Gold and the Gold Standard: The Story of Gold Money, Past, Present and Future
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This is his major treatise: Gold and the Gold Standard: The Story of Gold Money, Past, Present, and Future, which was first published in 1944. In it, Kemmerer reviews the history of gold and its outstanding merit as a currency and presents a plan that likely may have saved the world from hyperinflation and the booms and busts of the past 50 years.
Dr. Edwin Walter Kemmerer
Edwin Walter Kemmerer (June 29, 1875 - December 16, 1945) was an American economist who became famous as an economic adviser to foreign governments in many countries (Philippines, Mexico, Guatemala, Colombia, Germany, Chile, South Africa, Poland, Ecuador, Bolivia, China, Peru, and Turkey), promoting plans based on strong currencies, the gold standard, central banks, and balanced budgets. Born in Scranton, Pennsylvania in 1875, he graduated with honors and a Phi Beta Kappa key from Wesleyan University, and earned his Ph.D. from Cornell University, where he taught from 1906-1912. At 28, was appointed Financial Adviser to the U.S. Philippine Commission. In 1912 he became a professor at Princeton University, where he was made the first director of its new International Finance Section; by then Kemmerer had a well established reputation as an international “money doctor.” Kemmerer was the author of Kemmerer on Money, published in 1934, and Gold and the Gold Standard: The Story of Gold Money Past, Present, and Future, published in 1944. He died at the age 70 in Princeton, New Jersey in 1945.
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Gold and the Gold Standard - Dr. Edwin Walter Kemmerer
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Text originally published in 1944 under the same title.
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Publisher’s Note
Although in most cases we have retained the Author’s original spelling and grammar to authentically reproduce the work of the Author and the original intent of such material, some additional notes and clarifications have been added for the modern reader’s benefit.
We have also made every effort to include all maps and illustrations of the original edition the limitations of formatting do not allow of including larger maps, we will upload as many of these maps as possible.
GOLD AND THE GOLD STANDARD
THE STORY OF GOLD MONEY, PAST, PRESENT AND FUTURE
BY
EDWIN WALTER KEMMERER
Emeritus Professor of International Finance
Princeton University
FIRST EDITION
TABLE OF CONTENTS
Contents
TABLE OF CONTENTS 3
PREFATORY NOTE 4
CHAPTER I—THE PLACE OF GOLD IN THE MONEY OF ANCIENT AND MEDIEVAL TIMES 5
ORIGIN OF THE GOLD STANDARD 5
EARLY COINAGE IN ASIA MINOR 6
COINAGE IN THE LAND OF THE GREEKS 7
THE POSITION OF GOLD IN THE MONEY OF ANCIENT ROME 8
GOLD MONEY DURING THE REPUBLIC 11
GOLD MONEY DURING THE EMPIRE IN THE WEST 12
THE PLACE OF GOLD IN THE MONEY OF CONTINENTAL EUROPE DURING THE MIDDLE AGES 13
Characteristics of the Economy of the Middle Ages 13
Gold Coins 14
Seigniorage 14
SELECTED BIBLIOGRAPHY 14
CHAPTER II—TWO THOUSAND YEARS OF GOLD MONEY IN ENGLAND 17
DEVELOPMENTS FROM ANCIENT TIMES TO 1492 17
From the Reign of Henry III to the Discovery of America 18
DEVELOPMENTS FROM 1492 TO 1821 21
Silver Predominant over Gold for Two Centuries of Quasi Bimetallism 21
Gold Predominant over Silver for a Century 22
The Paper Pound 23
Bank Notes and Deposit Currency 24
Lord Liverpool’s Letter to the King 25
Gold Standard Legally Adopted 27
The Gold Standard Goes into Operation 28
SELECTED BIBLIOGRAPHY 29
CHAPTER III—GOLD MONEY AND THE GOLD STANDARD IN THE UNITED STATES PRIOR TO THE FIRST WORLD WAR 31
