In July of 2011 Congressman Ron Paul asked Federal Reserve Chairman Ben Bernanke a simple question: "Do you think gold is money?" His answer: "No."
For a person like me, who has spent their career studying the history of money since the beginning of civilization, his answer struck me like a brick to the head.
Yet part of me was unsurprised. His answer is part and parcel of the mythology, carefully crafted, to turn bits of official-looking paper into "money" in the minds of the public. To admit to the obvious fact that gold is money would be to admit that the emperor has no clothes.
The Gold Standard for the dollar
The founders of our nation would be astounded and appalled by Mr. Bernanke's declaration. When they created the dollar, they went to great lengths to define its value in silver and gold. A "dollar" was intended to represent a precise amount of silver or gold. When the federal treasury was established, they implemented rigid standards to insure that the dollar's value was maintained.
Ain't worth a Continental
Washington, Franklin, Jefferson, Hamilton -- all of them had first-hand experience with the difference between money and paper the government promises to pay money. During the American Revolution, our fledgling nation-to-be had no money to fund the war. Instead, the Continental Congress authorized paper notes, known as "Continental Currency", to pay for goods and services. The notes promised redemption in Spanish Milled Dollars, the real money of that era. As the war went on and the volume of notes grew, their value against the Spanish silver dollar sank. Even after winning the war, so much Continental Currency was issued that Congress had to repudiate their redemption. The notes became worthless.
For the next century, the phrase "ain't worth a Continental" was synonymous with anything of little or no value. Unfortunately, Americans have forgotten this history lesson.
History is filled with this lesson. Consider the Roman Empire, for one. At the time of Julius Caesar, the Roman "denarius" had a carefully defined value in a fixed amount of silver. Over the next 400 years, and a succession of Caesars, the denarius was slowly devalued. By the time of the empire's collapse, the denarius was a bronze coin coated with a thin wash of silver.
Where did all the "Walkers" go? Gresham's Law
This is how governments rob their citizens of their wealth. By gradually removing a tiny bit of silver from the money, over time, the Roman government enriched itself. Older, higher quality coins disappeared from circulation, replaced by the less valuable coins, a process known as "Gresham's Law".
As a ten-year-old with a paper route, I remember collecting hefty silver Walking Liberty and Franklin half dollars from my customers each month. Sometimes I'd go to my local grocery store and trade a paper dollar for a big, clunky Morgan silver dollar.
Then, in 1965 our government began a devaluation by stripping silver from them. First they replaced solid 90% silver with copper clad in a veneer of silver. The clear intent was to at least preserve the appearance of value. By 1970, they took away the last silver altogether, leaving holders of its coins with severely devalued imitations.
But one thing the U.S. never needed to do, until the advent of the Federal Reserve in the 20th century, is to revalue the unit of gold measure--- the dollar--- against its defining unit of gold. Since the dollar unit has been decoupled from gold, its value has shrunk by about 98% through printing paper ersatz "money".
As a result, a U.S. gold coin denominated at $20 dollars in 1911 (containing .9675 ounce of pure gold) should today be denominated at $2000, to have roughly comparable gold content and spending power.
Yet it is unlikely the U.S. will issue a $2000 denomination gold coin. Why? Because, at the rate the government is now devaluing the dollar, we would too soon reach the point where the gold in this $2000 coin would again be worth more than the stated face "value" in dollars.
Vintage U.S. Double Eagle
But never fear -- you can still own real U.S. money that is "sound as a dollar" (another phrase that has tellingly disappeared). U.S. gold coins minted from 1795, through 1932, have survived and are readily available. Of course, as the value of the dollar has decreased, the amount of dollars to buy these coins has risen. But that's the beauty of owning these coins. Over the years, the value of rare and high grade examples of these coins has truly skyrocketed in the collectors market.
If you prefer newly minted U.S. gold over the classics, you're in luck. Thanks to the Reagan administration, in 1986 the U.S. Treasury began minting both silver and gold coins in convenient one ounce and fractional sizes. They are available now in both bullion and collector editions.
I prefer and recommend the collectible coins because 1) they're more beautiful, as the "best of the best"; 2) they're scarcer, which excites demand from the collecting market; 3) they're less subject to the daily ups and downs of the bullion market.
Perhaps Ben Bernanke should take a tour of the U.S. Mint and look at the gold coins it is producing there before repeating his Never Neverland posture that gold is not money.
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