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Steve Netwriter

The History of Gold

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The way I see it, gold has not been money for longer than your chart suggests.

It might be more accurate to say gold has not been the only money. In practice silver has been used much more than gold for everyday transactions and that continued until only a few decades ago in, for example, the U.S. and U.K.

 

However, Alan Greenspan himself has said that gold is the ultimate form of payment.

 

I think that means that gold is the hardest currency. Most central banks hold fairly large quantities of gold. Surely, they regard it as money.

 

Just because we don't use gold coins to buy things in the shops doesn't mean that gold is not money. Historically, most average people would rarely have possessed a gold coin but would use silver. But gold was still money and used for big purchases.

 

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It might be more accurate to say gold has not been the only money. In practice silver has been used much more than gold for everyday transactions and that continued until only a few decades ago in, for example, the U.S. and U.K.

 

However, Alan Greenspan himself has said that gold is the ultimate form of payment.

 

I think that means that gold is the hardest currency. Most central banks hold fairly large quantities of gold. Surely, they regard it as money.

 

Just because we don't use gold coins to buy things in the shops doesn't mean that gold is not money. Historically, most average people would rarely have possessed a gold coin but would use silver. But gold was still money and used for big purchases.

 

I agree with all you are saying.

 

I just think the OP is totally oversimplified. The real history of money is not 1000s of years of gold, followed by a 35 year fiat experiment. Even a brief Google reveals that it is far more complicated than that, with examples of "fiat", i.e. cash notes unbacked by gold, being the norm, rather than something we first tried in the 1970s.

 

It is true that gold was often used to "back" these currencies. But once you allow a fractional reserve, this means much more cash than gold, i.e. fiat. This obviously begs the question "how is this better than today?". All such gold backed fiat currencies have failed - none remain today.

 

And it seems that the history of fiat is very nearly as long as the history of gold, knocking out another peg of the simplistic argument in the OP.

 

 

 

 

 

 

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And it seems that the history of fiat is very nearly as long as the history of gold, knocking out another peg of the simplistic argument in the OP.

It's good that you pointed out that gold has often since several centuries ago not been the only money.

 

However, in Europe at least, in Ancient and early Medieval times coins of copper, silver and gold were generally used, not paper. I don't know exactly when the first paper notes came into circulation in Europe but I've never heard of their use in Ancient Rome or e.g. Anglo-Saxon England.

 

I think the widespread use of paper notes goes back only a few hundred years and until a few decades ago was in parallel with silver and gold coins. And coins, generally silver, would be used by most ordinary people (five pounds was quite a large sum in the 19th century).

 

So on balance, I think metal coins can claim a much longer and widespread history of use as money, silver and gold being preeminent.

 

Totally unbacked paper money is from a historical perspective very new indeed, younger than many people alive today. I think this is the point Steve Netwriter was making, and I think it is a very valid point.

 

I think the bankers and governments have been working hard to make the people forget about gold and silver and believe that they are not money. They have had a fair degree of success, probably much aided by the relatively benign economic conditions in the developed countries since the fifties.

 

However, they have not been entirely successful and as economic and financial conditions deteriorate, slowly more and more people revert to gold and silver. This is because they are precious metals and have tangible value which cannot be inflated away, unlike the paper money.

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It's good that you pointed out that gold has often since several centuries ago not been the only money.

 

However, in Europe at least, in Ancient and early Medieval times coins of copper, silver and gold were generally used, not paper. I don't know exactly when the first paper notes came into circulation in Europe but I've never heard of their use in Ancient Rome or e.g. Anglo-Saxon England.

 

I think the widespread use of paper notes goes back only a few hundred years and until a few decades ago was in parallel with silver and gold coins. And coins, generally silver, would be used by most ordinary people (five pounds was quite a large sum in the 19th century).

 

So on balance, I think metal coins can claim a much longer and widespread history of use as money, silver and gold being preeminent.

 

Totally unbacked paper money is from a historical perspective very new indeed, younger than many people alive today. I think this is the point Steve Netwriter was making, and I think it is a very valid point.

 

I think the bankers and governments have been working hard to make the people forget about gold and silver and believe that they are not money. They have had a fair degree of success, probably much aided by the relatively benign economic conditions in the developed countries since the fifties.

 

However, they have not been entirely successful and as economic and financial conditions deteriorate, slowly more and more people revert to gold and silver. This is because they are precious metals and have tangible value which cannot be inflated away, unlike the paper money.

 

Thanks for that! It kind of confirms some of my speculation, and adds more.