THE PRECONSTITUTIONAL PERIOD 31
The Colonial Period 31
The Period of the Revolution and the Confederation 32
A National Currency Established 34
GOLD IN THE BIMETALLIC SYSTEM, 1792 TO 1861 37
Gold Undervalued, 1792 to 1834 38
Agitation for Monometallism 40
Bimetallism Continued 41
How the New Ratio Worked 43
BIMETALLISM LEGALLY DISCONTINUED IN 1873 47
THE BEGINNING OF A DE FACTO GOLD STANDARD 47
THE GOLD STANDARD IN OPERATION, 1879 TO 1914 49
Declining Commodity Prices 49
Bimetallists’ Criticisms of Gold Standard 50
In Defense of the Gold Standard 51
Doing Something for Silver
51
The Gold Standard Act of 1900 54
SELECTED BIBLIOGRAPHY 56
CHAPTER IV—THE BREAKDOWN OF THE INTERNATIONAL GOLD STANDARD—ITS RECOVERY AND RELAPSE 59
THE INTERNATIONAL MONETARY SITUATION FOLLOWING THE OUTBREAK OF THE FIRST WORLD WAR 59
Public Sentiment Strong for a Return to Gold 60
THE RETURN TO GOLD 60
Rates of Stabilization 61
THE GOLD STANDARD OF THE TWENTIES 63
The Changed Economic Milieu 63
A Changed and Weakened Gold Standard 64
The Brief Life of the Post-war Gold Standard 65
THE GOLD STANDARD IN THE UNITED STATES SINCE 1929 66
Events Leading to a New Type of Gold Standard 66
The New Type of American Gold Standard 69
SELECTED BIBLIOGRAPHY 71
CHAPTER V—CHARACTERISTICS OF THE GOLD STANDARD 73
WHAT CONSTITUTES A GOLD STANDARD 73
Definition and Explanation 73
The Monetary Unit—a Fixed Weight, Not a Fixed Value 75
GOLD AS A MONEY METAL 75
The Demand for Gold, Highly Elastic 76
Characteristics of Gold in Its Relation to the Gold Standard 77
Monetary Gold versus Gold in the Arts 79
SELECTED BIBLIOGRAPHY 79
CHAPTER VI—VARIETIES OF THE GOLD STANDARD 82
THE GOLD-COIN STANDARD 82
THE GOLD-EXCHANGE STANDARD 82
Principles of the Gold-exchange Standard as Exemplified in the Philippines, 1905-1910 83
Advantages of the Gold-exchange Standard to the Philippines 86
The Gold-exchange Standard and the First World War 87
The Genoa International Conference and the Gold-exchange Standard 88
Widespread Adoption of the Principle of the Gold-exchange Standard 89
Weaknesses of the Post-war Gold-exchange Standard 91
THE GOLD-BULLION STANDARD 92
SELECTED BIBLIOGRAPHY 93
CHAPTER VII—THE BALANCE SHEET OF THE GOLD STANDARD—ITS MERITS AND DEFECTS 95
Merits of the Gold Standard 95
Its Essentials Easily Understood 95
High Public Confidence in Gold 95
Its Highly Automatic Character, Calling for Little Political Management 96
An International Standard 97
Stability of Gold 100
DEFECTS OF THE GOLD STANDARD 108
A Creature of Blind Natural Forces 108
Instability in Value 109
Rigidity 109
Expensiveness 109
Essentially a Sterling Standard Prior to 1914 110
BY WAY OF REJOINDER 110
NO FAIR TEST OF THE INTERNATIONAL GOLD STANDARD SINCE 1914 112
The Gold Standard in the United States, 1918 to 1933 113
SELECTED BIBLIOGRAPHY 114
CHAPTER VIII—THE MONETARY STANDARD OF THE FUTURE 116
PRELIMINARIES 116
TYPES OF POST-WAR GOLD STANDARD 117
IMPLEMENTATION OF INTERNATIONAL GOLD STANDARD 117
GOLD CONVERTIBILITY 119
THE GOLD STANDARD AND THE CENTRAL BANK 121
AN INTERNATIONAL BANK 121
INTERNATIONAL MONETARY CONFERENCE 122
SELECTED BIBLIOGRAPHY 122
REQUEST FROM THE PUBLISHER 124
PREFATORY NOTE
At the end of the war, this world will be confronted with the problem of rehabilitating its monetary systems and of thereby bringing order out of the monetary chaos that has been created. Many different kinds of monetary standards will have their advocates, and the debate will be a vigorous one in terms of both light and heat. Early discussions of the problem should contribute to the formation of an intelligent public opinion. It is with the thought of making such a contribution that this book is being written.
