Previously
In the previous article of this opening series, here, we took a brief look back throughout history to understand the role that money has played in both propelling and dethroning hegemonic powers throughout the ages.
Now, we’ll conduct an examination of what happens during that transition from golden age to gold-plated.
Governments Always Corrupt The Money
You’ll notice that in the three historical graphs from the previous article, here, it took decades (sometimes centuries) for the money system to be corrupted.
Fortunately for us, we have the advantage of being able to see the trends which those in the past probably could not notice because they were in the midst of these mega-trends. From their point of view, nothing was changing (like a person standing on the surface of the Earth, their view is that the world is flat, not an oblate spheroid). Thus, it is necessary for us to have a long time horizon in order to digest the idea of corrupting money.
In contrast, we have two good examples of governments not corrupting their money supplies for extended periods of time:
- The Eastern Roman Empire / The Byzantine Empire for ~800 years [1]
- Europe during the Renaissance Period for ~400 years [2]
Even the vaunted U.S. has its own history of corrupting the money supply. In fact, the U.S. has defaulted on its monetary obligations at least four times:
- The Federal Reserve Act of 1913
- President Roosevelt’s Executive Order 6102 in 1933
- The Gold Reserve Act of 1934
- President Nixon take the U.S. off of the Gold Standard on August 15, 1971
Historical Note: While the U.S. did have a hard money standard from 1871 to 1913 (and for some decades prior to that period), that seemed to be the exception rather than the rule. Interestingly enough, during that period of 1871 – 1913, we had the invention of four major technologies within the U.S. which are still used today: the internal combustion engine, the automobile, the telephone, the airplane. [3] I think this is a reasonable demonstration of the power of a hard money standard.
Historical Note: Some of the above events in U.S. history were covered here.
The Governing Class vs. The Governed Class[4]
Governmental power and citizens’ rights are naturally adversarial: whenever the state’s powers increase then it must come at the cost of the rights of the people.
If we consider that the only legitimate role of government is to defend individual liberties and to defend contracts (voluntary formal agreements between people), then any action and power taken by the state beyond that will always manifest as a curtailment of its citizens’ rights.
Civic Note: I have been challenged by many on my assertion that the only proper role of government is the to defend individual liberties and to defend contracts. Conversely, I have challenged my detractors to justify one governmental role beyond the two which I have identified. To date, I have yet to receive a single justification for any moral state powers beyond the two which I called out. I welcome rational disagreements and challenges.
As long as government only has enough budget (actual funds) to enforce these two roles then the citizenry’s rights are preserved. Limited funds directly translated to limited government.
In previous centuries, governments were compelled to live within their means by not spending more money than they had. Those which did not “live within their means” inevitably failed in their proper roles by engaging in authoritarian practices.
Let’s take a look at an example of nations needing to live within their means. Wars were costly and states on a hard money standard had every incentive to keep wars from becoming protracted events. In fact, they had every motivation to avoid wars altogether or, at a minimum, find ways to sue for peace (negotiate peaceful resolutions) as quickly as possible should they find themselves in a disadvantaged position. [5]
But, when the state is able to secure funds that are excessive (when on a soft money standard) then that is when it takes on a life of its own which seeks to impose its will on its people by bending their behaviors to the will of the state. [6] We have seen that the only surefire way to restrain the state to its proper role is to restrain its budget, its spending.
So, how does government go beyond its budget? There are only three mechanisms – taxation, monetary inflation, and debt. Of these, inflation and debt are actually hidden taxes (which few are aware of as such). We will discuss this in greater detail in future articles.
Historical Note: One could say that a nation can continue to fund its operations via conquest and direct theft of another nation’s assets (much as the Roman Empire did). While I am neither casting moral aspersion nor justifying it, I am deliberately excluding this method as it definitely falls within the “don’t violate the rights of others” category and it is not a sustainable means of governing (as the Roman Empire demonstrated).
While debts are always a possibility, in a sound monetary system, they are limited in both duration and magnitude due to the fact that they must be paid back eventually or default (and a ruined reputation in the credit markets) will result. It is inflation of the money supply which enables governments to continue its debts for such extended periods without detection and oversight.