 

I agree that in Ancient and Medieval times, pure metals were money, and gold was the king of them all.

 

So if you are anticipating a return to times like those, you would want some gold. I am not anticipating this (I wouldn't rule it out, just assign it a very low probablility). However, any currency needs some sort of rule to be effective. I cannot see the rule of law surviving such a crisis. Without rule of law, the only currency is power. I believe that gold would flow towards power in these circumstances, not the other way around.

 

I certainly accept that PMs can be useful in times of economic "stress". A few are worried about the last few days price action, but gold is still around +30% YoY, which is pretty darn good compared to anything else except commodities. But, like many say here, I believe it will only preserve your wealth, not make you into an instant lord. It the S really HTF, (as opposed to the "run of the mill" cyclical downturn) I am much less convinced by its value.

 

 

I have to say that I was staggered by how long and ubiquitous the history of fiat is. It is not the impression you would get from many, many posts. It seems that credit has been "greasing the wheels" for literally centruries, not just the last few decades.

 

 

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Thanks for that! It kind of confirms some of my speculation, and adds more.

 

I agree that in Ancient and Medieval times, pure metals were money, and gold was the king of them all.

 

So if you are anticipating a return to times like those, you would want some gold. I am not anticipating this (I wouldn't rule it out, just assign it a very low probablility). However, any currency needs some sort of rule to be effective. I cannot see the rule of law surviving such a crisis. Without rule of law, the only currency is power. I believe that gold would flow towards power in these circumstances, not the other way around.

I don't particularly anticipate a return to a gold standard (which was itself relatively modern and served to support paper currency).

I certainly accept that PMs can be useful in times of economic "stress". A few are worried about the last few days price action, but gold is still around +30% YoY, which is pretty darn good compared to anything else except commodities. But, like many say here, I believe it will only preserve your wealth, not make you into an instant lord. It the S really HTF, (as opposed to the "run of the mill" cyclical downturn) I am much less convinced by its value.

 

 

I have to say that I was staggered by how long and ubiquitous the history of fiat is. It is not the impression you would get from many, many posts. It seems that credit has been "greasing the wheels" for literally centruries, not just the last few decades.

I take an interest in gold and silver because they are in a bull market and can provide protection against high inflation and distress in the financial markets. Some real profits may still be possible but increasingly for me, it's more of a defence against loss rather than for real gain.

 

So basically I think they are a good investment for the time being, but it's likely a time will come when it is better to get out of PMs. I hope the discussions here and elsewhere will help me identify that point.

 

I find the dicussions very interesting anyway.

 

On edit: good point about how much they have increased since the beginning of the year. Gold and silver are not for the faint of heart. I don't worry about short-term action much. I'm looking more medium to long term and try to assess the fundamentals.

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I find the dicussions very interesting anyway.

 

Well, that's why we are here! (I hope!) :P

 

The naked ramping gets a bit tedious from time to time, but I am working out which threads/posters interest me.

 

 

 

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Thanks for that! It kind of confirms some of my speculation, and adds more.

 

I agree that in Ancient and Medieval times, pure metals were money, and gold was the king of them all.

...

 

Not just Ancient and Medieval but modern as well. Ignoring what are now termed as investment coins, in the UK coins stopped having an appreciable amount of silver in them in 1947 and copper far later in 1992. Prior to those dates if the country went bust then you had something physical that had value in your hand.

 

I know that it is inane to convert all of the money in the world into real metals but people, the public, the average man, does not understand FRB, FIAT, etc they only understand physical. If a country went bust then they could take that physical money to another country and it would still have worth. Now they cannot, the physical coin that they hold is only backed by the worlds trust in that countries un-backed paper currency. Could you imagine what would happen now if rampant inflation took hold in say the US, UK, Japan, etc and don’t forget that it did happen in Germany in peoples living memory and is happening in Zimbabwe now.

 

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... I don't know exactly when the first paper notes came into circulation in Europe but I've never heard of their use in Ancient Rome or e.g. Anglo-Saxon England.

 

I think the widespread use of paper notes goes back only a few hundred years ...

 

‘Money’ tokens have been around from before FRB, tokens that were equivalent to money were used in many cultures, including the moving of money between countries and city states. The earliest ones are believed to have been used for the sexual services of priestesses in religious festivals. ‘Money’ tokens have been made out of just about everything shells, clay, leather, papyrus, rice paper, etc. Most of the tokens were only valid in very small areas or communities or between bankers in different cities. The Chinese have been attributed with the first paper money for use outside of religious and banking communities at around 800AD.

