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BIMETALLISM: THE ONLY
ENDURING STANDARD
“This is the end of
Western civilisation.”
-- Lewis Douglas (US Budget Director), remark
to James P. Warburg after President Roosevelt announced that the US
was going off the gold standard, April 18, 1933
Douglas was wrong, of
course. The end of Western civilisation had already come sixty
years earlier, when the United States demonetised silver.
In the last eight months
I have been forced to recognize a huge gap in my
understanding. I know that I am not alone, since over and over I
read phrases like, “Gold is the money that has withstood the test of
time” and “Gold has always been the only money,” and “Gold is the
only money with intrinsic value.”
This, of course, is all
wrong. 100% wrong. The gold standard by itself is a
problem, because it is essentially monistic. A gold
standard alone is just a fiat standard in disguise. Bimetallism is
the only answer, with gold defined in terms of silver and silver in
terms of gold. That offers a self-correcting mechanism to keep the
currencies honest. A gold standard is just fiat money
defined in terms of gold and gold defined in terms of fiat,
without any independent valuation to keep the system honest.
That
the bimetallic system is self-correcting can be induced from the 45
centuries men used it. Since what date have we had the greatest
monetary and financial instability? Since the introduction of the
monometallic gold standard in the 19th century (not to mention the
introduction of Central Banks, beginning with the Bank of Sweden in
the 1650s).
I am embarrassed to
admit it, but this never quite lodged in my mind until I read an
article, “Gold Standard = Fiat in Disguise” by one J.N. Tlaga that
appeared on LeMetropoleCafe.com. Why I never saw the real issue in
bimetallism, namely, it keeps the whole system honest and makes fiat
impossible, I can't explain, but it is considerably embarrassing.
If nothing else, I should have seen it from a
philosophical/theological standpoint, because a gold standard system
is monist, and the universal matrix of truth is Trinitarian, not
monist. Anyway, I didn't see it, but do now.
The gold/silver system
governed itself for nearly thirty centuries, without any governments
fixing ratios. The first reference I remember to fixing ratios was
the Spanish mint upping the ratio about 1496, so that argues they
had been regulating it since the Middle Ages. The Romans also issued
coins at fixed ratios, but deferring to the existing market, not
trying to maintain some arbitrary ratio in the face of it.
Meanwhile, the ancient East operated on a far different ratio, and
the world was not destroyed or disrupted.
Today the market's
operation on the bimetallic ratio ought to be far more efficient
than ever before, in view of technological advances in
communications.
Once again, we see that
the issue of money is far too delicate and crucial to mankind's
health to be left to government. Frankly, I believe the American
Founding Fathers thought exactly that way, reading from the monetary
system they set up.
That system was actually
trimetallic, with copper, silver, and gold. The ratio was
840.21 ounces of copper equal 15 ounces of silver equals one ounce
of gold, and that’s what the coins gave. They intentionally
set up a system with a lower gold/silver ratio than the prevailing
world rate (15:1 when the French mint rate was 15.5:1) in order to
draw silver, the metal of daily commerce, into the country. They
were right, since the colonies had suffered from a dearth of specie
for two centuries.
The system they set up
was one that Ed Vieira calls “symmetallism,” although I'm not sure
that is the precise term, since others use that differently.
Anyway, he means a system where one metal is the standard coin (in
our case, the dollar of silver) and the coins of the other metal
(“Eagles”, not even denominated in “dollars” per the 1792 Coinage
Act, but “valued in” dollars) are periodically adjusted to answer
changes in the market ratio. That exactly was done in 1834, without
cheating anyone.
And through all this,
everyone was free to contract for payment in silver, or gold, or
anything else, without compunction. And they couldn’t be forced to
take inflated bank notes. And there was no central bank.
But didn’t the
fluctuations in value of gold versus silver wreak havoc with world
commerce? From 1833 through 1873 – four decades – the London
price of silver valued in gold ranged from $1.297 an ounce (1833,
against an official US price of $1.2929 an ounce) to $1.36 an ounce
(1859). That’s a gigantic, colossal deviation of – 4.86 percent!
Today a 4.86% fluctuation in fiat money exchange rates in one
day would put everybody to sleep, let alone four decades that quiet.
The cure for our
monetary woes is not a gold standard, but a return to a
sound, self-correcting bimetallic gold and silver standard.
--
F. Sanders
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