Gold and the Gold Standard

The Story of Gold Money, Past, Present and Future

Dr. Edwin Walter Kemmerer

• Publisher: Papamoa Press
• Year: 2018
• ISBN:
  9781787209770
• Topic: Economics
• Subtopic: Banks & Banking
• Index: Economics

Edwin Walter Kemmerer was one of the unsung heroes of the 20th century. A Professor of Economics at Princeton, he was known as the "money doctor" between the wars, helping countries to establish and maintain strong currencies between 1923 and 1933. He was a firm advocate of the gold standard and favored hard money with convertibility domestic and international.This is his major treatise: Gold and the Gold Standard: The Story of Gold Money, Past, Present, and Future, which was first published in 1944. In it, Kemmerer reviews the history of gold and its outstanding merit as a currency and presents a plan that likely may have saved the world from hyperinflation and the booms and busts of the past 50 years.

CHAPTER I—THE PLACE OF GOLD IN THE MONEY OF ANCIENT AND MEDIEVAL TIMES

Speak of the moderns without contempt and of the ancients without idolatry; judge them all by their merits and not by their age.—LORD CHESTERFIELD, 1748.

ORIGIN OF THE GOLD STANDARD

The gold standard in its “orthodox form” is a product of the nineteenth century. Its roots, however, go deep into the past. This chapter will explore briefly this early history of gold as money,{1} i.e., as a commonly accepted medium of exchange.

Gold, by reason of its beauty, its worldwide distribution, the facility with which it could be obtained from the streams by crude methods of “panning,” and the ease with which it could be “worked,” probably had a wider use as a medium of exchange in very ancient times,{2} and among primitive peoples in modern times, than any other metal.

This metal was first used as money in such forms as nuggets of gold, gold molded in the shape of shells, which served also as ornaments, and gold dust. In ancient Mexico, Africa, and elsewhere, gold was put into transparent quills, which were used as a common means of payment. It circulated in small cubes in China as early as 1100 B.C. Many hundreds of years before the beginning of the Christian Era, gold media of exchange were used in Asia Minor and a large part of Europe. These early media were usually made of almost pure gold, the art of hardening the metal by means of alloy apparently not having been introduced until after the beginning of the Christian Era.

The earliest references I have been able to find in recorded history to the use of one of the precious metals as a medium of exchange—in these cases, passing by weight—are in the Code of Hammurabi,{3} King of Babylon. They refer to silver in about the year 1870 B.C.{4}

The peoples of classical times had very little knowledge of the money of their early ancestors. They had no books on money, and the few written records available to them were chiefly on stone and papyri in the form of laws, decrees, and scattered miscellaneous notes. By far the most important part of our records of these early times consists of the money itself, which has been preserved and is now held largely in the museums of the world, where it is classified and catalogued. The coined money alone of classical times that has been thus preserved runs into tens of thousands of pieces; and the weights of these pieces, the materials of which the coins are made, their forms, and especially the designs and legends that they bear give us valuable information.

Thanks to the careful studies made by classical scholars over many generations, we know today much more about the money of classical times than the ancients knew. There are, however, many gaps in the chronology of the coins that have come down to us, and the story that these coins tell is far from complete. It is still full of controversial questions concerning which the modern literature is voluminous, but progress in their solution is being, made continually.{5}

EARLY COINAGE IN ASIA MINOR

Coinage was originally of the nature of a seal or hallmark punched on a nugget of metal as a guarantee of its quality or its weight. The beginnings of coinage appear to have been made in the countries of the eastern Mediterranean early in the eighth century B.C.{6} Sennacherib, King of Assyria (705-681 B.C.), said, “I built a form of clay and poured bronze into it as in making half-shekel pieces.”

Many of the early coins were made of electrum—a natural alloy, consisting of about three parts of gold to one part of silver, which was found abundantly in Lydia and which caused that country to be known as the land of gold. Because of the difficulty in separating the gold from the silver, the ancients regarded electrum almost as a distinct metal. Early coins of pure gold in Asia Minor were probably made from placer gold obtained from the valley of the Oxus or from the Ural Mountains.{7} The electrum coins were ancient examples of what in modern times is called symmetallism.

I have in my possession a gold daric, one of the oldest and most famous gold coins in history. It is made of almost pure gold and is about the weight of our late American $5 gold piece. It looks like a roughly molded gold nugget and bears a crude stamp of an archer with his bow and spear. The coin was made during the reign of Darius the Great of Persia, about 500 years before Christ. Only about two generations before this, in the reign of Croesus, which began 561 B.C., there circulated in Asia Minor the coins of which Herodotus said, “The Lydians were the first people, so far as I know, to adopt a gold and silver coinage.”{8}

In those early times, gold coins and silver coins circulated for several centuries under a dual standard. Gold gained in importance at the time of Alexander the Great, under the stimulus furnished by the large amount of gold produced in his Pangean mines.{9}

COINAGE IN THE LAND OF THE GREEKS

In Homeric times values in Greece were reckoned in terms of the cow. According to Ridgeway, “...weighing was first invented for traffic in gold, and since the weight-unit of gold is found regularly to be the value of a cow or ox....the unit of weight is ultimately derived from the value in gold of a cow.”{10} Our English word pecuniary, which is derived from the Latin pecus, meaning “cattle,” is a monument to this development. Copper was early used as money. The first obol was apparently a copper spike or skewer, six of which made a drachma, meaning “handful.”{11}

The first gold coin to circulate in Hellas proper was the aforementioned Persian daric or stater (meaning “to weigh”), which weighed about 130 grains and which enjoyed an extensive circulation for several centuries. It was never debased and was “practically the only gold coin for about 200 years, as well in Asia Minor and the mainland of Greece as in the Persian Empire.”{12} It was known in Palestine during Biblical times.

The Greeks learned the use of gold coin from the Asiatics, but they were slow to coin gold themselves. The first place in Hellas proper to mint money was Aegina, which was a commercial center. The silver coins of this small island and the Persian gold darics circulated extensively in Magna Graecia. Solon is believed to have been the first person to coin silver money in Athens. Coins of silver and gold apparently passed at approximately their respective bullion values. In this dual-standard system, silver coins were those most widely used, but gold coins played an extensive part in the country’s foreign trade, also in many of the larger domestic transactions and for reserves in the temples. In times of war and other great emergencies, there was an increased coinage of gold from metal obtained by melting down golden statues and ornaments, which were obtained largely from the temples.

Early in the fourth century B.C., the silver coinage of Rhodes was supplemented by an issue of gold staters, and this double issue of gold and silver continued unbroken{13} until after the death of Alexander the Great in 323 B.C.

In the Greek world there were, on occasions, official ratings of the coins of one metal in terms of those of the others. Ratings were changed from time to time and recoinages were made, to prevent a cheaper or overrated metal from driving out of circulation a dearer or underrated one, under the force of what we now call Gresham’s law.{14}

About the beginning of the fourth century B.C., we find a case of monetary debasement suggestive of our American debasement of 1933 to 1934.{15} Dionysius, Tyrant of Syracuse, who had borrowed heavily from his citizens and was being hard pressed for repayment, directed that all the coins in the city should be brought to him, under penalty of death. He then restamped the coins and gave to each drachma the value of two drachmas. By this debasement he was enabled to pay off the original loan and, at the same time, repay the money that he had ordered to be brought to the mint.{16}

Shortly after the death of Alexander, the unified Attic monetary system, which prevailed throughout most o...