gold ornaments, often of considerable artistic merit,
played some sort of monetary role.
Coinage in Ancient Greece
The very beginnings of Greek gold (or more
specifically, electrum) coinage are nebulous. One type with two
confronted lions' heads is actually inscribed "Alyas," a variant form of
the name of King Alyattes, fourth of the Mernmad kings of Lydia, who
reigned 610-561 B.C. Far more abundantly preserved, however, are the
electrum pieces of various weights (1/12, 1/6 and 1/3 staters) bearing
the head of a lion with a radiate knob on the forehead. The weights of
these pieces are astonishingly consistent. Six specimens of the 1/3
stater preserved in the Boston Museum of Fine Arts have the narrow range
of 4.66 grams to 4.71 grams, with fracional pieces in a close
proportion.7 Other very important early series of electrum coins were
those of Kyzikos in Mysia (started before 550 B.C.), Mytilene on the
island of Lesbos (ca. 500 B.C. ff.) and Phokaia in Ionia (started before
500 B.C.). These early gold series consisted of electrum, a more or less
natural mixture of gold and silver, such as was mined in what is now
western Turkey. Later on, more sophisticated refining methods were used
to prepare the planchets. The huge gold coinages of the kings of
Macedonia, Philip 11 (359-336 B.C.) and Alexander the Great (336-323
B.C.), are notable for the fact that they consisted of nearly pure gold,
with specific gravities ranging around 19 (pure gold: 19.3 times the
weight-of water). By the time the autonomy of the Greek states had been
extinguished by the expanding Roman Empire, no less than fifty of them
had struck gold coins.
The Roman Republic and subsequently the Roman Empire
had as a gold unit the aureus, which was first struck in quantity around
46 B.C. At that time it had a weight of 1/40 of a Roman pound (8.19 g).
Its high purity persisted but its weight gradually sank over a period of
nearly four centuries.
The Solidus
The next great gold series, the solidus, got its start
in the early fourth century under Constantine the Great (reigned 306-337
A.D.) - The solidus was one of the most remarkable and enduring of all
gold coins. Its weight and fineness were maintained with only occasional
variations for over seven centuries, in spite of all the military,
economic and political vicissitudes of the late Roman Empire and its
continuation in the east (the "Byzantine" Empire). During this very long
period the solidus had little competition in7 the world
except for the gold of the Islamic dynasties which originally started as
imitations of the Byzan-tine solidus during the seventh century. The
Ostrogoths in Italy also imitated the solidus in great quantities during
the fifth and sixth centuries, but unlike the Is- lamic imitations, the
Ostrogothic solidi bore the name and portraits of the Byzantine emperor
and can be distinguished from the Byzan-tine pieces only by subtle
stylistic differences. So familiar was the world with the solidus that
we seldom find specimens with cuts to test the authenticity of the
pieces; forgeries of them were evidently rare. Hoards of them have been
found as far away as Scandinavia. Although we have no exact mint records
from the Byzantine Empire, the mintage of the solidus was certainly
enormous. As late as about 1950, common, worn solidi could be had for as
little as about $12, not much more than twice their bullion
value.8
After the decline of the solidus in the later medieval
period it was supplanted by several important Italian, Hungarian and
German series. Florence struck the florino d'oro (gold florin) beginning
with the year 1252. It was imitated in a land with big gold mines,
Hungary, in the 14th century and later. In Germany and the Netherlands,
in turn, large quantities of florins were struck in the 15th and early
16th centuries, but they declined in weight and fineness when the German
gold mines began to be so badly depleted that the gold became too dear
in relation to the huge supplies of silver flowing from Saxony and
Bohemia. (The first large-scale coinage of the predecessor of the silver
dollar was done in Saxony, 1500 ff.) The Rhenish gold florin was struck
in enormous quantities in such towns as Frankfurt, Cologne, Nuremberg
and Utrecht. A quarter million of them were struck in 1418 in Frankfurt
alone and Basel struck 126,020 during the years 1434-5.
