The Skin of the Gods: Part One:

Some 1500 years BC, Egyptian Royalty and other Potentates, were the exclusive owners of gold . They used the lustrous metal as a means of defining their power and importance., both in life and the afterlife. They believed that gold, or Nubia, as it was called,  was ‘the skin of the Gods’ that would grant them immortality. The Pharos would spend most of their short lives in acquiring,  by tribute or slavery , a hoard that would later be used for their entombment. It is believed that as many a million lives  were expended in the production of nearly 7 million ounces of gold from mines in Wadi in the Southern part of what is now Egypt.  Very little of this gold has ever been found (the Valley of the Kings being the exception) leaving scholars and the curious to wonder what happened to the rest. Since gold is  nearly indestructible, and subject to theft, suspicion falls on the Romans who conquered the land of the Pharos and took tribute as payment for their legions.

The Romans  had some very different ideas on the  best uses for gold.  They did not bury their dead in tombs and used gold instead, as a pecuniary medium of exchange. Their idea of using coinage made from different metals would set them apart from the rest of the civilized world., and allow for a standard of living not seen again for a thousand years

They created gold and silver coinage, through a central mint in Rome . They established a fixed ratio, first between Silver and Gold and then,  between Bronze and Copper coinage. This ‘specie’ or payment in kind, allowed for greatly expanded commerce and for the movement of capital to and from Rome as the centre of the Empire.

The whole system worked on trust. Trust that the specie created would in fact be exchangeable into a fixed amount of gold. Unfortunately the Romans would eventually pay a terrible price for their continued breach of this trust. The temptation to create ever-increasing amounts of specie, without regard to the amount of gold available in Roman vaults,  was too great.  The legionnaires had to be paid, as did the growing number of functionaries required to keep the far-flung empire in good order.  In the absence of further conquests and new sources of gold,  regional governors resorted to the  practice of ‘debasing’ or devaluing the currency. This practice  would eventually bring down the Empire and re-introduce their citizen’s to serfdom.

It seems as though  we in the Western World may be doomed to re live this history, for we seem hell-bent on repeating the same mistakes. We are printing specie in amounts never before contemplated in reckless abandon of the economic certainty that to do so will cause a massive reduction in our standard of living.

This is exactly what is happening with the current sovereign Debt Crisis in the European Monetary Union. Driven by the dictates of the European Central Bank and tempted with  soft guarantees  the debts of the likes of Greece and Portugal  are being rolled over and will never likely be repaid. So the Central Bank, as an alternative to devaluation and misery is in effect propping up a system that is doomed to fail.

It was not always thus. The one hundred year period starting with the defeat of Napoleon at  Battle of Waterloo in 1815 and ending with the advent of the First World War in 1914 was the greatest period of prosperity in the known history of mankind. It is all to often forgotten, of this great period of growth, that it  was made possible by a stable monetary system, known as the ‘Gold Standard. Just as the Romans before them, British Bankers, led by N.M. Rothschild, created and maintained a system of  Bills of Payment, and coinage convertible into  gold.   The paper money created was in reality a  system of promissory notes,  “to pay on demand to the bearer” meaning by rote, a sum of ‘gold or gold equivalent’. Heavily embossed notes in variously denominations were originally printed by Chartered Banks, but gradually the task was centralised to the Bank of England.  Meanwhile a central mint owned by the Bank of England issued fixed amounts of gold, silver and copper coinage for the conduct of  everyday commerce.

The highly reliable Pound, or Sterling became the most commonly excepted International medium of exchange because unlike newer nations such as America panics and inflation were rare events and any form of devaluation was very unlikely.

This wonderful system was bought low by the unmanageable debts of nations at war. Too much debt and not enough gold.  Just like the Romans, the citizens of the Western World would pay a terrible price for the monetary chaos that would follow. The Great Depression was the result of unchecked  creation of specie in the Roaring Twenties.

And so it has gone. War Boom and Bust in a never-ending cycle. Without some relaible method of keeping score there is little chance that this terrible cycle can be broken.

At the Breton Woods Economic Conference held at the end of the Second World War there was a serious proposal made by Friedrich Hayek, a member of the Austrian School of Economists, to return to a modified form of the Gold Standard. Such a possibility was dashed by the American delegation,  who distrusted the national resolve of European Nations,  ruined by war, to live within their means.

Maybe the Americans were right at the time, but no one could have foreseen the monetary splurge that would follow. In the last fifty years the American Treasury have printed more specie than all the money in the world at the time of Breton Woods. They have borrowed trillions of dollars to pay for almost continuous wars and have shown little resolve to pay to repay even a small portion of the costs incurred.

The World is awash with American Dollars and no one it seems, other than possibly the Chinese Proletariat, has shown any willingness  to point out that just maybe the Emperor, in the form of the United States Treasury, has no clothes. The daily accounting, that takes place on the London Bullion Market every day tells us that it now takes 1300 US dollars to buy an ounce of gold that cost just 35 of the same dollars in 1973 . If for any reason the markets should lose confidence in the US dollar, as an international medium of exchange, many believe that the gold to dollar ratio will go a lot higher. This is why so many doubters all over the World keep the ‘Skin of the Gods close at hand.

 

 

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