Wednesday, September 8, 2010

Why Did Gold and Silver Became Money

Why Did Gold and Silver Became Money
Thomas Allen

Before man discovered money, he traded by barter. Under the barter system, a person trades what he does not need with someone who has what he wants. Barter occurs when two people agree to exchange items that they possess.

For example, a hunter wants a spear. He has a knife that he can trade for a spear. He has to find someone who has a spear who wants a knife more than he wants the spear. Once he finds such a person, he can trade his knife for a spear. The two come together and exchange the knife and spear. This is barter.

If the person with the spear wants a bowl instead of a knife, the trade does not take place. The hunter with the knife must find someone with a bowl who is willing to trade it for a knife. If he finds such a person, he trades the knife for the bowl. Now he can trade the bowl for the spear that he really wants.

This hunter is on his way to discovering money. He has obtained the bowl not to consume it, but to exchange it for that which he wants to consume. In this exchange the bowl is functioning like money for the person who wants to exchange a knife for a spear.

In another example, an egg man wants a pair of shoes. A pair of shoes is worth 12 dozen eggs. However, the shoemaker wants only two dozen eggs. The egg man wants shoes, and the shoemaker wants eggs. Yet the shoemaker does not want 12 dozen eggs at once. Under barter, the only way that the trade can be made is for the shoemaker to suffer a great loss and accept only two dozen eggs or accept 12 dozen eggs and discard 10 dozen eggs that he does not want. Thus, this trade will not take place unless the shoemaker changes his valuation of eggs and values two dozen eggs more than he values the shoes. How are the shoemaker and egg man going to solve this problem?

The shoemaker discovers that eggs are highly marketable in his community. He realizes that he can easily trade excess eggs for other things that he wants. Thus, the shoemaker accepts the egg man’s 12 dozen eggs for a pair of shoes. The shoemaker keeps the two dozen that he wants to consume and uses the other 10 dozen to trade for other things. He trades one dozen to the baker, who always needs eggs for his products, for a loaf of bread. Next the shoemaker trades three dozen eggs with the butcher for a pound of meat. Finally, he trades the remaining six dozen eggs with the tanner for leather.

Observing the action of the shoemaker, the tanner uses eggs to obtain other things that he desires. As tanner only wants two dozen eggs, he trades one dozen for bread and five dozen for his assistant’s labor. Following the example of his master, the tanner’s assistant consumes one dozen and trades one dozen for bread and three dozen for meat.

Thus, the shoemaker, the tanner, and the community have discovered money. Eggs have become money. People start acquiring eggs not to consume them, but to trade or exchange them. They are trading for eggs so that they can trade eggs for products and services that they want.

Barter is a highly inefficient system of exchange. With barter, trades often cannot be made because one party does not want what the other has to trade. Or the difference in value of the items being offer for trade is too great for the trade to occur. That is, one or both parties in the potential trade values what he has to offer more than he values what the other person is offering.

Furthermore, with barter no common denominator of value exists. Under the above example with eggs, eggs become the common denominator of value. People begin comparing the value of things in terms of eggs. Thus, three loafs of bread (worth one dozen eggs each) equal one pound of meat (worth three dozen eggs). In other words, the price of bread is one dozen eggs per loaf, and the price of meat is three dozen eggs per pound. (Under the gold standard, people compare the exchange value of various things in terms of gold, or more correctly, in grains of gold.)

Money makes the comparison of the values of various items easy by reducing everything to a common denominator. Consequently, money measures value.

In order for money to function as a measure of value, i.e., the thing by which the values of things are compared, it must have value itself. It must have purchasing power. People must be able to exchange it for the items that they are comparing.

Jevons sums up the difficulty of barter as follows:
The first difficulty in barter is to find two persons whose disposable possessions mutually suit each other’s wants. There may be many people wanting, and many possessing those things wanted; but to allow of an act of barter, there must be a double coincidence, which will rarely happen. . . .

