It’s all Greek to Me
Winston Churchill once said, “The farther backwards you can look, the farther forward you are likely to see.” So in the spirit of Churchill, we are going to look back…..way back to the time of the Greeks. Gold and Silver have been the predominant currency for 4,500 years, but they became money in Lydia, in about 680 B.C when they were minted into coins of equal weight to make trade easier and smoother. But when coinage first made its appearance in Athens that it truly flourished. Athens was the world’s first democracy. They had the world’s first free-market system and working tax systems. This made possible those amazing architectural public works like the Parthenon.
Indeed, for many years, the Athens star shone brightly. If you’ve studied your history, then you are considered one of the great civilizations of all time. You’ll also know that their civilization fell a long time ago. So what happened? Why did such a great and powerful civilization like Athens fall? The answer lies in the same pattern we can see time and time again throughout history: too much greed leads to too much war.
Athens flourished under their new monetary system. Then they became involved in a war that turned out to be much longer and far more costly than they anticipated (sound familiar). After twenty-two years of war, their resource waning and most of their money spent, the Athenians came up with a very clever way to continue funding the war. They began to debase their money in an attempt to soldier on. In a stroke of genius, the Athenians discovered that if you take in 1,000 coins in taxes and mix 50 percent copper in with your gold and silver you can then spend 2,000 coins!
Does this sound familiar to you? It should . . . it’s called deficit spending, and our government does it every second of every day. This was the first time in history that gold or silver had a price outside itself. Before the Athenian’s bright idea, everything that you could buy was priced in the weight of gold or silver. Now, for the first time, there was an official government currency that was not gold and silver, but rather a mixture of gold or silver and copper. You could buy gold and silver with it, but the currency supply was no longer gold and silver in any of them.
Over the next two years, their beautiful money became nothing more than currency, and as a consequence, it became practically worthless. But obviously, once the public woke up to the debasement, anyone who had held on to the old pure gold & silver coins saw their crowned increase dramatically.
Rome is Burning
Rome supplanted the Greek empire as the dominant power of its day, and during its centuries of dominance, the Romans had ample time to perfect the art of currency debasement. Just as with every empire in history, Rome never learned from the mistakes of past empires, and therefore they were doomed to repeat them.
Over 750 years, various leaders inflated the Roman currency supply by debasing the coinage to pay for the war, which would lead to staggering price inflation. Coins were made smaller, or a small portion of the edge of gold coins would be clipped off as tax when entering a government building. These clippings would then be melted down to make more coins. And of course, just as the Greeks did, they too mixed lesser metals such as copper into their gold and silver. And last but not least, they invented the not-so-subtle art of revaluation meaning they simply minted the same but with a higher face value on them.
By the time Diocletian ascended to the throne in A.D.284, the Roman coins were nothing more than tin-plated copper or bronze, and inflation (and the Roman populace) was raging. Deficit spending went into overdrive. When he ran short of funds, Diocletian simply minted vast quantities of new copper and bronze coins and began, once again, debasing the gold and silver coins.
This resulted in all currency-based trade coming to a virtual standstill, and the economic system reverted to a batter system. As you will see, debasing the currency to pay for public works, social programs, and war is a pattern that repeats throughout history. It is a pattern that always ends badly.
From the book “Guide to Investing in Gold & Silver” by Michael Maloney