Ever since the broad implementation of currency (credit-based money, “soft money”) in 1914, states around the world have had the exact opposite incentive; [7] they have become motivated to commence wars and to sustain them. Case in point, for the U.S., World War I, World War II, Afghanistan, and Iraq come to mind as multi-year conflicts which squandered treasuries and ruined lives (on all sides).
Next Up
All throughout this series, we have been using the term “money” generously without making real attempts to define it.
In the next article, here, I make good faith efforts to define money, including its purpose, qualities, attributes, characteristics, functions, and underlying philosophy.
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End Notes, References, & Citations
[1] The Byzantine Empire’s monetary system
Brave search engine summary: “the byzantine monetary system“
“Byzantine Monetary System
The Byzantine monetary system was a complex and evolving framework that played a crucial role in the economic and administrative structure of the Eastern Roman Empire. It was primarily based on gold, silver, and bronze coins, with the gold solidus being the most significant and enduring currency. The solidus, introduced by Emperor Constantine the Great in the 4th century, was a gold coin that maintained its value and purity for centuries, serving as a standard for international trade. The solidus was divided into smaller units such as the semissis (half) and tremissis (third), which were used for smaller transactions.
The monetary system also included silver coins, such as the miliaresion, which was minted in varying fineness and became more common in the 7th to 9th centuries. However, silver coins were less frequently used compared to gold and bronze. Bronze coins, including the nummus and the follis, were used for everyday transactions. The nummus was a small bronze coin, while the follis was a larger bronze coin, often used for local trade. Over time, the weight and value of these bronze coins decreased, leading to issues of inflation and debasement.
The Byzantine monetary system underwent several reforms to address economic challenges. One significant reform was the introduction of the hyperpyron by Emperor Alexius I Komnenos in the 11th century. The hyperpyron was a gold coin with a higher fineness than the solidus and was intended to stabilize the economy. This reform marked a shift from the solidus, which had been the dominant currency for centuries.
The system also included various other denominations, such as the basilikon, a silver coin introduced in the 13th century, and the stavraton, a heavy silver coin that became prominent in the 12th century. These coins reflected the changing economic and political landscape of the Byzantine Empire, as well as the influence of foreign currencies like the Venetian ducat.
Throughout its history, the Byzantine monetary system was characterized by its flexibility and adaptability. It allowed for complex financial transactions, tax collection, and wealth storage, contributing to the economic development of the empire. However, by the 14th century, the system began to decline, with increasing economic instability and territorial losses leading to the gradual replacement of Byzantine coinage by foreign currencies.
In summary, the Byzantine monetary system was a sophisticated and enduring framework that included gold, silver, and bronze coins, with the solidus being the most significant. It evolved over time through various reforms and adaptations, reflecting the economic and political changes of the empire.“
Historical Note: In the Byzantine Empire, the penalty for monetary forgery was death. That’s how seriously the Byzantines took their responsibility for a sound monetary system.
Brave search engine summary: “the byzantine empire penalty for forging money“
“Byzantine Money Penalty
The Byzantine Empire imposed severe penalties for forging money, reflecting the importance of maintaining the integrity of its currency. According to historical records, the penalty for refusing or reducing a gold solidus of good weight was death, as stated in Novel 16 of Valentinian III. Additionally, the empire faced issues with debased coinage, such as when Emperor Nikephoros II violated the public faith by adulterating the coin and issuing a debased coin called the tetarteron, which led to a loss of faith in public dealings with the empire. The empire’s efforts to maintain the value of its currency included the introduction of the hyperpyron by Alexios I Komnenos, which helped restore a gold coinage of high fineness.“
[2] The European Renaissance Period’s monetary system
Florence started the trend of a sound money with the creation of the florens, 3.5 grams of gold. From there many European city-states copied Florence’s move by creating their own version of the florens. These gold coins were also 3.5 grams with the only difference being dimensions and the stamping.
If you’ve read any of my opening series, you’ll know how much I think that a hard money system causes governments to be limited in scope and countries to flourish.