The Gold Ducat
On 31 October, 1284, the Maggior Consiglio of Venice
decided to mint the gold ducat, one of the most important gold coins of
all times. It is still being struck from dies dated 1915 in the Vienna
Mint nearly 700 years later. In Venice itself, the ducat was struck with
the same design (St. Mark and Doge) down to the end of the 18th century.
The ducat weight and fineness became a favorite in Germany, the
Netherlands, Poland, Scandinavia and Russia. It was even crudely
imitated as far away as India, where the Venetian originals were also in
use.
England, France, Spain and Portugal had many gold
coinages in the later middle ages, but they were of great variety. An
outstandingly successful English coin of the late medieval period was
the noble, which was imitated to some extent in the Netherlands, but the
English and French kings changed their standards too often to establish
gold coins of the great success and influence of the solidus and the
ducat. The Spanish exploitation of the large deposits in Mexico, Bolivia
and Peru resulted in the huge escudo coinage of the 16th to 19th
centuries. Its multiple of eight is familiar to us as the doubloon.
As noted above, the gold coinage of the United States
was started in 1795, with a modest weight decrease in 1834, after which
U.S. gold coinage was continued for almost exactly a century on the same
standard. About 3/4 of the enormous U.S. gold coinage was in the form of
double eagles (1850 ff.).
The Latin Monetary Union
In France a new gold coinage was introduced in 1803
that continued to be of great importance until 1914. Denominations of 5,
10, 20, 40, 50 and 100 franc pieces were struck at various times but the
most important was the 20 franc piece. The French standard was copied in
Italy, Switzerland, Belgium, Spain, Greece, Serbia, Bulgaria, Romania
and other lands, in some cases with different names. Some gold coinage
on the franc standard continued even after World War 1, especially in
Switzerland. In recent years the French government has struck
considerable quantities of gold using dies with older dates. The
prosperous German Empire struck large quantities of gold on the mark
standard (18711915), while the huge English sovereign coinage (1816 ff.)
still dominates the trade in coined gold.
India had a long tradition of monetary gold use before
the establishment of the present Republic of India with its socialistic
orientation and hence hostility to private ownership of gold. Gold
coinage of the European type was introduced to India no later than the
time when the Bactrian Empire struck gold in a quite Greek form and with
Greek inscriptions (ca. 250 B.C. ff.). Later on there were other very
important Indian gold series. The Kushan gold coins were fairly close
imitations of the Roman aureus, many hoards of which have also been
found in India. The very abundant Kushan gold coinage was at first of
high purity, like the Roman aureus, and it is even assumed that the
planchets for it were prepared from remelted Roman gold. During the
first and second centuries the Roman Empire had a severe balance of
trade problem with India because of the commerce in spices, gems and
other Indian goods desired by the luxury-loving Romans.
Debasement in India
With the decline of the Kushan Empire its gold coinage
became severely debased, especially after about 200 A.D. After about 320
A.D. the Gupta kings also continued gold coinage in important
quantities. After the decline of the Gupta realm, i.e., after about 450
A.D., a number of Hindu dynasties continued gold coinage. The famous
uninscribed and enigmatic elephant pagodas of perhaps about 1300 and
later are now believed to be the private products of Indian goldsmiths.
In the north the Islamic rulers (the Sultans of Delhi and subsequently
the Mughal Emperors) struck gold in large quantities. In the south, the
Hindu Vijayanagar Empire struck large amounts of a very neat gold
coinage between 1377 A.D. and the disastrous Battle of Tallikota in
1565. Beginning with the 16th century, various European powers struck
gold series for their territories in India; the Portuguese, the Dutch,
the French, the Danes and especially the British, who first imitated the
trusted gold coinage of the moribund Mughal Empire before striking gold
in the European style.