A second difficulty arises in barter. At what rate is any exchange to be made? If a certain quantity of beef be given for a certain quantity of corn, and in like manner corn be exchanged for cheese, and cheese for eggs, and eggs for flax, and so on, still the question will arise—How much beef for how much flax, or how much of any one commodity for a given quantity of another? In a state of barter the price-current list would be a most complicated document, for each commodity would have to be quoted in terms of every other commodity, or else complicated rule-of-three sums would become necessary. Between one hundred articles there must exist no less than 4950 possible ratios of exchange, and all these ratios must be carefully adjusted so as to be consistent with each other, else the acute trader will be able to profit by buying from some and selling to others. . . .

A third but it may be a minor inconvenience of barter arises from the impossibility of dividing many kinds of goods.[1]
Money eliminates the first two of Jevons’ difficulties. It eliminates the first because people trade for money not to consume it, but to exchange it for things to consume. It eliminates the second because it is the common denominator by which values are compared. If a commodity like gold or salt becomes money, it eliminates the third as gold and salt are highly divisible.

Man has used many and various commodities for money. In different times and places, these commodities have included salt, furs, tea, tobacco, sugar, coca, iron, copper, base metals, ivory, and cowrie-shells. Slaves and woman have also function as money. Cattle were the most popular form of money in the ancient world as cattle were usually the most saleable commodity. The cattle standard still existed in some regions at the time of Mohammed.[2] As more people began living in towns and cities, the marketability of cattle declined, which caused their use as money to decline. Eventually, the markets settled on gold and silver as the best commodities for money. What each of these commodities possessed at one time or another and one place or another was their high saleability. Each was the commodity most easily sold at that time and place. Thus, money became the medium through which exchanges were made. That is, it became the medium of exchange. Ultimately, gold and silver became the most saleable commodity and, therefore, money.

One of the earliest recordings of a precious metal being used as money is Genesis 23:16. Abraham bought a burial plot for 400 shekels of silver. This verse shows that commodity money (real money) has three components: quantity (400), measurement of weight (shekel), and substance (silver).

In pre-1933 money, if a person bought something with a $20 gold coin, he paid with money that had quantity (20), measurement (dollar, a unit of weight equal to 23.22 grains), and substance (gold). If he paid with a $20 gold certificate, his currency promised to deliver money containing these three components on demand.

The current federal reserve note lacks two of these three components. For example a $20 federal reserve note has quantity (20). The dollar appears to be its measurement. However, it is not. It is an abstraction. It measures nothing of substance. A unit of measurement has to be something concrete and definable like the foot, ounce, minute, or horsepower so that things can be compared to it. It has to be something that instruments can determine. It also lacks substance as its monetary value exceeds the value of the material of which it is made and it does not promise to deliver anything concrete.

With pre-1933 gold money, a $20 gold coin weighed twice as much as $10 gold coin. Even if the disks had no inscription on it, a disk containing 464.4 grains of gold had twice the purchasing power of a disk containing 232.2 grains of gold. It was twice as large and weighed twice as much.

Federal reserve notes cannot be measured. If all the inscriptions are removed from them, a $20 federal reserve note would look like a $10 federal reserve note. They would both have the same value: nothing.

What are the attributes of gold and silver that led to them to become the money of choice? For any commodity to serve adequately as money, it needs to be portable (relatively high value per unit of weight), homogeneous or uniform, durable, divisible, recognizable, highly marketable (highly liquid, universally acceptable), and stable in value. Only the most marketable or saleable commodities become money. They must be readily acceptable in exchange for all goods offered in the markets. Gold and silver possess these qualities. They have survived the historical test of time to emerge as the monetary commodities par excellence.

The great advantage that gold and silver have over other commodities is that their flow to stock ratio is extremely low. That is, newly mined gold or silver coming into the markets each year (flow) is small compared to the existing quantity that can be easily converted to monetary use (stock). (Some refer to the quantity of a commodity that is readily available for conversion to money or anything else as “inventory.” They call stock the total quantity of the commodity in existence, which includes inventory and the quantity of the commodity bound up in products, such as copper wire in houses or gold in fillings.)

