History of Gold in the US – Part VI

Receiving economic and financial news on a weekly basis has, perhaps, even a certain advantage in that it tends to encourage a more reflective outlook concerning current events. One must avoid succumbing to the emotional contagions that are in- escapably a part of daily news reporting. The gold-coin investor should take a much longer view of things than the typical stock market or commodity speculator. For the really serious and sophisticated student of investment and finance, the weekly Commercial and Financial Chronicle contains highly technical articles by the world’s leading economists and bankers, covering current developments in domestic and inter- national finance. But it is expensive; better read it at your library or broker’s office if you can. In general, it would probably not be worthwhile to subscribe unless you have other sizable gold or silver investments, such as stocks or futures. But no one, no gold-coin collector-investor, can be excused from a thorough reading of the weekly numismatic press. Coin World, published every Wednesday at Sidney, Ohio, has been in print since 1935, has a large circulation, and is generally available at the larger newsstands or through coin dealers. Numismatic News is another excellent journal. Both are available by mail at a modest subscription rate if they can’t be obtained locally. The numismatic press not only gives complete coverage of general numismatic interests, but also reviews all important political and economic developments that might affect the price of gold and silver, or the price trends of various coins. There are also several good monthly magazines devoted to numismatics, with Numismatic Scrapbook being an outstanding example. I would also suggest that from your newspaper reading you begin and maintain a clipping file or scrapbook of the more important and informative articles on gold and gold coins. It will become a valuable and always-current reference, and will be a great help in sharpening your numismatic and investment skills. It may provide an interesting diversion as well. The numismatic investor will find that building a modest private library on the subject will prove not only personally rewarding, but eventually financially profitable.

Out-of-print books on numismatics, investment, economics and monetary history have grown quite valuable in recent years. Old coin catalogues, for example, that sold for a dollar or so in the late forties were worth $15 to $30 twenty years later, and have become collector’s items in themselves. Books on gold and gold mining also form a special category of interest for rare book collectors. Old books about speculation and investment; economic crises, the history of money, financial delu- sions of the past, and virtually every other economic or monetary subject are always wanted by professional speculators and investors. Professional stock market speculators and traders number among them some of the most literate and cultured people in the world of business—or any other field, for that matter. Some of the better literature, some of the more profound philosophical appreciations of life, and some of the shrewder observations about the nature of man and his problems often can be found in the writing devoted to speculation and investment.’

Therefore, if you are investing in gold coins or considering such investment (or any other form of investment or speculation), and are not already doing so, I strongly recommend that you: 1. Read the numismatic press. 2. Read the financial press. 3. Become familiar with the basic outlines of economic and monetary history. From Caesar to Napoleon 73 4. Read and collect books on numismatics, coin catalogues, magazines, etc. 5. Build your own personal reference library. Reading and study are one of the requirements and one of the rewards of successful gold-coin investing. As for starting a personal reference library, the brief bibliography in this book will offer some suggestions, but few if any firm recommendations. After all, a personal library should be personal; it should grow primarily from the natural inclinations of the individual investor. The Coin Debasers We have already touched upon the propensity of peoples in the classic and medieval worlds to hoard good coin in the fear or anticipation of subsequent issues of the same face value being re- duced in intrinsic value. Why they were so often compelled to this view can be readily realized from even an abbreviated review of the history of coin and money after Gyges.

From the primitive mints of Gyges and Croesus, the institution of coinage spread with great rapidity throughout the Mediterranean world. As it was the Greeks who emerged to dominate that world, it was the Greeks who first experienced the complications and trials of a money economy. The widespread use of coined money brought a great boom to the area. The convenience and abundance of coin released men from the tedious and awkward economy of barter and brought new and seemingly unlimited opportunities for the expan- sion of trade and commerce. The money economy also provided new and unlimited opportunities for going into debt. Cities began to flourish as never before and, just as in our own time, there was a vast exodus from the rural areas into the trading and shipping centers, which held the promise of affluence and ex- citement. Banks were established and the money changer, previously unknown, became a powerful factor in the economic life of the world. A distinct creditor and debtor class appeared—with the debtors naturally becoming far more numerous. In ancient times it was possible, and not uncommon, for a borrower not only to pledge land and livestock as security for a loan, but to offer his wife, his children or himself as collateral. If the loan was defaulted, these human “chattels” were subject to being sold into slavery to satisfy the debt. At the end of the first century following the general use of coined money, the Greek civilization was not only no longer prosperous, but bordering everywhere on complete collapse.