In Japan, which has gold mines that have been worked
since medieval times, gold was used in the form of oval plates punched
with various devices. During the 19th century base gold rectangles were
produced in considerable quantities. Just as the Meiji Era brought so
many other changes to Japan, its earliest years saw the introduction of
a very beautiful gold coinage of occidental style based on the U.S. gold
denominations. So highly prized are 20 yen pieces of 1870 (46,139
struck) that they fetch over one million yen today. With the exception
of a few gold issues in this century, China has virtually no tradition
of the coining of gold, although it has been prized for artistic uses
for many centuries in China.
3000 Years of Gold
I have surveyed the history of gold coinage in some
detail here in order to show what a great economic role it has played in
nearly every civilization (with the notable exception of the Chinese),
European traditions of the monetary use of gold can be traced back for
nearly three millenia in the form of gold coins alone.
The decline of gold coinage we have witnessed during
the last three to five decades9 thus represents a radical
departure in monetary affairs. The coining of gold had hitherto been
interrupted only sporadically by attempts to substitute other media for
the precious metals.
It is undeniably true that many modern economists
harbor a strong bias against the monetary use of gold. This bias is by
no means difficult to explain, since these economists are the ones who
see the most important role for themselves in governments which
intervene strongly in the economy. Gold strongly restricts governmental
intervention in the economy and the redistribution of wealth from the
productive to the non-productive components of the population. Perhaps
to some extent, too, the bias against the monetary use of gold is simply
based on ignorance about the present and past monetary roles of gold.
After all, a new generation has come onto the scene since 1934.
We appreciate the role of gold as an honest,
constructive monetary medium when we consider the nature of its enemies.
Keynes, whom Lenin lauded before the Second Congress of the Communist
International, considered gold a barbarous relic. Typically, the people
who are shouting most loudly that gold is a barbarous relic are the very
ones who are most adament in their demands to suppress the monetary use
of gold by force. (Who, really, are the barbarians?) These "experts"
must know full well just how powerful gold is in spite of their public
denials that it should play a role in the monetary system and in spite
of their claims that it is worthless except for filling teeth and the
like.
Private Coinage
When governments have refused or have been unable to
strike gold coins in sufficient quantities for commerce, private persons
have provided gold coins in many instances. We need only think of the
many private gold coinages in the United States alone: the Bechtler gold
pieces struck in North Carolina in the 1830s and later, in addition to
the massive amounts of gold struck privately in California in the 1850s
and later. There have also been many private gold series in India and
Germany, for example. A large private striking of gold on the ducat
standard has taken place in Germany during the last two decades. In
addition, many fogeries of well-known gold types with full or nearly
full weight and fineness have been made in large quantities in recent
decades. The American double eagle, the British sovereign and the 20
franc piece have been favorite forms of the counterfeiters, whose
activities have flourished on a vast scale in recent years because of
the need for gold coinage and the failure of public mints to perform
their traditional duties of providing gold in convenient form.
Because of the strong biases of many economists against
the monetary use of gold, a number of myths and erroneous conceptions
have grown up about gold coinage. Even some libertarian economists are
lacking in sufficient knowledge about the history of gold coinage to
refute the nonsense that is often deliberately propagated.
It is an error to assume that all gold coinages were
constantly being eroded in value by debasement and weight reductions.
Indeed, the really important gold series were struck over long periods
of time, in some instances for many centuries, without substantial
reductions. One need only think of the solidus, the ducat, the escudo
and the vast gold coinages of the nineteenth century; the sovereign, the
double eagle and the napoleon.
It is also an error to assume that the frauds committed
in connection with gold coins were of very great importance. Sometimes
coins were filed or sweated (friction in bags in which the gold dust was
collected) and sometimes test cuts were made by which a small amount of
gold was removed. However, such frauds could readily be detected by gold
scales. Forgeries existed and there were printed descriptions of them as
early as the 15th century. Still, such frauds are quite insignificant
compared to the vast frauds carried out in connection with paper money,
which is cheaper to counterfeit than gold coins. Of vastly greater
importance, of course, is the fraud carried out against productive
citizens by governments themselves which refuse to coin precious metals
and keep issuing ever greater quantities of paper money.