Zurbuchen estimates that 4,720 million ounces of gold have been mined through 2004. (All ounces in this paper are troy ounces.) Of this amount, he estimates that 4,250 million ounces are available for monetary use.[3] The rest has been lost, or its recovery is not economically feasible. About 79 million ounces of gold were mined in 2004.[4] Thus, the gold supply available for monetary use increases about 1.9 per cent in 2004.

For silver, Zurbuchen estimates 45,380 million ounces of silver has been mined through 2004.[5] Of this amount, he estimates that 20,990 can be easily converted to monetary usage; this is the silver inventory. With a sufficient increase in value, another 4,000 million ounces could be converted, which gives a total of 24,990 million ounces.[6] Much more silver than this is recoverable, but under present conditions, such recovery is not economically feasible. About 40.2 million ounces were mined in 2004.[7] Thus, the silver supply readily available for monetary use increases about 0.2 percent in 2004. However, because manufacturers use a large quantity of silver as essential components in their products, the quantity of newly mined silver available for monetary usage would be much less.

Platinum is a precious metal that has occasionally been used as a monetary metal and is at times promoted as a monetary metal. However, platinum lacks one of the important characteristics of gold that makes gold an excellent monetary metal and platinum a poor one. Unlike, gold, platinum’s flow to stock ratio is high. That is, the quantity of newly mined platinum entering the markets is high compared to the existing stock that could easily be used for money. Most of the above ground platinum is in products that makes its conversion to money uneconomical.

Platinum has an available stock (inventory) of about 10 metric tons or 321, 510 ounces. The annual production of platinum is about 200 metric tons or 6,430,000 ounces. Thus, platinum’s flow to stock is about 200 percent as compared to gold’s less than 2 percent.[8] Conversely, the stock to flow is 5 percent for platinum and 54 percent for gold.

When a commodity’s stock is large compared to its flow, its value varies little. Consequently, gold’s value is fairly stable. Conversely, when a commodity’s flow is large compared to its stock, its value can fluctuate enormously. Such large changes in value are seen annually in many agricultural commodities. Likewise, platinum is prone to more significant changes in value than either gold or silver.

However, a commodity with an extremely low flow to stock ratio does not necessarily make it a good candidate for money. Land has an almost infinitesimally small flow to stock ratio. Yet it makes a poor quality money. It lacks homogeneity as its value is highly dependent on location, fertility, and underlying mineral content. It is not portable; one cannot move an acre of land from Australia to Greenland. Land lacks liquidity and is not universally acceptable and, therefore, is not highly marketable. Unlike gold, land cannot be exchanged (sold) quickly without a noticeable loss in value.

When land has been used to back the currency, the results have been disastrous. France used land for money, i.e., as backing for the assignat, between 1790 and 1796. Even the Reign of Terror failed to maintain its value. The assignat inflated itself to death.

People have many misconceptions about the gold and silver standards. Under the gold and silver standards, gold and silver are money, i.e., the monetary unit is defined as a specific weight and fineness of gold or silver. Paper money is a substitute for gold or silver and is redeemable in gold or silver on demand. Neither the government nor its central bank manages the money. If the government or its central bank manages gold and silver to carry out a monetary policy, then a true gold and silver standard does not exist. When the government or its central bank decides the money supply instead of the markets, fiat money exists even if the money is made gold or silver.

Gold is often used in the monetary system in ways that do not constitute the true gold standard.

First, gold can be used to back a currency that is irredeemable. For example, between 1933 and 1968, Congress required federal reserve notes to have some gold backing.

Second, the government may issue paper money that is redeemable in gold. The government buys gold and uses it, either as coins or bullion, to back its paper money. Often it issues more notes than it has gold backing it. An example of this type of money is the U.S. note between 1879 and 1933.

