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July 9, 2010
Alert 52-2
History Says, “Trust Gold, Not Paper”
"Betting against gold is the same as betting on governments. He who bets on governments and government money bets against 6,000 years of recorded human history." Charles De Gaulle
For more than 4500 years, when people spoke of “money,” they meant one thing – precious metals. For over four millennia, gold and silver were the only reliable currency. Coins were first minted into equal weights, to make trade easier, in Lydia around 680 BC.
But it was not until such coinage was adopted in the city-state of Athens, the world’s first democracy, that it really flourished. Athens also developed the first free market and the first tax system, enabling the city-state to fund such architectural wonders as the Parthenon and the Acropolis.
Athens flourished under its new monetary system and became one of the greatest civilizations of all time. So what caused it to fall? Why did one of the world’s great civilizations collapse? There is no single reason, but many historians believe the answer is due in large part to the debasing of their currency, to finance a long and costly war.
Athens had been at war for more than twenty years. Its treasury was depleted and resources were dangerously low when some Athenian came up with a very clever way to continue funding the war effort. He figured out that, if the government took in 1,000 gold coins in taxes and mixed them with an equal amount of copper, they would then have 2,000 coins to spend. Thus began the debasement of Athens’ currency.
Of course it didn’t take the citizens of Athens very long to realize that the “new” coins were less valuable than the old ones. Anyone who held on to the old pure gold and silver coins saw their purchasing power increase dramatically, even as the war was lost. Athens would never return to her former glory, but would become the province of the next great civilization, Rome.
Rome replaced Athens as the most powerful empire of its time. For the next 750 years, Rome perfected the art of currency debasement and deficit spending. Like Athens before it, Rome debased its coinage to pay for various wars and welfare programs. It started with coin clipping – the government cut off a tiny piece of every gold and silver coin that passed through its hands. When this didn’t yield enough, coins were mixed with lesser metals, such as copper and bronze. Last, but certainly not least, the Romans were the first to learn the practice of revaluing their currency by simply minting the same coins with a higher face value. The result eventually was staggering inflation and even hyperinflation.
Clearly, we are not the first civilization to ignore the lessons of history.
By the time Emperor Diocletian came to power in 284 AD, Roman coins were nothing more than tin-plated copper or bronze. With inflation rampant, in 301 AD Diocletian issued his famous Edict of Prices, which imposed the death penalty on anyone selling goods for more than government-mandated prices.
Of course, price controls didn’t work any better for Diocletian than they did for Richard Nixon. Merchants who could not sell their goods for a profit closed their doors. Unemployment soared. At one point, more than 20 percent of the population of Rome was on welfare – which was another invention of the Roman state.
As the economy declined, Diocletian hired thousands of soldiers to engage in various public works. Even as tax revenues were falling, the government of Rome more than doubled in size. The deficits grew larger and larger. Hmmmmm, where have we heard this story before?
Rather than establish a currency the people could trust, the government continued minting worth-less copper and bronze coins. Soon inflation turned into hyperinflation.
In 302 AD, a pound of gold was worth 50,000 Denari. Fifty years later, that same pound of gold was worth 2.12 billion Denari. In just 50 years, the value of gold rose over 42,000 times! To put these figures into perspective, it would be the equivalent of gold rising from $35 an ounce, which it was when we went off the gold standard, to more than $1.5 million an ounce today.
While our own currency has been seriously devalued, at least so far we have not experienced anything like the hyperinflation that Rome suffered in the waning days of its existence. Nevertheless, the parallels between Athens, Rome and the United States should not be ignored. History has demonstrated that the consequences of not learning the lessons of prior civilizations can be severe.
Another lesson we can take from some of the wiser citizens of Athens and Rome is the importance of gold and silver in protecting our wealth and preserving our purchasing power.
Gold and silver have been the world’s preferred currency for thousands of years, due in part to man’s refusal to learn from the mistakes of the past. I fear that generations from now someone will write a similar story about the downfall of the American Republic. I wonder if a future historian will remark about the small percentage of citizens who were able to survive and even thrive, because they traded their depreciating dollars for gold and silver.
The message of the past couldn’t be any clearer for us today. Put not your faith in paper currency. Gold and silver are the only true stores of wealth. They are never more valuable than when the printing presses are running nonstop.
Don’t ignore the lesson history teaches. The costs could be severe.
Kevin Drost
Manager, Preferred Customer Relations
If you are ready to protect your wealth by trading fiat dollars for the world’s oldest and best money, please call me. Our toll-free number in the U.S. and Canada is 800-831-0007. Outside North America, call 301-881-8600. Or click here to send an email and tell me the best time to call you.
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