The History of the Gold Standard

Posted by $ MikeMarotta 5 months, 3 weeks ago to Economics
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This is from the E-Sylum, the weekly email letter of the Numismatic Bibliomania Society. (Their print journal is The Asylum.) The interest of the NBS is in the literature of numismatics, centered on auction catalogs and similar matierials, but can range far afield. This essay introduces a current auction by a firm.

The upcoming K√ľnker Auction features quite a number of great gold coins. This article by Ursula Kampmann lays out the history of the gold standard illustrated with lots in the sale. Some great eye candy here, including some nice U.S. rarities. -Editor

The Gold Standard: How and Why Gold Became the Most Important Metal For Coins


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  • Posted by $ Commander 5 months, 3 weeks ago
    That fills in a niche in my dandelion at seed brain. Thanks for the very clear history.
    I just posted to Vinay's posting, regarding American Marxism, a reference to the value difference between rural and urban economies and landmass voting for elections.
    Rural areas have a lot of room to adjust barter to monetary fluctuations. I just moved from Minneapolis to a county of 75k...so evident. My resources in the city would have provided six months buffer, at present they provide 2 years and no need to work if I choose.

    Anecdotally, an uncle had been purchasing one troy ounce of gold per week from the mid 50's until the Hunt brothers made a run in....79? Leo had purchased at around $175/oz aggregate and sold out at near $800/oz, I was told. He repurchased at around $300/oz after the market stabilized again. My dad always thought he came across as a dummy.
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    • Posted by $ 5 months ago
      Thanks. Glad you like it. See my comment to CircuitGuy below.
      The presentation on foreign money circulating in the early United States also speaks to what a truly laissez-faire banking system might look like.

      I think that while it is true that a free market works toward equilibrium by reducing inefficiencies, it is also true that forcing conformity creates other risks.
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      • Posted by $ Commander 5 months ago
        I can apply "forcing conformity creates other risks" to so many human interactions....makes my mind go hyperactive.

        Here's a conformity to pick your brain about: What do you think would happen if "reserve" in fiat systems were raised, incremented up from 10% to 15%? I have an idea, yet also understand there would be a "breaking" point in the system.
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        • Posted by $ 5 months ago
          I think that there is no reserve requirement right now.

          Federal Reserve Eliminates Reserve Requirements
          March 31, 2020
          By Diane Wolfe
          Recently, the Federal Reserve announced they were reducing the reserve requirement ratio to zero percent across all deposit tiers, effective March 26, 2020. This comes as the COVID-19 pandemic continues to impact much of the way financial institutions both operate and serve their customers.

          From the horse's mouth:
          Reserve Requirements
          As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.

          It seems to have been brewing for some time:

          That being as it may, of course, requiring more reserves would limit loans and would also bring interest rates up in order attract long-term deposits.

          But no one wants to pay the piper. We are in a lifelong inflationary economy. The dollar will get smaller as ever more of them circulate. I listen to NPR "Marketplace" and the consumer sector is like 60% of the economy. We don't dare stop spending.

          Personally, from a free market standpoint, "the economy" being the sum total of all human actions, I think that we would all pretty much re-orient ourselves along the proper compass -- after the shock.

          I have made the case here that we are on a gold-based system now because the US Mint (a branch of the Treasury) sells gold coins in return for Federal Reserve Notes which are backed in Treasury bonds.
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          • Posted by $ Commander 5 months ago
            Damn....missed this while moving from MN to WI in March.
            More rabbit holes to explore....thanks a bunch!
            In the meantime....I've harvest to preserve...just in case I need to trade during a re-orientation. LOL!
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  • Posted by $ Abaco 5 months, 3 weeks ago
    Over the years I've enjoyed going to coin shops and buying gold coins.
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    • Posted by $ 5 months ago
      You have to treat yourself to your own pleasures. On three different shopping trips this month, I spent about $50 on pencils after reading The Pencil: A History of Design and Circumstance by Henry Petroski (Alfred A. Knopf, 1990).