Third, the government buys gold on its own account and coins it. This type of monetary system looks like a gold-coin standard, but it is not. The government arbitrarily decides the quantity of coins to issue. An example of this system in the United States involved silver dollars between 1873 and 1900. After 1873, the U.S. government no longer allowed the free coinage of silver. Instead it bought silver bullion on its own account and coined it into silver dollars, which it declared legal tender and standard money and did not directly redeem them into gold until 1900.

Fourth, requiring the Federal Reserve to expand or contract the money supply and credit to keep the price of gold within a specific range, as some supply-side economists recommend, is obviously not a gold standard. It is a fiat monetary system where the price of gold becomes the index by which to adjust the money supply.

Fifth, Irving Fisher’s plan to make dollars redeemable in gold based on purchasing power as determined by an index instead of weight is not a true gold standard.

Although these systems use gold (or silver), they are not commodity standards. They are forms of fiat money because the government or its central bank arbitrarily controls the money supply. The quantity of money does not expand or contract to meet the needs of commerce; the law and the U.S. government’s collections and disbursements fix the quantity.

Two other forms of standards that use gold are sometimes promoted. They are the gold-bullion standard and gold-exchange standard. These standards, especially the gold-bullion standard, are more like a commodity standard. However, gold coins do not circulate under either of these standards.

Under the gold-bullion standard, paper money is redeemable only in large bars of gold bullion. The country’s money is not redeemable in gold coins. Consequently, it is considered a rich man’s standard. Because redemption is in large high-value bars, few besides specialists in foreign trade redeem notes for gold. Gold bullion presented to the government or its central bank is not coined. Instead the government or its central bank pays the presenter in government notes or bank notes.

About the gold-bullion standard, Hazlitt comments, “A full gold-coin standard is desirable because a gold-bullion standard is merely a rich man's standard. A relatively poor man should be just as able to protect himself against inflation, to the extent of his dollar holdings, as a rich man.”[9]

Under the gold-exchange standard, gold can only be used to transfer payments in gold to approved foreign institutions. Governments created the gold-exchange standard. It is a politically created system and not a product of the markets. The gold-exchange standard allows governments and their central banks to manipulate international gold flows for political reasons. The government holds the reserves of its foreign claims in gold. Most of the world’s gold ends up in the vaults of a few central banks. The gold-exchange standard offers little resistance to the desires of governments to inflate their currencies. Gold is subordinated to governmental policies and goals. Because of domestic inflation, against which it offers little resistance, the gold-exchange standard becomes unstable and dysfunctional. Most of the world operated under a modified gold-exchange standard between 1944 and 1971. (This standard was more of a dollar standard as foreign currencies were pegged to the dollar, which was pegged to gold at $35 per ounce.) It ended when President Nixon refused to exchange gold for dollars held by foreign institutions.

Under the true gold standard and silver standard, the value of the metal in its monetary uses equals its value in its nonmonetary uses. To maintain this equality, people must be free to convert bullion into coins and coins into bullion and other products. No restrictions, including tariffs and quotas, can be placed on the importation and exportation of the monetary metal in any form. Restrictions on importation and exportation distort the markets and the value of the monetary metals and artificially interfere with the equalization of the value of the metal in its monetary and nonmonetary uses.

In summary the true gold and silver standard has the following attributes:[10]

1. Gold and silver do not back the money; gold and silver are the money.

2. The price of gold and silver is not fixed. The monetary unit is a specific weight of gold or silver.

3. Gold and silver coins circulate as money.

4. The value of a coin is the value of its metal content.

5. There is the free coinage of gold and silver: Anyone can bring any amount of gold and silver to the mint, which does not have to be owned by the government, and get it coined.

