Silver Then and Gold Now: Is it Really the Same?

Gold bears like to compare the present gold market to silver after 1873. Then, after the US and Germany had officially demonetised silver, Germany had loads of excess silver to sell. That cast a pall over the market for nearly 30 years, driving silver lower and lower. Today (so runs the attempted analogy) central banks have demonetised gold and are busy selling it off. That constitutes the dominant condition in the gold market, and will for decades to come.


Nice try, but circumstances are too different for an analogy. In 1873 the Germans recalled all their silver coinage to set up a new monetary system for the new German Empire proclaimed in 1871. The big question was what they would do with that silver, and how fast. It was the end of the long fight for bimetallism in which silver and gold side by side played their separate parts in the monetary system. In fact, silver played the primary part in most people’s (and most nations’) daily lives. But it was not a shift to a monometallic gold standard at all, but rather a shift to a mixed gold and bank credit standard, somewhat new at that time (on a cartelised, national basis), but by now, in 2002, an old, old trend.


Today we look around us and see that bank credit and its whole system—fractional reserve, irredeemable currencies, and central banks – have failed, or are in the process of failing. Not surprising, that—it is 17th century technology and social theory, long past its usefulness in the 21st century. Where once hundreds of currencies competed, today the market has been reduced to three, the Euro, the yen, and the US dollar. Each stands on a precipice, and only political stage management and fragile “confidence” prop them up. In the wake of the market liberalisations of the past 20 years, central banks and national finance ministries have lost the power to seal off their borders to protect their mismanaged currencies. In fact, the market tail now wags the central bank dog, and few would dispute it.


So looking at the gold market, central banks selling off their gold holdings is not a sign of strength, but weakness. Would it be a sign of strength in a decayed aristocratic family for them to sell off the family jewels to keep up appearances? Hardly. Gold is the asset of last resort, so central banks are announcing, in effect, that the last resort is gone—the last link with reality and value is broken.

Other analysts look at the market and see a situation resembling silver’s in 1873. Central banks [supposedly] have 33,000 tonnes of gold, and want to get rid of it. Therefore the only questions are, how will they get rid of it and how fast? (We pass by as irresolvable the larger and more piquant question, viz., whether they have any gold left at all, or whether they have leased it all out.)

But unravel the presuppositions behind that analysis. It presumes that the historical trend is marching with certain steps toward a system where value-based money will be banished. It is, in a sense, the apotheosis of state power, the ultimate realisation of the State as God. The state speaks, and it is done; the state commands, and it stood fast. The state says that fiat money will have value, and it will. But this is not progress, except toward tyranny.


There have always been two and only two theories of money, two explanations or philosophies: money as value and money as social construct. By the time of Plato and Aristotle the lines between these two had already been drawn. The first says that money must have value in itself, a value all of society accepts. Therefore every exchange among men, whether it involves money or not, becomes an exchange of value for value. This sort of money establishes the security of property, social stability, and self-governing free men.

The second theory, the social construct theory of money, says that money need not have value in itself, it only represents value. Rather “money is whatever we say it is,” which of course leaves a big question unanswered: who will “we” be? Be sure that the people who say “we” never include “you” and “me” in that pronoun. This sort of money leads always to the abolition of property rights, social instability, and tyranny.

Don’t bother arguing with me—argue with history.

None of this is new; it was already old when fiat money brought down the Roman Empire. Therefore the analysts today who believe that some sort of inevitable “historical progress’ treads with steady Hegelian steps toward state-enforced bank credit money merely shows their ignorance. History does not move in cycles (except as mankind’s ignorance repeats his mistakes), nor in some sort of inevitable “progress” that will “fulfil history.” Ahh, the world is progressing, all right, but in this direction: “The knowledge of God shall cover the earth as deep as the waters cover the sea.”

And the direction of that progress does not lead to more theft, more national fraud, more tyranny, but just the opposite. Thus it is not gold that is headed for the dustbin of history, but fiat money. And what about gold sales by central banks eager to flog one more drop of usury out of their ”assets” stolen from the people? That only marks the advent of their extinction, not gold’s.

So to central banks I heartily say, “Sell it! Sell all your gold! Throw it on the market all at once! Move that much closer and faster to your final annihilation, and welcome. Once you’re all gone, we can go back to real progress.”