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Not just Ancient and Medieval but modern as well. Ignoring what are now termed as investment coins, in the UK coins stopped having an appreciable amount of silver in them in 1947 and copper far later in 1992. Prior to those dates if the country went bust then you had something physical that had value in your hand.

 

I know that it is inane to convert all of the money in the world into real metals but people, the public, the average man, does not understand FRB, FIAT, etc they only understand physical. If a country went bust then they could take that physical money to another country and it would still have worth. Now they cannot, the physical coin that they hold is only backed by the worlds trust in that countries un-backed paper currency. Could you imagine what would happen now if rampant inflation took hold in say the US, UK, Japan, etc and don’t forget that it did happen in Germany in peoples living memory and is happening in Zimbabwe now.

 

Don't forget Argentina!

 

Makes sense to me - wealth preservation - once you get to the stable country, obviously your gold will be worth something, whereas you cash will be worth nothing (in that extreme case of a total Zimbabwe style currency collapse), rather than a "get extremely rich quick" scheme.

 

 

Thanks for your comments. As gold swings back up again, perhaps a few of the other posters may be more in the mood to add comments? It must have been a dispiriting few days, but the volumes are so small it's as if it's just day traders shutting out positions while they take a bit of a holiday - would you leave an open (leveraged) position while away in the current market?

 

 

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By the way, it's good to have responses from the non-goldbugs as well as the goldbugs, because we get a better refined view.

 

In that case... :lol: .....as i have mentioned elsewhere, to my mind, there is a reasonable chance that gold may visit the $600 area before this correction is over. I am expecting deflation though so the buying power of an ounce of gold may not fall as badly.

 

I found this: When did the late 1970s gold bull run end? The month the recession started in Jan 1980.

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Cough cough :D :D

 

"but would appreciate any critical comments or suggestions for improvement."

 

Well for a start, it's rather biassed in the way it presents the fiat vs gold issue. As wrongmove points out, fiat has been around pretty much as long as gold, both have been used at different times in different cultures throughout history.

 

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I did.

That was his reply :blink:

 

I find his statement rather like that of a politician. Difficult to dissect.

 

It looks like I will now have to write a brief summary of why gold IS money..

 

To my mind this is a logical empty statement. Money isn't a "thing", it's a representation of value (of future exchange value to be precise). It makes perfect sense to argue that gold is one of the best substances known to mankind for using as money. That doesn't make gold identical money.

 

I suppose it's a bit like arguing that because bricks are good for building houses, which shelter us, then bricks ARE shelter. A false syllogism and one that creates confused arguments. The fact that X can be used for Y doesn't make X identical with Y.

 

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yep

 

Rarity

Lack of degradability

Portability

Uselessness

 

All of the above are qualities of a substance that makes it good money

 

All other things being equal, an ec0onomy will always tend to use substances that most cloesely match the above qualities.

 

For arbitary geological reasons, gold has all of the above qualities to a high degree....

 

Yes, these are the reasons why gold fulfils the monetary role pretty well. It just doesn't mean that gold IS money.

 

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Totally unbacked paper money is from a historical perspective very new indeed, younger than many people alive today. I think this is the point Steve Netwriter was making, and I think it is a very valid point.

 

Partly because of the historical recency of the printing press. Unbacked token systems such as tally sticks and seashells are pretty ancient.

 

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I guess I should have made my intentions clearer at the start. I've wasted a lot of people's time and the issue has become clouded.

 

I wanted to create a very simple description to show how long gold has been used as money.

 

And to demonstrate that the paradigm of gold as only being a commodity is a recent one.

 

Yes it is biased, because that is the intention. It is purely a way to put the case for "gold as money".

 

I know many of you are interested in discussing issues that spring from this, but that was the purpose of my original post.

 

So, the only points I'm really interested in are those that are relevant to the use of gold as money historically, and whether there have been times when gold was only considered to be a commodity.

 

In essence, what is the paradigm history of gold ?

 

I'm afraid my invitation for criticism was directed at my current simple description, and whether it is right for that purpose.

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OK, then here's a more complicated answer. I'll use two slightly different definitions of commodity.

 

1) A commodity is something that is bought and sold and that is fairly uniform (eg one unit of it is more or less the same as another).