6. Anyone can melt coins without restriction and use their metal for nonmonetary purposes.

7. No restrictions are placed on exporting or importing gold and silver.

8. All paper money is redeemable in gold or silver on demand.

9. The supply of money is self-regulating and automatically adjusts to meet the demand for metallic money. The government does not manage or otherwise manipulate the money supply. No monetary policy is necessary, and none is desirable.

10. The government does not issue any paper money or buy gold or silver and coin it on its own account.

11. Gold and silver coins are the property of the individual holding them; they are not the property of the government. No restrictions or controls are placed on the private ownership of gold or silver.

12. Legal tender laws are unnecessary and undesirable.

13. The government’s monetary duties are limited to defining the monetary unit, coining all gold and silver presented to it for coinage and guaranteeing the weight and fineness of such coins, punishing counterfeiters of such coins, punishing issuers of paper money who fail to redeem their paper money on demand, and punishing acts of fraud and enforcing contracts in monetary matters.

A common misunderstanding about a commodity standard is that the government fixes the price of the monetary commodity. Many people believe that under the gold standard, the government fixes the price of gold. For example, if an ounce of gold exchanges for $20, the government has fixed the price of gold at $20 per ounce. No one would sell gold bullion for less than $20 per ounce because he could take the bullion to the mint and get it minted into coins at $20 per ounce. Furthermore, no one would pay more than $20 per ounce for bullion because he can melt coins to obtain bullion.

Under the gold standard, the government does not fix the price of gold. It defines the monetary unit, such as the dollar, as a specific weight of gold. That is, the dollar is a specific weight of gold. For example, the dollar is defined as 1/20 of an ounce of gold or 24 grains of gold. The dollar is 24 grains of gold. It is a unit of weight like the pound. It is just limited to money. By declaring the dollar to be 24 grains of gold, the government has no more fixed price of gold than it has fixed the price of a pound by declaring it to be 7000 grains. The dollar is a unit of weight like the pound or gram. It is just limited to gold. The dollar is fixed in terms of gold; gold is not fixed in the terms of the dollar.

Another way of stating this point is in terms of the independent variable and the dependent variable. People who claim that the price of gold is fixed under the gold standard are claiming that an abstract unit of value, e.g., the dollar, is the independent variable. A concrete weight of gold is the dependent variable. Thus, an abstraction fixes the value of a concrete weight of gold.

Conversely, people who claim that under the gold standard the price of gold is not fixed claim that the value of gold is the independent variable. The monetary unit is the dependent variable as it is a fixed weight of gold. A concrete weight of gold fixes the value of the monetary unit.

“The metre is the length of the path travelled by light in vacuum during a time interval of 1∕299 792 458 of a second.”[11] If they are consistent, people who claim that the government fixes the price of gold instead of gold defining the value of the monetary unit, must argue that the government fixes the distant that light travels in a fraction of a second instead of defining that distance as the length of a metre. How absurd. The government defines the abstraction, the “metre,” in terms of the tangible distant that light travels in a fraction of a second. It does not define the tangible distant that light travels in a fraction of a second in terms of the abstraction. Likewise, with gold, government defines the abstract monetary unit in terms of a tangible weight of gold.

This discussion may seem to be an unimportant discourse about semantics. It is not. The distinction is highly important. Is gold to be fixed in dollars, i.e., gold is priced in dollars? That is, the government declares that the dollar is an abstraction, and it has arbitrarily fixed the price of gold. This notion leads quickly down the road to paper fiat money. On the other hand, is the dollar to be fixed in gold, i.e., the dollar is a unit of weight of gold? The government declares the dollar to be a tangible and defines it as a measurable amount of gold. This notion is the essence of the gold standard; the monetary unit is a weight of gold.

In closing here is what some notables, in no particular order, have said about the gold standard.

