Soft or Hard?
January 5, 2013Posted by on
The Cobden Centre aims to promote social progress through honest money, free trade and peace. Something very commendable, but obviously doesn’t preclude disingenuous commentary now that advocates of hard money would seem to be in the ascendancy over the advocates of soft money. At least that’s the view I took on reading the ‘Top ten reasons why fiat currency is superior to gold (pdf – full transcript)’.
Written on 31 December 2012; ‘In the spirit of the holidays and hope for a more prosperous 2013, John Butler put the following as his Number 1 reason why we would all prefer fiat soft money over gold-backed hard money.‘ While it is much abridged by me – and all URL links are mine – it may still humour ‘gold’ (hard money) bugs. It begins:
I’m not a PhD, I’m not qualified to go around telling people what to do. I make suggestions from time to time, because I have a Master’s degree. One suggestion I wouldn’t make, however, is that people be allowed to choose the money they use.
We might all choose to use a different money, no one would accept these monies from each other, and so we would never engage in commerce except through direct barter. We all know how inefficient barter is. It is why money was created in the first place.
Coinage originated in ancient Lydia, leading the use of coinage as money in the Hellenistic world. The Romans even discovered how to manipulate money coinage through debasement. This really got going in the 3rd century, which happens to correspond with their decline. But that’s just coincidence.
The Roman Empire eventually split in two and while coinage debasement continued in the Western Empire, which all but collapsed entirely by the 5th century, the Eastern Empire maintained sound coinage and lasted until the Turkish siege of Byzantium in 1453, roughly a thousand years later. But that’s just coincidence too.
Anyway, back to this topic about choice in money. We really don’t need it. We also don’t want it. If we did, we wouldn’t have legal tender laws that prevent choice in money in the first place, would we? After all, choice is just a source of confusion.
But let’s entertain the fantastical notion that legal tender laws were repealed and we could use whatever we desired as money. Nothing would change, we would just go on using dollars, or euros, or pounds, or yen, or whatever. Who in their right mind would actually bother to evaluate the relative merits of all of these different currencies, or of gold and silver as alternatives?
Quantitative easing changes nothing. Remember, the PhDs are in charge of our economies and they know exactly how much our money should be worth. Those of us concerned that our money might lose purchasing power are just being paranoid.
Nowhere would choice be so harmful to commerce as with money itself. Even if legal-tender laws were repealed no doubt we would all continue to prefer using the stuff we already are. So for all you gold bugs out there, go ahead and purchase some jewellery for your loved ones as holiday gifts. But please, drop all the nonsense about using it as money.
A few historical notes (added by me):
As we understand its usage, it’s reasonable to assume that coinage originated in Greece (circa 7th century BC) and in Lydia. However, in 594 BC, Solon of Athens instituted a partial debasement of the coinage. Nevertheless, for the next four centuries the drachma had an almost constant silver content and became the standard coin of trade in Greece and in much of Asia and Europe. Even after the Roman conquest of Greece, the drachma continued to be minted and widely used.
The Greek city-states were largely independent and each city-state had its own coinage, with an active trade in these currencies and probably few laws limiting citizens to the use of their own coins. Debasement of the coinage was rare in Greek history – with the notable exception of Dionysius of Syracuse (p174).
There are cases of actually raising the standard of the coinage for the greater prestige which a coinage of high intrinsic value seemed to offer.
In the sixth century B.C., the Euboean unit was increased in a number of cities by about five grains, in emulation of an increase introduced by Pisistratus in Athens (p49). Even so, banking, bank fraud and even banking crises were very well known.
After the revolt against Mithridates, a serious banking crisis in Ephesus (p50) followed. The banking industry received here its first express, historically-documented privilege, which established a ten-year deferment on the return of deposits.
The ancient Greeks coinage clearly doesn’t serve the irony intended by John, a Byzantium millennium is a more impressive statistic for implied economic stability. Here the term ‘sound coinage’ implies, I assume, ‘hard money’ (perhaps a better term than ‘sound money’ which the Byzantines certainly tried but failed to maintain). Nor did hard money make Byzantine fiscal policy sound. In the eleventh century emperor Michael VII earned the nickname “Parapinaces” or “minus a quarter”, because the gold nomisma was debased by that amount. The next emperor Nicepherus virtually emptied the treasury. By the 14th century Byzantium was ‘broke’. To protect a draining economy emperor John VI appealed to the wealthy for funds, without any success.
Thank goodness we’ve learned the lessons that history can teach us.