All over Attica, stone pillars inscribed with the amount of a loan, the rate of interest, the date of maturity, and the name of the lender dotted the land- scape; it was a rare farm that did not exhibit one of these monuments. As for the nonpropertied population, the greater part of the working class, rural and urban, was already in danger of being sold into slavery. Everywhere there were suffering and discontent; armed insurrection seemed imminent. The immediate cause of the problem was a general and severe depression, which had settled over the land after decades of un- precedented prosperity and expansion. The opening of a vast new trade in grains, wine and manufactured goods with the more primitive Italian states led to a drastic undercutting of domestic prices and drove thousands of small farmers and artisans into bankruptcy. The trouble was compounded by the previous decades of “easy money” credit inflation. The friendly neighborhood moneylender was always ready to make a loan—after all, what better security could there be than the very life of the borrower? (How much like today, when men are induced to forfeit so much of their freedom and pledge most of their working lives to the yoke of 30- and 35-year mortgages.) The Athenian economic crisis, like that of our own Great Depression, was so severe that it could only be met by the most direct and drastic action. Fortunately the Athenians were able to select the right man for the job: the learned and aristocratic Solon, who took the office of Archon in 594 B.c. Assuming extra-legal powers, Solon issued a decree called Seisachtheia (“shaking off the burdens”). This decree cancelled at once all outstanding agricultural and personal debts. The hated mortgage pillars were pulled From Caesar to Napoleon 75 down and all persons in bondage from previous debt defaults were ordered released. The legality and morality of the Seisachtheia were widely ques- tioned but never seriously challenged, although the landlords, 1/4 bankers, and other creditors were deprived of property and assets without due process and without opportunity for redress. Many of them, also having obligations to meet, were forced into bankruptcy themselves. Partially to relieve their condition and to restimulate the economy and to renew the movement of money, Solon also devalued the drachma by 27 percent, from 73 to 100 to the mina or ancient Greek pound.

Perhaps the most remarkable thing about the Solonian reform was that it was never necessary to repeat it. The clear-thinking Greeks of the classic age, perhaps the most intellectual people in all history, learned well the lessons taught by the crisis and resolved never to let similar conditions occur again. Speculative enthusiasm and excesses were discouraged if not cured, and the Greek mind saw that the limitations of a cash economy were far more accept- able than the evils of excessive credit. The remainder of Solon’s program forbade the pledging of persons as chattels for loans, ex- panded the opportunities for citizenship, dissolved the oppressive oligarchy (which included in its body some of the more rapacious moneylenders), and negotiated new commercial treaties guarantee- ing more equitable prices. Throughout the remainder of classical Athenian history, currency depreciation was never resorted to again. In fact, in the subsequent Athenian democracy, the diakists or leading judges and legislators were required to take an annual oath to maintain the purity of the coinage. It was upon this new soundness of their currency that the Athenian state built a new and greater commercial system, which eventually ruled the whole Mediterranean basin. The new basic coin of Athens was the silver drachma (66 grains of 99 percent pure silver), originally adopted from the silver coin of Aegina. Although gold coins were frequently struck, silver was available in much greater quantity and remained the monetary standard of the Hellenic world until the Macedonian conquest. Then Philip II and Alexander the Great introduced their small gold “staters” and these coins remained the prized money of the Near East long after the armies that brought them were gone. The long and honored tradition of sound intrinsic-value money established in the Hellenic world after the reform of Solon, and spread, to the Near and Far East by the armies of Philip and Alexander is in sharp contrast to the Western experience with money. To this day we still do not recognize the enormous depth of feeling for gold and silver that exists in the Levantine world, in the Middle East, and in Asia—for ours is the heritage of Rome. Sincere admirers of Roman civilization, who rightfully appreciate the West’s lasting inheritance of Roman law and justice, political administration, engineering, literature, and innumerable minor arts, are invariably surprised and confounded by the almost total in- ability of the Roman administrators to cope with the institution of money.