Friedrich A. Hayek:
[I]t [the gold standard] created in effect an international currency without submitting national monetary policy to the decisions of an international authority; it made monetary policy in a great measure automatic and thereby predictable; and the changes in the supply of basic money which its mechanism secured were on the whole in the right direction.[12]
Henry Hazlitt:
The gold standard not only helps to ensure good policy and good faith; its own continuance or resumption requires good policy and good faith. . . . just as “managed” paper money goes with a statist economy in which the citizen is always at the mercy of bureaucratic caprice, so the gold standard is an integral part of a free-enterprise economy under which governments respect private property, economize in spending, balance their budgets, keep their promises, and above all refuse to connive in inflation—in the overexpansion of money or credit.[13]
Ludwig von Mises:
The eminence of the gold standard consists in the fact that it makes the determination of the monetary unit’s purchasing power independent of the measures of governments. It wrests from the hands of the “economic tsars” their most redoubtable instrument. It makes it impossible for them to inflate. This is why the gold standard is furiously attacked by all those who expect that they will be benefitted by bounties from the seemingly inexhaustible government purse.[14]
Benjamin Anderson:
Gold is an unimaginative taskmaster. It demands that men, banks, and the government be honest. It demands that they create no debt without seeing clearly how these debts can be paid. If a country will do these things, gold will stay with it and come to it from other countries. But when a country creates debt light-heartedly, when a central bank makes interest rates low and buys government securities to feed its money market, and permits an extension of credit that goes into slow and illiquid assets, then gold grows nervous. There comes a flight of capital out of the country. Foreigners withdraw their funds from it, and its own citizens send their liquid funds away for safety.[15]
Barry Eichengreen:
There can be no question that the development of the international gold standard in the second half of the 19th century and the enormous growth of international trade and investment which took place are no mere coincidences. The hallmark of the prewar gold standard was precisely its ability to accommodate disturbances to financial markets without causing severe business cycle fluctuations. . . . For more than a quarter of a century before WWI, the gold standard provided the framework for domestic and international monetary relations. Currencies were convertible into gold on demand and linked internationally at fixed exchange rates. Gold shipments were the ultimate means of balance of payments settlement. The gold standard had been a remarkably efficient mechanism for organizing financial affairs. No global crisis comparable to the one that began in 1929 had disrupted the operation of the financial markets. No economic slump comparable to that of the 1930s had so depressed output and employment.[16]
Alan Greenspan:
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense —perhaps more clearly and subtly than many consistent defenders of laissez-faire—that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.[17]
Edwin Vieira:
Silver and gold as currencies supply the foundation necessary for economic democracy and limited government; whereas fiat currencies inevitably function as the tools of fascism, socialism, and every other form of financial imperialism.[18]
Mises again:
The excellence of the gold standard is to be seen in the fact that renders the determination of the monetary unit's purchasing power independent of the policies of governments and political parties. Furthermore, it prevents rulers from eluding the financial and budgetary prerogatives of the representative assemblies. Parliamentary control of finances works only if the government is not in a position to provide for unauthorized expenditures by increasing the circulating amount of fiat money.[19]
Mises again:
The eminence of the gold standard is . . . that the gold standard alone makes the determination of the monetary unit’s purchasing power independent of the ambitions and activities of dictators, political parties and pressure groups.[20]
Joseph Schumpeter:
An “automatic” gold currency is part and parcel of a laissez-faire and free-trade economy. It links every nation's money rates and price levels with the money rates and price levels of all other nations that are on gold. It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation, and, in general, to precisely all those policies that violate the principles of economic liberalism. This is the reason why gold is so unpopular now and also why it was so popular in a bourgeois era. It imposes restrictions upon governments and bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom—of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense. From this standpoint a man might quite rationally fight for it, even if fully convinced of the validity of all that has ever been urged against it on economic grounds. From the standpoint of statism and planning, a man may not less rationally condemn it, even if fully convinced of the validity of all that has ever been urged for it on economic grounds.[21]