Saifedean Ammous did a great job of describing the monetary systems of the European Renaissance Period in his book “The Bitcoin Standard“
Brave search engine summary: “gold coins during the renaissance”
“Renaissance Gold Coins
During the Renaissance, gold coins played a significant role in trade and commerce, with several notable examples emerging from Italy. The Florentine florin, introduced in 1252, was one of the first major gold coins in Europe since the Roman Empire and became widely accepted across the continent. It was known for its stability and precision, containing 3.5 grams of gold and serving as a reliable medium of exchange. The design of the florin remained largely unchanged for centuries, featuring the fleur-de-lis and the patron saint of Florence, John the Baptist.
Another important gold coin was the Venetian ducat, which was modeled after the florin but had a slightly higher weight due to differences in the weight systems of the two cities. The Venetian ducat contained 3.545 grams of 99.47% fine gold and was renowned for its high purity. The design of the ducat depicted the Doge of Venice kneeling before St. Mark, the patron saint of Venice, and it remained in circulation for over 500 years.
In addition to the florin and ducat, other gold coins such as the Hungarian forint and the Rheingulden also emerged during this period. The Hungarian forint, first introduced in 1325, was named after the florin and became an important currency in the Kingdom of Hungary. The Rheingulden, minted by several German states, was initially very similar to the Florentine florin in terms of weight and gold content.
These gold coins not only facilitated trade but also reflected the artistic and economic achievements of the Renaissance. They were often adorned with intricate designs and served as symbols of the power and wealth of the cities that issued them. The use of gold coins during the Renaissance marked a significant advancement in the monetary systems of Europe, contributing to the growth of international trade and the development of banking systems.“
Brave search engine summary: “florin gold coin“
“Florin Coin
The Florentine florin, often referred to as the “florin,” was a gold coin first struck in Florence in 1252. It was made of pure 24-carat gold and weighed approximately 3.536 grams. The coin featured the Florentine lily on one side and the figure of St. John the Baptist, the patron saint of Florence, on the other. The florin became a significant currency in Europe, serving as a standard for international trade and maintaining a stable weight and purity for over four centuries.
The florin’s design and value made it highly regarded, and it was used as a reference for comparing values between late medieval currencies.
The coin’s name is derived from the Italian word “fiorino,” meaning “little flower,” which refers to the lily on the coin’s design. The florin’s influence extended beyond Florence, with many European states and local coin issuing authorities creating their own copies of the florin.
In addition to its historical significance, the florin has also been used in modern times as a symbol of good luck and prosperity. For example, the gold florin was traditionally given as a gift on the birth of a baby and was believed to bring protection and good fortune.
Today, replicas of the florin are still produced and are popular among collectors and enthusiasts.“
[3] “The Bitcoin Standard” by Saifedean Ammous, 04/2018
[4] “America’s Ruling Class: And The Perils Of Revolution” by Angelo Codevilla, July 16, 2010
Author’s Note: This article is really well done and brings a cogent perspective to the table. Overall, Mr. Codevilla demonstrates that an antagonistic environment has developed over the past few decade between what he calls “the ruling class and the country class”. It is this antagonism which has defined our culture and politics in the U.S. (and much of the West in general).
[5] “The Sovereign Individual” by by James Dale Davidson and William Rees-Mogg
“The Sovereign Individual” is a great book. It was first published in 1999 (around the same time as “The Fourth Turning” in 1997, another great book. The authors cemented several ideas which had been swirling around in my head but I had not been able to formalize in any way. They did a good job of examining the proper role of government and how individuals can unplug from authoritarian regimes. For anyone who loves individual liberty, I recommend giving this book a careful read. The authors made several predictions which have come true over recent years, including the advent of bitcoin.
[6] Mussolini’s epigram about fascism: “All within the state, nothing outside the state, nothing against the state.“
[7] Countries switching to fiat in 1914
Author and Austrian school economist, Saifedean Ammous documents the transition from a hard money standard (gold) to a soft money standard (fiat) in his book “The Fiat Standard“. Within two years (1913 – 1914), several major countries (including the hegemonic power of the time, Great Britain) switched from a gold standard to a fiat standard. Not long afterwards, we had two world wars resulting in protracted conflicts, the death of tens of millions of people, and a decades-long bipolar world caught between two superpowers during the Cold War.