It is still another error to assume that gold is the
ally only of the wealthy. In this age of complicated tax laws and
deceptive monetary policies it is the wealthy who can afford the best
advice on taxes and investments. For the saver of modest means, a little
hoard of gold and silver has often proved to be the best protection
against confiscation of his savings by devaluations of currency.
There's Plenty of Gold
The argument that there is "no longer enough gold for
monetary purposes" is one of the more absurd arguments that has been
made against the return to the monetary use of gold. The United States
could start minting gold again within the very short time required to
prepare the dies. Plenty of gold could be delivered to the mints from
the mines now kept idle by governmental restrictions. Any seigniorage
charged should not exceed the actual minting costs. As to the relation
of the new gold coins to the huge heaps of paper money now in
circulation, the problem could be easily circumvented simply by omitting
any designation of value on the coins and employing the familiar weights
and fineness of the quarter eagles, half eagles, eagles and double
eagles. The double eagles, for example, might bear the inscription "516
GRAINS, 900 FINE" instead of the erstwhile "TWENTY DOLLARS." As in
previous generations, the deliverers of gold to be minted would be
charged a small fee for minting costs and the gold pieces would be
theirs to keep or put into commerce.
Striking gold coins without any designations of value
on them is a procedure that was not only used in previous centuries, but
also in recent decades. Consider the following examples: Beginning in
1921, Mexico had struck gold pieces somewhat larger than the U.S. double
eagle. The Mexican pieces are known as the "centenario" because they
originally commemorated the centennial of the Republic. For years these
pieces were struck in large quantities with the designation of 50 Pesos.
By 1943, however, the designation had become meaningless because of the
considerable depreciation of the value of the Mexican paper and silver
currency. In 1943 the centenario appeared without the usual inscription
of 50 Pesos but with an inscription describing the weight and fineness,
the really important factors. There are many variations on the
procedure. Great Britain, for example, struck over 30 million sovereigns
between 1957 and 1966 for overseas trade. These continued to bear no
designation of value, just as all modern sovereigns (since 1816) had
borne none.
Market Sets the Value
If the government were to resume the striking of gold
pieces, as it should without delay, it would be easy to determine what
designation of value, if any, were to be put on them after supply and
demand had established a price in terms of other media. For purely
monetary purposes, however, no designation of value would really be
necessary, since gold coins need no legal tender status to work well,
both as a medium of exchange and as a store of value.
The lessons of monetary history are clear. Without the
resumption of gold coinage or at least a free commerce in all of the
precious metals, including especially gold, inflation will go on and on
and on. Even just the tolerance of a free gold market would inhibit
inflation by providing a constant gauge of the value of other monetary
media.
Those being hurt by inflation should bear the following
in mind: The reason that governments with a redistributive economic
philosophy frown on gold coins is because of the fact that inflation is
a big aid if not, indeed, an essential factor in the redistributive
process. If those persons in government circles who are talking about
"fighting inflation" were at all sincere, they would immediately remove
all restrictions on the mining and monetary use of gold and resume a
governmental function which had been taken for granted for literally
thousands of years in western thought, the striking of gold coins with
an established weight and fineness.
Those being hurt by inflation have a powerful weapon at
their disposal if they would only realize it and act accordingly. They
could refuse to buy all bonds, public or private, that did not contain
gold clauses. While it is true that gold obligations have been
repudiated in the past,10 the constant demand for gold
obligations would undoubtedly have an influence on national monetary
policies. Restoration of the right to own gold and make contracts in
terms of gold would be a major step toward restoration of the basic
principle of economic freedom, a freedom no less sacred than other
freedoms. The restoration of our traditional rights with regard to gold
should be vigorously supported by all those who prize economic freedom
and abhor the emptiness, stagnation, decay and oppression of the
omnipotent socialistic state.
Dr. Charles E. Weber received his Ph.D. from the
University of Cincinnati in 1954 on the basis of a dissertation on the
incunabula (books printed prior to 1501 A.D.) in the German language.