Mises again:
The struggle against gold which is one of the main concerns of all contemporary governments must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction which is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.[22]
Walter E. Spahr:
It should not be surprising that apparently all who would socialize our economy are opposed to the restoration of a redeemable currency in the United States. Either because they understand the relationship between an irredeemable currency and the processes of socialization or because they simply note that Socialist, Communist, and Fascist governments employ irredeemable currencies as a means of controlling and managing the people, advocates of government dictatorship seem invariably to defend irredeemable currencies with the utmost vigor. The evidence seems overwhelming that a defender of irredeemable currency is, wittingly or unwittingly, an advocate of socialism or of government dictatorship in some form.
So long as a government has the power over a people that is provided by an irredeemable currency, all efforts to stop a government disposed to lead a people into socialism tend to be, and probably will be futile. The people of the United States have observed all sorts of efforts, organized and individual, to bring pressure upon Congress to end its spending orgy and processes of socialization. It should be amply clear by this time that none of these efforts has succeeded. Moreover, there is no reason for supposing that any of them, except the restoration of redeemability, can succeed in arresting our march into socialism.[23]
Spahr again:
A gold-coin standard provides the people with direct control over the government's use and abuse of the public purse. . . . When governments or banks issue money or other promises to pay in a manner that raises doubts as to their value as compared with gold, those people entertaining such doubts will demand gold in lieu of . . . paper money, or bank deposits. . . . The gold-coin standard thus places in the hands of every individual who uses money some power to express his approval or disapproval of the government's management of the people's monetary and fiscal affairs.[24]
Spahr again:
What is the meaning of a gold standard and a redeemable currency? It represents integrity. It insures the people’s control over the government’s use of the public purse. It is the best guarantee against the socialization of a nation. It enables a people to keep the government and banks in check. It prevents currency expansion from getting ever farther out of bounds until it becomes worthless. It tends to force standards of honesty on government and bank officials. It is the symbol of a free society and an honourable government. It is a necessary prerequisite to economic health. It is the first economic bulwark of free men.[25]
Ferdinand Lips:
. . . the abandonment of the gold standard of the nineteenth century is the greatest tradey of all time.[26]
Lips again:
Gold is a precondition for a free society.[27]
Harry Schultz:
. . . we should fight for a pure gold standard, the old-fashioned form, because it worked! And not just for fiscal reasons! It forced nations to limit their debt, spending and socialist schemes, which meant sound behavioural habits were formed around those limitations, and those habits rubbed off on everyone. People were more honest, moral, decent, kind, because the system was honest and moral. Cause and effect. Today we have cause and effect of the opposite standard: no limits on what governments can do, control, dictate; no limit on government debt, welfare or socialist schemes. There is no governor on the government.
This habit rubbed off on the public, causing them to go into debt, lose respect for the system and morality. The effect brings us more divorce, fraud, crime, illegitimate births, broken homes.[28]
Philip Cortney:
It is the gold standard which has made possible the expansion of international commerce and the distribution throughout the world of the benefits that are derived from the international division of labor. It is gold and its general acceptance which permits each individual to buy what he wants and to sell the fruit of his labor any place in the world, thereby spreading the benefits of competition. It is gold which assures the individual his independence and which is the best shield of the small states against the arbitrariness of the large ones. Contrary to what a superficial judgment would indicate, gold and the gold standard are not the weapons of oppression of the well-to-do, but rather the weapons of defense of the weak and the disinherited. It is the stability of gold, its general acceptance and its liberty of movement which have made possible the development of backward countries by the savings of the capitalistic world (which means privations and individual risks!). It is gold, to sum up, which has been the best weapon against economic nationalism and its dangers.[29]
Gold and silver were constituted, by the nature of things, money and universal money, independently of all conventions and all law.[30]
Hugo Salinas Price:
The gold standard is the generator and protector of jobs.[31]
1. W. Stanley Jevons, Money and the Mechanism of Exchange (New York, New York: D. Appleton and Co., 1896), pp. 3-6.

