Will anyone read this? Who knows? Who cares? Here goes! I’m writing this three-part article to aid my research, learning, and understanding of the economic crisis we find ourselves in, which we have just accepted as the’ norm’ and out of our control. In part one, we take a trip through history and look at the money’ in its earliest forms and cover what has arguably been the greatest source of money, gold! But before we open up that can of worms, let’s briefly discuss what money actually is, and before even that can of worms, a disclaimer.
*Everything you read from here on in is the views of the author mixed with factual content, and under no circumstances should you consider any of this waffle financial advice. Understanding economics is a lifetime study in itself. This 3-part article is written to provide a snapshot of history and to help readers understand today’s climate and technology push that has the potential to change everything. To understand the present and the future, you must look at what’s happened in the past.
Picture money in your mind, and we see Queen Liz stuck on a crisp plastic sheet surrounded by the nonsense that no one ever reads or understands, either the relevance or the background. The evolution of money has seen some pretty obscure goods play the role of money. Seashells, salt, cattle, stones, glass beads, silver and gold, and more recently Government provided’ legal tender’ which has become widely accepted as the currency standard, or ‘Fiat Standard’ (Fiat – the term used for the current monetary economy. Basically, “it’s cool, just print more dollar bro!” explained further in part 2). A dollar will be accepted almost anywhere in the world, but it won’t stop your intimate parts from being inspected by your bunkmate in jail, but a cigarette might—just another form of a medium of exchange between you and your fellow inmate. You successfully bought another night of dignity for the cost of that cigarette.
For a medium of exchange to exist and take place, the goods in question; rocks, gold coins, paper money, cigarettes!) must be accepted by at least the two parties involved in the exchange. For an object to class as money and a medium of exchange, it must meet three criteria.
- Saleability – the ease with which a good can be exchanged with the least loss in price.
- Store of value – a goods saleability across time, allowing the holder to store wealth in it (cough… Inflation!! Basically, a hidden tax thrust upon us from the scoundrels at the top).
- Unit of account – without this, each good would need to be priced individually to every other good, creating an absolute cluster F to organize and calculate. With an economy accepting a medium of exchange, the £ or the $, for example, only then does it become possible to express the value of goods to the same metric, allowing us to determine how much we owe in order to pick up our desired goods.
With that small intro out the way, let’s get B-deep down the rabbit hole and explore the history of money, all the scandals and exploits along the way, the rise and fall of Empires due to being skint and the adoption of counterfeiting money to rob thy neighbor. In part one, we will look at everything surrounding the longest-lasting medium of trade, gold, and why it was so successful for so long until it wasn’t.
Part 1 – The Gold Standard
Rightio, now we know money can be more than just a flappy piece of paper or that weighty burden we like to call shrapnel, let’s look at the evolution of money and why we settled on using gold as the monetary standard for the best part of the last 2500 years. As you read through this article, you might need help to take in the impact of what’s being written. But if you take the following information and relate it to how it affects you today, you will enjoy the story a lot more. Relate it to the price increases we see today and how p*ssed it makes you. Relate it to wage cuts or freezes, price manipulation, and inflation. The only difference today is that we don’t solve these problems by sticking our broadsword into someone and robbing them of their loaf of bread.
As we, the human race, developed technologically and discovered metal and how to mold and create objects from it, the world’s economy gave birth to monetary metals and a new era that re-wrote the rule book on the medium of exchange. No longer did you have to drag a sheep to town to pay a debt or collect that sheep as part of a debt only to find it dead a week later and a litter of well-fed fox cubs chilling on full tummies. Metal coins were easy to carry around, easier than cattle, rocks, or sacks of salt, which made them highly saleable across space. The metals used for coins, gold, silver, and copper, all had durability and were less likely to corrode away, giving them saleability over time. After a short while, the metals used moved away from weighing out your gold dust to determine a value to being melted down to coins and imprinted with a value for a set weight (minted), and just like that, we had the unit of account, our third criteria (all three highlighted for your convenience) for an object to be classed as’ money’ has been completed.