      I agree 100% that there's nothing like an interesting coin to tell a story. A while back, I bought a couple of Maria Theresa talers, well-worn. They still make them at maybe six different mints. But the worn ones speak to actual trade and commerce in our lifetimes along the Horn of Africa. Somewhere I have a National Geographic from about 1980 with an article about Yemen. The finance minister complained that even though the country has a "modern" currency, people still prefer Maria Theresa thalers and the National G reporter said that they saw bags of fhem next to bags of khat all guarded by old guys with AK-47s.
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  • Posted by $ Olduglycarl 5 months, 3 weeks ago
    Thanks Mike, got caught up looking through the really old stuff, BC stuff, trying to find a match to what I have. Can't believe they aren't worth that much.
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    • Posted by $ 5 months, 3 weeks ago
      I understand. My interest was in coins worth a day's wages from the towns and times of philosophers. I had Thales to Hypatia pretty much filled in. Thales was represented by an electrum sixth stater, a museum piece, that I picked up for $175 back in 1995. It might be worth twice that now just because of inflation. Recently, a coin store in Portland was robbed.

      6 one tenth oz American Gold Eagles
      1 one quarter oz Austrian Philharmonic
      7 one oz South African Krugerrands
      13 one oz American Gold Eagles
      4 one oz Gold bars 3 Valcambi 1 Credit Suisse
      one 100 gram gold Perth Mint bar
      $10,000 in cash

      (They left behind all the ancient coins, of course. (:-) )

      A friend of mine who was a dealer at mall shows said that when he started out, he bought whatever he liked and he did not make any money. Then, he started buying what other people liked. The market is always right. We all nod to Howard Roark, but it is in Von MIses, also, that a true entrepreneur will invest his time and money in a venture that never realizes a profit when a more sensible man would just get a wage job and keep it.

      We march so easily to that different drummer.
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      • Posted by $ Olduglycarl 5 months, 3 weeks ago
        The coin, was from my Uncle, a Merchant Marine and I have determined that the coin is of the Roman Era...you can clearly read: CEAA and what looks like an R...no other letters and the figures are crude but the coin is pretty round.
        Funny, the human faces on a horse's body...not sure what that was all about.
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  • Posted by $ 5 months ago
    Have we reached "peak gold"?

    "The volume of gold reserves can be calculated more accurately than resources, although this is still not an easy task.
    The below-ground stock of gold reserves is currently estimated to be around 50,000 tonnes, according to the US Geological Survey.
    To put that in perspective, around 190,000 tonnes of gold has been mined in total, although estimates do vary.
    Based on these rough figures, there is about 20% still to be mined. But this is a moving target."
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  • Posted by CircuitGuy 5 months, 3 weeks ago
    Until I saw this, I thought gold and silver were seen as stores of value to the same extent throughout history, with gold always on top.

    I am a firm believer in fiat money, in having media of exchange that do not have value apart form the faith that someone else will except them in trade. I like that money can be created by the market, with investors giving someone with a good idea money, that person putting it in the bank, and that bank investing it in more good ideas; so there's always enough money created out of thin air to trade all the new value that people create.

    At the same time, I keep a small bit of exposure to silver and gold in ETFs, as a hedge against inflation and all the perils of the world that make investors flee to precious metals. (What's up with silver this year!?) But I also keep a small amount of physical gold and silver just because I think it's cool that a little bar of gold is worth as much as a new car. I like to think a stack of coins that would have bought a nice new Roman carriage will buy a new Honda Accord today or a new small spacecraft of the future.
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    • Posted by $ 5 months, 3 weeks ago
      F. A. Hayek also said that we do not know what a truly free market in banking will look like and that it is possible for one bank to issue paper backed in the paper of other banks if that's what the market would accept. (On my blog here: https://necessaryfacts.blogspot.com/2... )

      Harry Browne endorsed the works of E. C. Riegel who also explained how individuals couild create their own money based on their own credit.
      I spoke on the future of money at an ANA conference in Chicago in 2019
      The first slide showed federal-like "money" with the images of Taylor Swift, LeBron James, and the Trump Family.
      (More here: https://necessaryfacts.blogspot.com/2... )

      You know, in 600 BCE if you claimed that gold was money "just like cows are money" people would think you were an idiot because you can't get milk from a coin. In fact, Aristotle believed (and Muslims still believe) that lending money at interest is "unnatural" because while a herd can increase naturally, money is not a living thing so for it to multiply on its own by our artifice of counting is "unnatural."

      The strict Austrians, following some lines from Adam Smith, believe that credit capitalizations are the cause of all depressions. They say that only (hard money) savings should be allowed for investment.
      Some conservatives here decry the debt-based Federal Reserve System. I believe that debt is the seed of civilization.

