Guide To Investing in Gold & Silver. Michael Maloney
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 leading 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 resources 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 Athenians’ bright idea, everything that you could buy was priced in a weight of gold or silver. Now, for the first time, there was 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 and of themselves.
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 and silver coins saw their purchasing power increase dramatically.
Within a couple of years the war that had started the whole process had been lost. Athens would never again enjoy the glory they once knew, and they eventually became nothing more than a province of the next great power, Rome.
And the very first regional heavyweight bout between currency and money goes to the “real money,” as gold and silver are crowned the “Heavyweight Champions of Athens”.
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 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 a 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 coins 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.
In 301, Diocletian issued his infamous Edict of Prices, which imposed the death penalty on anyone selling goods for more than the government-mandated price and also froze wages. To Diocletian’s surprise, however, prices just kept rising. Merchants could no longer sell their wares at a profit, so they closed up shop. People either left their chosen careers to seek one where wages weren’t fixed, or just gave up and accepted welfare from the state. Oh yeah, the Romans invented welfare. Rome had a population of about one million, and at this period of time, the government was doling out free wheat to approximately 200,000 citizens. That equaled out to 20 percent of the population on welfare.
Because the economy was so poor, Diocletian adopted a guns and butter policy, putting people to work by hiring thousands of new soldiers and funding numerous public works projects. This effectively doubled the size of the government and the military, and probably increased deficit spending by many multiples.
When you add the cost of paying all these troops to the swelling masses of the unemployed poor receiving welfare and the rising costs of new public works projects, the numbers were staggering. 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.
All this resulted in the world’s first documented hyperinflation. In Diodetian’s Edict of Prices (a very well preserved copy of which was unearthed in 1970), a pound of gold was worth 50,000 denari in the year A.D. 301, but by mid-century was worth 2.12 billion denari. That means the price of gold rose 42,400 times in fifty or so years. This resulted in all currency-based trade coming to a virtual standstill, and the economic system reverted to a barter system.
To put this in perspective, fifty years ago the price of gold was $35 per ounce in the United States. If it rose 42,400 times, the price today would be just under $1.5 million per ounce. In terms of purchasing power, that means if an average new car sold for about $2,000 fifty years ago, which they did, the average car today would sell for $85 million.
This signaled the second great victory for gold and silver over fiat currency in history. So there you go, gold and silver are now 2 and 0.
In the end it was currency debasement and pure deficit spending to fund the military, public works, social programs, and war that brought down the Roman Empire. Just as with every empire throughout history, it thought it was immune to the laws of economics.
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.
In studying monetary history to identify cycles, it is necessary to examine both sides of the coin so to speak. The temptation is for people to blame all their woes on their government. Certainly governments are often at fault when it comes to inflation through fiat monetary policy, but one must never forget that in the end we are ultimately the ones who consent to our government’s rule. History is full of examples of greed leading a populace to do incredibly stupid things. Indeed, we don’t need government to ruin our economy. We can get by just fine by ourselves, thank you.
The best example I can think of is the tulip mania of 1637.
A Tulip Is Still a Tulip . . .
In order to understand the absurdity of this moment in history I’m about to share with you, you simply have to ask yourself: Would I pay $1.8 million for a tulip bulb? If the answer to that question is yes, then please put this book down and get some professional help. Otherwise, read on and see just how crazy the public can become.
Everyone thinks of tulips when they think of Holland. Then they think of beer. What many people don’t know is that tulips are not indigenous to Holland. They were imported. In 1593 the first tulip bulbs were brought from Turkey to Holland. They quickly became a status symbol for royalty and the wealthy. This developed into a mania, and soon a tulip exchange was established in Amsterdam.
Very quickly this mania turned into an economic bubble. You may find this comical; in 1636 a single tulip bulb of the Viceroy variety was traded for the following: 2 lasts (a last is 4,000 pounds) of wheat, 4 lasts of rye, 4 fat oxen, 8 fat swine, 12 fat sheep, 2 hogsheads (140 gallon wooden barrel) of wine, 4 tons of beer, 2 tons of butter, 1,000 pounds of cheese, 1 bed, 1 suit of clothes, and 1 silver goblet.
At its very peak in 1637 a single bulb of the Semper Augustus variety was sold for 6,000 florins. The average yearly wage in Holland at the time was 150 florins. That means that tulip bulbs were selling for 40 times the average Hollander’s annual income. To put that into perspective, let’s assume the average U.S. salary is $45,000. That means that a tulip bulb in today’s terms would cost you $1.8 million.
Soon people began to realize how absolutely crazy the situation had become, and the smart money (if you can