Of all the metals in the world to choose from, the world chose gold! And here’s why. A gold coin allowed someone to think of money with a lower time preference (long-term outlook) attached to it because gold can’t die of old age or illness like cattle, it can’t rust or disintegrate like softer metals, and unlike seashells, it doesn’t smash in your pocket if you trip on over your flip flops en route to the primo fishing spots! Gold is virtually impossible to destroy. Gold can’t be made by combining other materials, and it can only be extracted from its unrefined ore, which sits it high up on the pedestal of rarity, which creates scarcity of availability between us meager workers, which ultimately creates high demand and a store value.
Let’s now turn the clock back to a bloody long time ago. A time when Julius Caesar was knocking the crap out of pretty much all of Europe and the Mediterranean. Although it was the Greeks that first minted gold coins for trade, it was Señor Julius who set the standard in motion for gold, creating the Aureus coin. The Aureus weighed 8 grams, became widely accepted across all of Europe, and stood strong in the money game for 75 years. Right up until a cheeky little chap called Nero became Emperor and developed a nasty habit of coin clipping.’ A process where you collect the coins in circulation and mint them into new coins with less weight, and then put them back into circulation, but pocketing the extra grammage for yourself. So, as you can now tell, this sh*t we call inflation has been going on since pretty much the start of time! A further in-depth look into inflation will be addressed in part 2. Many Emperors that followed would regularly practice the new age art of clipping coins, rebranding, and resizing each time until finally, the coin of the hour was the Solidus coin which came in at a weight of 4.5 grams. Its creator, Constantine the Great, vowed to lock away the shears and clip no more. Maintaining the Solidus at 4.5 grams.
So, time after time, Emperor after Emperor, the coin of the day would be debased and devalued by the constant obsession with clipping. Inflation had many faces, and each time it rose its head, the Emperor of the time would cover it up and mask it to his Citizens. Bronze coins were coated in silver, price controls on basic goods (Freezing prices only creates further chaos, as it then becomes unprofitable for the manufacturer to produce that good, and so production ceases), and of course, more clipping! The long-term consequences of this for the Roman Empire were catastrophic. The Empire destroyed itself from the inside out. It started and ended with Rome.
As the Empire grew, Emperors became greedy. For as long as they could ravage new lands and obtain their wealth, they maintained popularity with the citizens of Rome. Emperors would often buy their popularity by lowering prices on essential goods or even giving them away for free. Workers from the countryside would leave their homes and move to Rome; living lives not available to them in the countryside, where only hard graft was waiting for them back there. Something we can all relate to here, I’m sure! Instead, they lived off the Empire and the spoils of war being returned from all four corners of what we now call Europe and the European Union (LOL, let’s not go there). During the downfall of the Empire, price and wage controls were enforced, and laws on legal tender were passed. But Rome was too far gone; the horse had bolted, and all that was left was a big steaming pile of sh*te from all the previous Emperors and their cover-ups. Rioting ensued, naturally, along with obscene amounts of corruption, lawlessness, and a gambling addiction that swept through the city like a plague. Taxes on the citizens became silly, and price controls needed to be more workable. Suddenly all of Rome’s freeloaders fled the city and scrambled to obtain land in the country where they could at least have a shot at living a self-sufficient life. The city crumbled, and all that was left of the great Empire was a shedload of peasants, too poor to pay taxes and too screwed over to care about the future of Rome.
So the Roman Empire fell and made way for a new world. Many empires would rise and fall over the next millennia, but there was one thing that stayed constant. Constantine the Great and his trusty Solidus coin we touched on earlier, weighing in at 4.5 grams. The exact same weight it was at its conception. This coin is still in circulation today throughout many Islamic regions and still carries its original weight. Although it has gone through some name changes through the ages, the coin today is commonly referred to as the Islamic dinar or the bezant and has served as a medium of exchange for people throughout the world for over seventeen centuries. Making it the longest-serving currency in human history and truly emphasizing the saleability of gold across time and the store of value that it carries to this day.
Europe was thrust into the Dark Ages after the Empire fell. Gold was stored and hoarded by the feudal Lords who rose up at the opportunity of a bit of tyranny. Copper and bronze became the money source for many years to follow, and with the ease of producing these, the markets could be flooded with both metals, and the masses kept to a poor standard of living due to bronze and copper being a terrible store of value. New generations were being born into poverty with nothing to hand down through the generations other than the clothes on their dying grandad’s back.