Prominent among the contenders for first position in the world’s monetary systems of the early post-war future will be the gold standard, which, though badly battered and bruised, can still claim, by reason of its past record, to be the heir apparent.
The discussion that follows attempts to explain briefly the origin and history of gold money and of the gold standard, the fundamental principles of the gold standard, its defects and merits, and to outline a plan for a future international gold standard.
In the preparation of this book I have received aid from many friends—too many to mention by name in a brief prefatory note. I must, however, make exception by expressing my particular gratitude to Dr. Louis C. West and Professor Philip K. Hitti, of Princeton, for their valuable suggestions concerning the money of ancient times, and to my son Professor Donald L. Kemmerer, of the University of Illinois, and Professor Oskar Morgenstern, of Princeton, both of whom read the entire manuscript and gave me many useful criticisms and suggestions, most of which I have adopted.
EDWIN WALTER KEMMERER.
PRINCETON, N. J.,
October, 1944.
CHAPTER I—THE PLACE OF GOLD IN THE MONEY OF ANCIENT AND MEDIEVAL TIMES
Speak of the moderns without contempt and of the ancients without idolatry; judge them all by their merits and not by their age.—LORD CHESTERFIELD, 1748.
ORIGIN OF THE GOLD STANDARD
The gold standard in its orthodox form
is a product of the nineteenth century. Its roots, however, go deep into the past. This chapter will explore briefly this early history of gold as money,{1} i.e., as a commonly accepted medium of exchange.
Gold, by reason of its beauty, its worldwide distribution, the facility with which it could be obtained from the streams by crude methods of panning,
and the ease with which it could be worked,
probably had a wider use as a medium of exchange in very ancient times,{2} and among primitive peoples in modern times, than any other metal.
This metal was first used as money in such forms as nuggets of gold, gold molded in the shape of shells, which served also as ornaments, and gold dust. In ancient Mexico, Africa, and elsewhere, gold was put into transparent quills, which were used as a common means of payment. It circulated in small cubes in China as early as 1100 B.C. Many hundreds of years before the beginning of the Christian Era, gold media of exchange were used in Asia Minor and a large part of Europe. These early media were usually made of almost pure gold, the art of hardening the metal by means of alloy apparently not having been introduced until after the beginning of the Christian Era.
The earliest references I have been able to find in recorded history to the use of one of the precious metals as a medium of exchange—in these cases, passing by weight—are in the Code of Hammurabi,{3} King of Babylon. They refer to silver in about the year 1870 B.C.{4}
The peoples of classical times had very little knowledge of the money of their early ancestors. They had no books on money, and the few written records available to them were chiefly on stone and papyri in the form of laws, decrees, and scattered miscellaneous notes. By far the most important part of our records of these early times consists of the money itself, which has been preserved and is now held largely in the museums of the world, where it is classified and catalogued. The coined money alone of classical times that has been thus preserved runs into tens of thousands of pieces; and the weights of these pieces, the materials of which the coins are made, their forms, and especially the designs and legends that they bear give us valuable information.
Thanks to the careful studies made by classical scholars over many generations, we know today much more about the money of classical times than the ancients knew. There are, however, many gaps in the chronology of the coins that have come down to us, and the story that these coins tell is far from complete. It is still full of controversial questions concerning which the modern literature is voluminous, but progress in their solution is being, made continually.{5}
EARLY COINAGE IN ASIA MINOR
Coinage was originally of the nature of a seal or hallmark punched on a nugget of metal as a guarantee of its quality or its weight. The beginnings of coinage appear to have been made in the countries of the eastern Mediterranean early in the eighth century B.C.{6} Sennacherib, King of Assyria (705-681 B.C.), said, I built a form of clay and poured bronze into it as in making half-shekel pieces.