2. Carl Menger, Principles of Economics, trans. James Dingwall and Bert F. Hoselitz (New York, New York: University Press, 1976), p. 264.

3. David Zurbuchen, “The World’s Cumulative Gold and Silver Production,” Jan. 14, 2006, editorials_ 05/zurbuchen011506.html, Oct. 8, 2008.

4. William A. McGeveran, Jr. et al., ed., The World Almanac and Book of Facts 2006 (New York, New York: World Almanac Books, 2006), p. 106.

5. David Zurbuchen, “The World’s Cumulative Gold and Silver Production,” Jan. 14, 2006,, Oct. 8, 2008. David Zurbuchen, “The Real Silver Deficit” zurbuchen052006pv.html, Oct. 16, 2008.

6. David Zurbuchen, “The Real Silver Deficit” zurbuchen052006pv.html, Oct. 16, 2008.

7. McGeveran, p. 106.

8. [Sandeep Jaitly], “Currency and Marginal Utility” currency_and_marginal_utility.pdf, July 10, 2010.

9. Martin A. Larson,. The Federal Reserve and Our Manipulated Dollar (Old Greenwich, Connecticut: The Devin-Adair Company, 1975), p. 217.

10. Thomas C. Allen, Reconstruction of America’s Monetary and Banking System: A Return to Constitutional Money (Franklinton, North Carolina: TC Allen Co., 2009), p. 106-107.

11. “Metre,” Wikipedia,, July 10, 2010.

12. Friedrich A. Hayek, Individualism and Economic Order (Chicago, Illinois: Henry Regnery Co., 1948), p. 209.

13. Larson, p. 216.

14. Ludwig von Mises, The Theory of Money and Credit, new edition, translator H.E. Batson (Irvington-on-Hudson, New York: The Foundation for Economic Education, Inc., 1971), p. 438.

15. Antal E. Fekete, “Monetary Economics 101: The Real Bills Doctrine of Adam Smith,” Lecture 13, Oct. 28, 2002, http//, Sept. 12, 2007.

16. Richard M. Salsman, Gold and Liberty (Great Barrington, Massachusetts: American Institute for Economic Research, 1995), p. 44-45.

17. Alan Greenspan, “Gold and Economic Freedom,” Capitalism: The Unknown Ideal, (New York, 1967) p. 96.

18. Edwin Vieira, Jr., “Silver and Gold Guarantee Freedom,” Apr. 18, 2008, node/6244, Apr. 23, 2008.

19. Mises, Theory of Money and Credit, p. 416.

20. Percy L. Greaves, On Current Monetary Problems: An Interview with Professor Ludwig von Mises (Lansing, Michigan: Constitutional Alliance, Inc.), p. 30.

21. Salsman, p. 58.

22. Ludwig von Mises, Human Action: A Treatise on Economics, 3rd revised edition (Chicago, Illinois: Henry Regnery Company, 1963), p. 475.

23. Garet Garrett, The People’s Pottage (Caldwell: The Caxton Printers, Ltd., 1953), p. 46.

24. Murray N. Rothbard, A History of Money and Banking in the United States (Auburn, Alabama: Ludwig von Mises Institute, 2002, 2005), pp. 383-384.

25. The Gold Standard Institute, Newsletter #3, August 24, 2009, p. 1.

26. Ferdinand Lips, Gold Wars: The Battle Against Sound Money as Seen from a Swiss Perspective (New York, New York: The Foundation for the Advancement of Monetary Education, 2001), p. 21.

27. Ibid., p. 174.

28. Ibid., pp. 243-244.

29. Charles Rist, The Triumph of Gold, translator Philip Cortney (New York, New York: Philosophical Library, 1961), pp. 5-6.

30. J. Laurence Laughlin, The History of Bimetallism in the United States (New York, New York: D. Appleton and Co., 1886), p. 5.

31. Hugo Salinas Price, “The Gold Standard: Generator & Protector of Jobs,” June 16, 2010,, June 16, 2010.

Copyright © 2010 by Thomas Coley Allen.

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