The earliest money of the practical Romans was neither gold nor silver but an ingot of copper—the as—weighing one pound. At first the as was passed by weight, but later it was stamped with the seal of the state, broken into smaller pieces and passed by sight. By the fourth century B.C., the as had evolved into a heavy round stamped copper slug, the as grave. With so large a coin passing by sight, the temptation surreptitiously to debase it by reducing its weight proved irresistible to the authorities. By the middle of the third century B.C., the weight of the as had dropped to four ounces. By the end of the First Punic War, around 240 B.C., it had shrunk to a mere two ounces, and by 70 B.C. it weighed no more than half an ounce.2 The Roman denarius fared somewhat better at first. Originally introduced in 277 B.C. to compete with the trusted Athenian drachma, the denarius was minted at the same weight and fineness (66 grains of 99 percent pure silver). At the time of the ascension of Julius Caesar, the denarius had declined in weight only slightly, to 60 grains—a tribute in a way to the general virtue and integrity of the Roman Republic. But in the Empire things were indeed different. Caesar and his From Caesar to Napoleon 77 successor Augustus began what could have been the foundation for an efficient and reliable monetary system. The value of all coins was determined by weight and based on the ancient Roman measure, the libra or pound. The principal coin was to be a new gold aureus, 126 grains of fine gold, minted at the rate of 40 to the libra. The silver denarius was continued at 84 to the libra and valued at 25 to the aureus. All went well when the emperors were, in the words of Shakespeare’s Brutus, “honorable men”—but unfortunately they were not honorable men for long, at least not long enough. However, Caesar’s gold aureus did remain undisturbed for 75 years (not a bad record at that, considering that the U.S. gold dollar lasted just short of 100 years before encountering its first official devaluation). Fittingly, it was the infamous Nero who took the first fatal step by reducing the weight of the aureus from 40 to 45 to the libra, and the denarius from 84 to 96 to the libra. Under successive administrations the degeneration became much more marked.

During the reign of Trajan, the purity as well as the weight of the coin was reduced. Under Severus (A.D. 193-211) the de- preciation reached a point where the fine silver content of the denarius was only 26 grains, with the coin being more than 50 percent base metal. Caracalla (A.D. 215) officially reduced the aureus again, from 45 to 50 to the libra, although this was purely an academic exercise —the imperial mints had long since been surreptitiously issuing the gold aureus with a base metal content as high as 40 to 50 percent. As for the denarius, it had already sunk so low in weight and silver content that it was little more than a copper penny. Consequently, Caracalla introduced a new silver coin, the antoninius, weighing about 84 grains. But this new coin soon began the same sickening downward spiral that had destroyed the denarius. By the end of the reign of Gallienus (A.D. 268) the antoninius was no more than a base metal token with a thin plating of silver (the first clad coinage!). About the period after Gallienus, the great classical historian Theodor Mommsen was moved to write: “In the last half of the third century there existed no longer in the Roman Empire any 78 HOW TO INVEST IN GOLD COINS money having an intrinsic value corresponding to its nominal value, not even a piece of brass or billon.”3 For a while the imperial treasury demanded taxes be paid with sound gold or silver, while it made its own payments with debased coin or copper, but this soon proved impossible to enforce. What gold and silver were left rapidly fled beyond the borders of the Empire. Price controls and legal tender laws were passed in profusion, to no avail. The decline of Rome and the decline of its money went hand in hand. Rioting and lawlessness, dishonesty and corruption were aggravated by the spectacle of emperors and governments that were little more than liars and embezzlers themselves. At last, with its treasury empty, its farms rotting in neglect, industry stagnant and mired in financial disorder, trade reduced to almost a barter level and a frantic speculation devouring the last vestige of organized commercial activity, the mightiest empire the world has ever seen drifted helplessly into barbarism. It never recovered from the monetary madness of the third century. Long before the Huns and Vandals set foot within its boundaries, the Roman Empire committed suicide by monetary debasement and inflation.