Many of the early coins were made of electrum—a natural alloy, consisting of about three parts of gold to one part of silver, which was found abundantly in Lydia and which caused that country to be known as the land of gold. Because of the difficulty in separating the gold from the silver, the ancients regarded electrum almost as a distinct metal. Early coins of pure gold in Asia Minor were probably made from placer gold obtained from the valley of the Oxus or from the Ural Mountains.{7} The electrum coins were ancient examples of what in modern times is called symmetallism.
I have in my possession a gold daric, one of the oldest and most famous gold coins in history. It is made of almost pure gold and is about the weight of our late American $5 gold piece. It looks like a roughly molded gold nugget and bears a crude stamp of an archer with his bow and spear. The coin was made during the reign of Darius the Great of Persia, about 500 years before Christ. Only about two generations before this, in the reign of Croesus, which began 561 B.C., there circulated in Asia Minor the coins of which Herodotus said, The Lydians were the first people, so far as I know, to adopt a gold and silver coinage.
{8}
In those early times, gold coins and silver coins circulated for several centuries under a dual standard. Gold gained in importance at the time of Alexander the Great, under the stimulus furnished by the large amount of gold produced in his Pangean mines.{9}
COINAGE IN THE LAND OF THE GREEKS
In Homeric times values in Greece were reckoned in terms of the cow. According to Ridgeway, ...weighing was first invented for traffic in gold, and since the weight-unit of gold is found regularly to be the value of a cow or ox....the unit of weight is ultimately derived from the value in gold of a cow.
{10} Our English word pecuniary, which is derived from the Latin pecus, meaning cattle,
is a monument to this development. Copper was early used as money. The first obol was apparently a copper spike or skewer, six of which made a drachma, meaning handful.
{11}
The first gold coin to circulate in Hellas proper was the aforementioned Persian daric or stater (meaning to weigh
), which weighed about 130 grains and which enjoyed an extensive circulation for several centuries. It was never debased and was practically the only gold coin for about 200 years, as well in Asia Minor and the mainland of Greece as in the Persian Empire.
{12} It was known in Palestine during Biblical times.
The Greeks learned the use of gold coin from the Asiatics, but they were slow to coin gold themselves. The first place in Hellas proper to mint money was Aegina, which was a commercial center. The silver coins of this small island and the Persian gold darics circulated extensively in Magna Graecia. Solon is believed to have been the first person to coin silver money in Athens. Coins of silver and gold apparently passed at approximately their respective bullion values. In this dual-standard system, silver coins were those most widely used, but gold coins played an extensive part in the country’s foreign trade, also in many of the larger domestic transactions and for reserves in the temples. In times of war and other great emergencies, there was an increased coinage of gold from metal obtained by melting down golden statues and ornaments, which were obtained largely from the temples.
Early in the fourth century B.C., the silver coinage of Rhodes was supplemented by an issue of gold staters, and this double issue of gold and silver continued unbroken{13} until after the death of Alexander the Great in 323 B.C.
In the Greek world there were, on occasions, official ratings of the coins of one metal in terms of those of the others. Ratings were changed from time to time and recoinages were made, to prevent a cheaper or overrated metal from driving out of circulation a dearer or underrated one, under the force of what we now call Gresham’s law.{14}
About the beginning of the fourth century B.C., we find a case of monetary debasement suggestive of our American debasement of 1933 to 1934.{15} Dionysius, Tyrant of Syracuse, who had borrowed heavily from his citizens and was being hard pressed for repayment, directed that all the coins in the city should be brought to him, under penalty of death. He then restamped the coins and gave to each drachma the value of two drachmas. By this debasement he was enabled to pay off the original loan and, at the same time, repay the money that he had ordered to be brought to the mint.{16}
Shortly after the death of Alexander, the unified Attic monetary system, which prevailed throughout most of his empire, began to disintegrate. Concerning what followed, down to the time of the conquest of the Greek world by the Romans, M. Rostovtzeef says:{17}
[Alexander’s] successors continued his coinage but each for himself in his own name: Coinage was one of the signs and symbols of political independence, it was a powerful instrument of political influence and propaganda, and it yielded a substantial revenue. With the further disintegration of his empire, coinage became ever more diversified, each sovereign State, whether a monarchy or a city, minting its own money.
THE POSITION OF GOLD IN THE MONEY OF ANCIENT ROME
Gold played a much less important role in the money of Italian