 

On this definition, of course gold is a commodity. What you're saying is that gold is also something that has been used traditionally as money, and therefore that someone who now says that gold is only a commodity is saying something false. It's kind of a petty distinction though - I would say simply that gold is a commodity that was used as money in the past and may be again some time. It has a special status as it is (with silver) the commodity that was most often used as money. But that special status doesn't mean that gold IS money. Just that gold can and often has been USED AS money. Many other things have also been used as money, and any time in the past when the monetary system wasn't gold-based it would have been accurate to say that gold wasn't money at that time.

 

Also note that on this definition, money could itself be a commodity of sorts as it can be bought and sold and is uniform.

 

2) A more specific definition of commodities is that it is a uniform good that can be traded in advance on futures exchange, because the uniformity of oil, wheat or gold allows this (eg you buy a unit knowing that one unit is as good as another). This was basically the starting point of exchange trading, as it allowed farmers to sell in advance and fix a price for their produce.

 

Now this definition adds another dimension to the issue. I tend to define money as a 'representation of future exchange value'. If commodities are partly defined by the fact that they are traded on future exchange value, how does that affect the equation? Well, if the future exchange if based on barter, money plays no part. If however the price for future exchange is measured in money then there is a clear distinction between the commodity and the money that is used to measure its future value. If the money is gold then gold isn't being used as the commodity here, but the money. If however the money isn't gold then gold is only a commodity. But clearly any commodity such as gold and silver which can easily be used as money (unlike land or oil) can act either as money or as a commodity (or even as both).

 

Which is a long winded way of saying that gold can be either a commodity or money. It's used as money when that is the prevailing system. Otherwise it's only a commodity, whose value is measured in the prevailing monetary system (whether that be silver, paper or seashells).

 

The idea that gold IS money, regardless of the prevailing monetary system, and that it is some kind of insult to call it a commodity is pretty illogical in my view. It can be a commodity, it can be money, depending on how it is being used. When you buy gold with fiat money, gold is the commodity and the fiat is the money, whether you like it or not. In the current system, gold is only a commodity, but that doesn't mean it might not be used as money in future (or that it might not be wise to hoard some in case of that outcome).

 

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Which is a long winded way of saying that gold can be either a commodity or money. It's used as money when that is the prevailing system. Otherwise it's only a commodity, whose value is measured in the prevailing monetary system (whether that be silver, paper or seashells).

 

And that is exactly what I've been saying :D

 

You see, I haven't (as far as I know) said gold is only money.

Nor have I said that it is not a commodity.

 

Now we need to get back to my original point. I was told "that gold is a commodity".

Now in my reply I said "gold is not just a commodity". The poster misread my post, and took it to mean "gold is not a commodity", which is not what I said.

 

So, we return to the purpose of my original post. What is the paradigm history of gold ?

 

Have there been periods since gold was used as money, during which gold was considered to only be a commodity ?

Or has gold always been considered to have a monetary aspect somewhere in the world ?

 

Maybe I should do a similar chart showing the "here today, gone tomorrow" fiat currencies of history :D :D

Like politicians, they don't last long.

 

Maybe all debt based fiat systems are short term experiments away from using a non debt based system.

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And that is exactly what I've been saying :D

 

You see, I haven't (as far as I know) said gold IS money. An article I quoted did.

 

Ahem...

 

It looks like I will now have to write a brief summary of why gold IS money, and why it acts as a safe haven.

Oh, and what money is :rolleyes:

 

Now we need to get back to my original point. I was told "that gold is a commodity".

Now in my reply I said "gold is not just a commodity". The poster misread my post, and took it to mean "gold is not a commodity", which is not what I said.

 

Fair enough. Except that currently I would argue that gold is just a commodity as it is not in general use as money. It could be used as money in future, but that doesn't mean it is money now.

 

So, we return to the purpose of my original post. What is the paradigm history of gold ?

 

Have there been periods since gold was used as money, during which gold was considered to only be a commodity ?

Or has gold always been considered to have a monetary aspect somewhere in the world ?

 

It's an interesting question, though you are fixing it a bit with the "somewhere in the world" bit. One might equally suggest that there has always been "somewhere in the world" using tokens as money. The more interesting question is surely: when a specific culture in the past wasn't using gold as its monetary base, was gold still seen as money in that culture? In some cases the answer would be yes, but would it always be the case?

 

Maybe all debt based fiat systems are short term experiments away from using a non debt based system.

 

Maybe all monetary systems are short term experiments in the sweep of history. Gold just retains its value better than most when they fail.

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Yes, these are the reasons why gold fulfils the monetary role pretty well. It just doesn't mean that gold IS money.