      **Fractional Currency,"" the doctoral dissertation of Neil Carothers became an offprint by Bowers&Merena Galleries. A hundred years ago Carothers said that it was silly to destroy precious metals in hand-to-hand transactions. He cited the costs to the British Royal Mint in calling in all the worn gold coins and issuing new replacements. He suggested durable tokens good for precious metals that would do the hard work of daily commerce.
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      • Posted by CircuitGuy 5 months ago
        This was interesting. I didn't understand this line: " For Hayek the more interesting problem was what to do when the market value of a bank's paper exceeds its issue price. "
        In this scenario there were various banks issuing banknotes. What's the "gold standard" or "fixed hitching post" by which you measure the value of one bank currency. You could look at a basket of goods or a basket of other currencies. But I don't understand its value vs issue price. It's paper, so isn't the cost of materials and printing trivial, by design, compared to its monetary value.
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        • Posted by $ 5 months ago
          (See this American Numismatic Association "Money Talks" presentation "Before the Coinage Act of 1857: How Americans Spent Their Foreign Money" by Dr. Jesse Kraft of the American Numismatic Society (the senior group).
          The first part of it focuses on the colonial and early republican period when an array of foreign coins from Spain, Brazil, etc., had diferent values in terms of different state money, New York, South Carolina, etc. The point here is that money teaches mental math.)

          Imagine an alternate 19th century. So, a bank's paper is backed in the paper of other banks. Take Cincinnati (originally dubbed "Porkopolis" - truly). The Big Hog City Bank issues its "porkies" backed in currencies from two other banks in Columbus and Pittsburgh. The one porkie says that it is good for 1 buckeye, or 1 steelie. i.e., it is on par with each of those other currencies. People going west want porkies, so in Pittsburgh, they offer 105 steelies for 100 porkies and no one wants to go to Columbus. So, buckeyes pile up and banks reduce their risk by selling them at a discount, say for 110 porkies or 105 steelies.

          The situation is then like it is now in the stock market when a firm's own common stock rises. They hold their own stock as owner's equity. They can sell it or they can re-evaluate it on their books. That is in the story in No Excuses Management by Objectivist icon T. J. Rodgers of Cypress Semiconductor. At the outset, his engineers wanted production machines to make chips. He forced them to make do and find other efficiencies. When the stock rose in price, they sold less of it to buy the machines.

          As for the banks themselves, in Murray N. Rothbard's tragically flawed dissertation, A History of Money and Banking in the United States is the story of the Suffolk Banking System of the early 19th century. Suffolk Bank in Boston took in a lot of paper from rural banks because farmers came into town to do business. The Suffolk Bank sent out riders every night back to the countryside banks to redeem the paper for hard money.

          Also in that era were "Banknote Reporters" newspapers that carried the buy and sell prices of local ("wildcat") banknotes. The farther you were from a bank, the less its money was worth. But some banks such as the Merchant's Bank of New Orleans were sound enough and located at a nexus of trade, that they did not suffer deep discounts over mere mileage.

          All of this is to say that even Hayek was disadvantaged by not knowing numismatics. Mises and Rothbard (the worst of the lot) and the others were guessing based on Kantian rationalism because they distrusted empirical evidence.
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          • Posted by freedomforall 5 months ago
            "So, buckeyes pile up and banks reduce their risk by selling them at a discount, say for 110 porkies or 105 steelies."
            That appears to be at a premium, not a discount.
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            • Posted by $ 5 months ago
              Yes, of course, 110 for 100 or 105 for 100.
              I had it wrong the first time before I posted: 95 or 90, which also would have been a premium. I had to get the words and numbers all together at the same time. Thanks.
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          • Posted by CircuitGuy 5 months ago
            They secret to understanding this is hidden in books and 70-min-long videos. I will aim to watching while I'm doing something like board rework or layout, where that part of my brain is open.

            The thing with the different banks: Isn't this a lot like the GBP fluctuating against the USD, and a RE or precious metals fluctuating against a basket of currencies? It's not a valid question to want to fixed yardstick of value by which to measure them all.

            Regarding Cypress, this seems like a standard tradeoff. If they can get their profits up, they're worth more, so they can sell off a smaller fraction of their business to raise capital to invest in new equipment. OTOH, if they can show investors they have a secret sauce, "unfair advantage", or whatever you want to call their special formula for generating wealth from capital, they might be able to get the money before getting the earnings up, skipping the step where they make do with old equipment. It's all about risk and how well management can demonstrate the opportunity to investors, how well they can demonstrate the company's worth more as soon as they receive the money but before the increased earnings are realized.
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