After military service in World War II, at times as a member of
intelligence unit!, he resumed his education and started his teaching
career at the University of Missouri and the University of Tulsa, at
the time of this publication, he had been teaching since 1956 except
for four years at Louisiana State University (1962-1966).
Dr. Weber
is the author of numerous articles on literature, history and monetary
questions.
1 For a thorough, lavishly illustrated history of the
paper money issues of our land from 1690 to 1789 see the brilliant
volume by Eric P. Newman, The Early Paper Money of America. Racine,
1967.
2 In defending this provision, James Madison (The
Federalist Papers, No. 10) speaks of "A rage for paper money, for an
abolition of debts, for an equal division of property, or for any other
improper or wicked project. . . ." In No. 44 he continues in the same
vein: ". . . the pestilent effects of paper money on the necessary
confidence between man and man, on the necessary confidence in the
public councils, on the industry and morals of the people, and on the
character of republican government . . ."
3 For details, see Andrew D. White, Fiat Money
Inflation in France (Irvington, N. Y.: Foundation for Economic
Education).
4 See the well illustrated volume on Russian monetary
history by I. G. Spasskii. Russkaia Monetnaia Siatema, "Aurora" Press,
Leningrad, 1970, p. 201.
5 Strange to say, during the early years of the Soviet
State, gold coins were struck with the weights of the older ten-rouble
pieces struck as late as 1911. The Soviet gold gieces were dated 1923
and bore the emblem of the State and a sowing peasant. There is evidence
that these pieces were struck in very large quantities, but today they
are very scarce. Doubtless the bulk of them were remelted.
6 For a reproduction of this painting, see Heinrich
Quiring, Gegchichte des Goldes / Die Goldenen Zeitaiter in ihrer
kulturellen und wirtschaftlichen Bedeutung. Ferdinand Enke Verlag,
Stuttgart, 1948, page 48. This book, by the way, is an excellent source
of information on the history of the mining, refining and use of gold.
7 An excellent source for the metrological aspects of
the earliest electrum coinage, including the specific gravities of many
specimens, is the catalogue of the holdings of the Boston Museum of Fine
Arts published by Agnes Brett in 1955.
8 To illustrate the constancy of the solidus, specimens
in the author's col-lection weigh as follows: A solidus struck in Milan
under Honorius (395-423A.D.) weighs 4.47 grams with a specific gravity
of about 18. A lightly circulated specimen Of Constantine WIT
(1025--1028) with an inspiring portrait of Christ weighs 4.37 grams with
a specific gravity of a bit less than 19, nearly pure gold. In the
subsequent decades the weight and fineness of the solidus declined
sharply,but Byzantine gold coinage persisted into the 14th century. For
a detailed analysis of the debasement of the solidus in the eleventh
century, see Byzantinische Zeit-schrift, 1954, pp. 379-394.
9 The coining of gold has by no means ceased
altogether, even in the case of governmental mints, During the last 10
to 15 years or so the following governments have struck gold in
quantity: Austria, Republic of China, Dominican Republic, Egypt, France,
Great Britain, Katanga, Mexico, Persia, Peru, South Africa, Spain and
Turkey. In some cases older dies were used. Many other lands have also
struck gold in token quantities.
10 But not without a loss of face. The refusal of the
United States to redeem gold bonds after 1934 was perhaps the greatest
breach of faith that had been committed by it as of then. The exact
wording of these bonds is significant. Gold bonds dated May 9, 1918, for
example, contain the following clause: "The principal and interest
hereof are payable in United States gold coin of the present standard of
value." Although the bankruptcy of an individual may be, in a technical
legal sense, different from the bankruptcy of a nation, the failure to
redeem national obligations in precious metals has always been an act
parallel to the bankruptcy or dishonesty of an individual.
Reprinted with permission from The
Freeman, a publication of The Foundation for Economic Education, Inc.,
September, 1972, Vol. 22, No. 9.
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