 

Yes, I think that both gold bugs and anti gold bugs fall into the trap of arguing over whether gold IS money. The trap consists of failing to distinguish between theoretical [rationalism] and practical reason [empiricism].

 

Money [the thing in itself] can be defined in abstract terms, but as soon as we ask what performs the function of money we are in the field of practical reason. Here we need to look at experience and history to provide our answers and not to pure analysis.

 

 

Unfortunately, this point is lost on most.... perhaps due to a modern prejudice against Plato. :)

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Maybe all monetary systems are short term experiments in the sweep of history. Gold just retains its value better than most when they fail.

 

So the question remains; what has performed the function of money best? All monetary systems are in a sense anthropocentric in so far as you need valuers in order to have value. As the OP suggests, gold has historically best performed this function and today retains its hold on our collective imagination and memory [though we in the west have a more clouded recollection]. Maybe it is the money of the gods. And if it did not exist, it would need to have been invented.

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So the question remains; what has performed the function of money best? All monetary systems are in a sense anthropocentric in so far as you need valuers in order to have value. As the OP suggests, gold has historically best performed this function and today retains its hold on our collective imagination and memory [though we in the west have a more clouded recollection]. Maybe it is the money of the gods. And if it did not exist, it would need to have been invented.

 

But the fact that something performed a task well in the past does not mean it is always the best option. Surely part of the problem for gold today is the sheer size of the world economy. If we reverted to gold, you'd clearly end up with gold backing some form of token (convertible to gold), in which case all the problems of fractional banking, regulation and so forth would remain.

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But the fact that something performed a task well in the past does not mean it is always the best option...

 

But was it better with all of its problems than what we have now?

 

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But the fact that something performed a task well in the past does not mean it is always the best option. Surely part of the problem for gold today is the sheer size of the world economy. If we reverted to gold, you'd clearly end up with gold backing some form of token (convertible to gold), in which case all the problems of fractional banking, regulation and so forth would remain.

 

Maybe it is. Sure, there is no logical connection.... just as because the sun has always risen every day does not necessarily mean it will rise again tomorrow. But we still have a wealth of experience, human nature and history to go by.

 

 

I am not sure whether gold to be recognised as money [or an alternative currency or a store of wealth] once again by mainstream western investors necessarily involves a formalization of its monetary role or a return to the gold standard [though that may happen]. Practically speaking, all I am waiting for is monied institutions and public to turn to gold.

 

I imagine that it will be the markets not governments that will be the driving force behind a rennaisance in gold. There will first need to be some monetary crisis [government failure], whereby gold will be perceived to fill the most basic of social needs. Without some crisis, whereby fiat loses its grip on the popular imagination, gold will not shine very brightly.

 

 

As for gold undergirding the world economy, I have not given much thought to this, but I do remember reading once about the possibility of utilizing a digital system with stored gold. A cup of coffee would cost you maybe a micogram of gold... all electronically deducted of course. No doubt, James Turk envisages such a system.

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But was it better with all of its problems than what we have now?

 

I'm not sure, but personally I feel that focussing on the gold vs fiat issue actually misses the point of what the real problems are now, which are more about regulation, how fractional reserves operate and so forth. There were plenty of financial problems in the era of gold also. Neither is a perfect solution.

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I'm not sure, but personally I feel that focussing on the gold vs fiat issue actually misses the point of what the real problems are now, which are more about regulation, how fractional reserves operate and so forth. There were plenty of financial problems in the era of gold also. Neither is a perfect solution.

 

I agree because there are no perfect solutions... or ideal systems; not everything is a problem to be solved. I am suspicious of any "system" that does propose a solution... it has always lead to chaos. In my view, attention to experience, the practical world and mass pyschology can help in mapping out the future economic world.

 

If, as I believe, mass pyschology is central to what we consider money then fiat must be mentioned as currently the economic world is fixated on it. And before gold can possibly wax in the public mind, fiat must first wane. I believe this process is just beginning to stir and will only really get going once it has a real impact on the public at large. Only then, given this psychological condition, will gold assume its monetary function.

 

The theoretical question of what is the best/perfect form of money is irrelevant given a pragmatic approach. Money is what happens to work in the concrete world.

 

 

 

Edit: An article mentioning the relevance of mass pyschology for the performance of gold.

http://news.goldseek.com/GoldSeek/1218223274.php

 

More than any other commodity, gold’s price rises (and falls) with demand from investors; the demand from consumers and industrial users is very much a secondary consideration. Or to put it another way, what ultimately controls gold is mass psychology.

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