But time goes on, people forgive and forget, and eventually, Europe finds itself at the forefront of technological advances. Let’s jump forward to a time period a little closer to home and a smidge more relatable. Welcome to 1717 and the adoption of an official Gold Standard. Britain led the charge in adopting gold as a monetary standard, and it was the big man himself, Isaac Newton, whose brain the idea fell out of. Britain would remain on the gold standard until 1914. What happened in 1914 that would be so significant for us to move away from a gold standard and onto another monetary system?
There were major technological advancements that allowed the Gold Standard to work successfully. These were the telegraph (basically WhatsApp but 200 years ago) and trains, which could easily ship goods and people throughout Europe. At the time, people could store gold in the banks and be given bills/receipts for the value of the gold they stored. The telegraph allowed banks to communicate with one another, and people’s accounts could be debited accordingly in relation to the gold they received/spent. So as you can see, we have set sail down the river of corruption and manipulation, but at this point, we still have our oars, and the river is calm. With banks holding the gold on our behalf and issuing paper money to the value of that gold, all is well, and the gold standard is working perfectly. But, and it’s a bloody big but, history shows that for the human race to flourish, there must be a sound monetary system backing its growth.
Otherwise, it will fail, and we revert back to our caveman, and cavewoman instincts, turning barbaric and destructive. We must stay on the gold standard, and we must have our government legal tender backed by something other than fresh air. But hang on; I hear you say. You mentioned earlier that the gold standard only lasted until 1914. Yes, you are correct. We no longer operate on a gold standard and haven’t yet to do for the last 50 years (we briefly hopped back on a gold standard between 1944-71. This will be discussed in part 2).
So what’s the problem, then? You only need look across the globe to areas of triple-digit inflation, high unemployment, and poverty, and you see riots, peaceful protests turning quickly unpeaceful, current governments forking out small fortunes on launcher rounds and CS gas in a last-ditch effort to dispel its citizens. Who, to be honest, are probably just hungry and a bit fed up with being fed crap. But they are now cutting around with blunt trauma injuries to the abdomen, soaking wet with eyes that look like they’ve been chopping onions inside a sauna for the last two days. And these are lucky buggers that have escaped arrest or received knee cap surgery by baton.
Spot on; congrats if you bothered to read this far. I hope you have found it interesting. Let’s summarise briefly before we mentally prepare ourselves for part 2, where we pick up at that infamous date of 1914 and why we ditched the gold standard. Ok, so the Roman Empire ruled supreme, created a gold coin and standardized its weight, and clipped that coin to within an inch of its life, which devalued the coin massively to the point of failure. The Empire fell while trying to cover inflation and burdening the people of Rome with the effects, which became too much for its citizens. They fled Rome and led pretty crap lives for the next few hundred years until Europe finally settled down and started to progress upwards. Technology advanced, and Britain adopted a Gold Standard, whereby everyone’s gold was refundable from the bank to an equal value, right up until 1914, which set in motion the path that led us to 2009, whereby there was a delivery into society, which arguably is one of the greatest tools to aid us, commoners. But that will be revealed in part 3.
Refrain from disillusioned into thinking after reading this article that the fall of the Roman Empire was the only case where this hunger for power and greed led to the demise of one of the world’s strongest civilizations at the time. History has proven, time after time, that this behavior is a one-way street to oblivion and despair. Currently, we are on the brink of a major financial crash and falling foul of this toxic structure we are stuck in.
Anyway, guys and girls, have a few months off and come back for part 2, where we discuss our current financial structure and all the goings on within it and why for the last 100 years, we’ve been eating soup with a fork when it comes to our world economies. But if this article has motivated you to use your time more wisely, the availability of research and data at our fingertips on subjects like this is mind-blowing. The magnet of Tik Tok is too strong for most, though, to engage more than one brain cell at a time!
This is a guest post by Ben Armstrong. You can followhim on Twitter @Dino_Sphere. Opinions expressed are entirely their own and do not necessarily reflect those of Satoshi’s Journal or Satoshi’s Entertainment Company.