During the long dominance of Rome, the Greek tradition of sound coinage was subdued but never really extinguished. Follow- ing the agonizing decline and final collapse of the Western Roman world, there arose from its ashes a new empire in the East, Greek by language and custom, Roman by tradition and heritage. The coin of this strange hybrid, the so-called Byzantine Empire, was the gold solidus or bezant, perhaps the most significant coin of all time. Its history deserves more than a brief statement. The gold solidus was first minted by the founder of the capital of the Eastern Empire, Constantine. His immediate successors main- tained the coin without significant alteration, except to improve its uniformity and purity until its weight became fixed at 65 grains of fine gold.’ It was minted at this standard for eight hundred years —undoubtedly the most outstanding achievement in the history of money. The bezant became the unquestioned standard of value from the From Caesar to Napoleon 79 raw camps of the Huns along the Danube to the opulent courts of the Moguls of Western India. Through most of the Middle Ages, the princes and feudal lords seldom if ever bothered to mint gold for their own uses, but kept their accounts and made payments in bezants. The Byzantine Empire survived as a political entity for over twelve hundred years. Its rulers were regarded with awe from the Baltic to Ceylon, and its commerce extended from the lonely coast of Northern Europe to the warm seas south of China. It raised and equipped vast armies and launched great fleets, built stately churches and magnificent palaces. Its emissaries were received with honor in the farthest reaches of the medieval world. During the Dark Ages in Europe, Byzantine culture and wealth flourished. Assault after assault upon its frontiers was repulsed; for nine hun- 4 dred of those twelve hundred years its capital was never seriously threatened by an enemy force.] All these things were impressive, but what really excited the wonder and respect of the medieval world was the bezant. An Egyptian merchant of the sixth century, one Cosmas Indi- copleustes, who travelled widely and recorded his observations in a book called Christian Topography,’ gave this testimony regarding the power of the bezant: “With their gold piece all nations do trade; it is received everywhere from one end of the earth to the other; it is admired by all men and every kingdom, for no other kingdom bath its like.”

The sound coinage of Byzantium was of course only one of several factors that contributed to the commercial success and social progress of the Empire, but that its importance was early recognized can be judged from the following regulations concern- ing Byzantine banking: all bankers and money changers were required to take oath never to file, clip, or in any way debase the coinage, never to issue false coin and never to allow any of their servants to take charge of the business during an absence. The penalty for any violation of these canons was drastic: the offender’s 11 hand was cut off. The decline of Byzantine power and influence coincides with the decline of the bezant. In the reign of Alexius Comnenus (1081— 1118), the eight centuries of trust were irrevocably destroyed when this unpopular monarch reduced the gold content of his coin, in order to pay debts incurred by his corruption and extravagance. Alexius employed the old Roman strategy of paying the public debts with his own debased coinage, while demanding that taxes be paid in the pure coinage of his predecessors.? Although the Byzantine state managed a precarious survival for two hundred fifty years after Alexius Comnenus, it never recovered its former glory. Further debasements and official dishonesties followed with increasing frequency, and with them came political and social unrest, military and court intrigues, cheating and corruption in all walks of life. When the final act came and Byzantium fell before the onslaught of Islam, the name which had once been renowned as the standard of honesty and integrity was in total dis- grace; “byzantine” had become synonymous with corruption and debauchery.

One of the most interesting lessons that can be learned from the Byzantine monetary experience is that despite the constant and free export of bezants to all parts of the medieval world, there was never any “shortage” of gold. During the 800 years of sound coinage, bullion from the mines and hoards of Asia and the Near East freely flowed into Byzantium to be sold and exchanged for the prized bezants. As for those bezants that travelled so far from the Empire, most eventually returned to be spent again with Byzantine merchants. Quite a contrast with the latter days of Rome, when neither the edicts of Caesar nor the swords of the legions could bring forth a single ounce of precious metal, and the base Roman coins were so universally despised and rejected that the once ex- tensive foreign commerce of the Roman Empire all but perished. The final eclipse of what was left of the old Hellenic world by the Islamic conquest left the West without any stabilizing influence, and the general reintroduction of money into Europe during the late Middle Ages was unfortunately redirected almost exclusively to the Latin example.