Welcome back, Saifedean Ammous’ “The Bitcoin Standard” lovers! Two episodes in a row, because we are committed to doing a whole chapter each week. The last time, we learned why humanity chose gold as the soundest form of money. Now, we’re opening the history books and telling you exactly how everything came to pass.
Needless to say, this chapter right here explains the current state of our present world. The parallels between the two periods of time are breathtaking and… a little scary. However, that’s exactly what we’re here to understand. How did we get here? And, why is Bitcoin essential for future human development? Keep reading to find out.
Before we get into it, let’s explain what we’re doing one more time:
About The Coolest Book Club On Earth
The Bitcoinist Book Club has two different use cases:
1.- For the superstar-executive-investor on the run, we’ll summarize the must-read books for cryptocurrency enthusiasts. One by one. Chapter by chapter. We read them so you don’t have to, and give you just the meaty bits.
2.- For the meditative bookworm who’s here for the research, we’ll provide liner notes to accompany your reading. After our book club finishes with the book, you can always come back to refresh the concepts and find crucial quotes.
Everybody wins.
So far, we’ve covered:
- “The Bitcoin Standard” (Prologue and Chapter 1)
- “The Bitcoin Standard” (Chapter 2: Primitive Moneys)
- “The Bitcoin Standard” (Chapter 3, Part 1: Why Gold?)
Let’s keep on trucking with “Chapter 3: Monetary Metals.“
Remember book lovers, any resemblance to our current reality in what you’re about to read is NOT pure coincidence.
Roman Golden Age and Decline
- In Rome, the common coin was the Denarius, which contained 3.9 grams of silver.
- Julius Caesar created the Aureus, which contained 8 grams of gold, “and was widely accepted across Europe and the Mediterranean, increasing the scope of trade and specialization in the Old World.”
- After 75 years of economic stability, Emperor Nero was the first to introduce “coin clipping.” The throne collected the population’s coins, melted them, and minted new coins with less gold and silver. Devaluation raised its ugly head.
- To pay for the “lavish lifestyle” of the upper class, the ever-increasing military spending, and for “unproductive citizens living off the emperor’s largesse,” they reduced the Aureus to 7.2 grams, and the Denarius to 3.41 grams.
- Through the years, of course, the emperors kept debasing the coins. More than 200 years after Nero, Emperor Diocletian introduced the Solidus, a replacement coin with only 4.5 grams of gold. Under his watch, the Denarius ended up having just a silver coating to “cover its bronze core.”
- The author quotes Ferdinand Lips, “With money so unreliable and debased, speculation in commodities became far more attractive than producing them.”
- This preceded the fall of Rome, “As taxes increased and inflation made price controls unworkable, the urbanites of the cities started fleeing to empty plots of land where they could at least have a chance of living in self-sufficiency, where their lack of income spared them having to pay taxes.”
Byzantium and the Bezant
- It was time for Constantine the Great. He kept the Solidus at 4.5 grams and “started minting it in large quantities.” Then, he “established Constantinople at the meeting point of Asia and Europe, birthing the Eastern Roman Empire, which took the solidus as its coin.”
- Rome fell, “Byzantium survived for 1,123 years,” and the Solidus changed names. It became the Bezant.
- Approximately 500 years after Constantine the Great, the Byzantium Empire started to devalue the coin again. Everything declined little by little. Almost 500 years after that, the Empire “was overtaken by the Ottomans.”
- During that time, the Bezant reached Islamic lands. Using similar weight and size, they created the Dinar. The Arab and Muslim civilizations never devalued their coins, for that reason the Dinar continues to circulate to this day.
Gold price chart on Oanda | Source: XAU/USD on TradingView.com
The Renaissance
- After Rome, it was time for Feudalism. The feudal lords controlled all the gold, the peasants transacted in copper and bronze coins. With those metals, it was easy to inflate the supply when needed.
- Europe fell into the Dark Ages, as inflation and taxation caused that, “New generations of Europeans came to the world with no accumulated wealth passed on from their elders, and the absence of a widely accepted sound monetary standard severely restricted the scope for trade.”
- The transition to the Renaissance began with “city-states adopting a sound monetary standard.” Florence minted the Florin and, seeing its success, Venice minted the Ducat. Less than 20 years later, “150 European cities and states had minted coins of the same specifications as the florin.”
- At this time, silver coins played an integral role. Its lower value made it the metal of choice for small transactions.
- The problem was the fluctuations in the price relationship between the two metals. So, “As sovereigns set an exchange rate between the two commodities, they would change holders’ incentives to hold or spend them.”
Paper money
- The two technologies that brought about the modern banking system were: the telegraph and the trains. As soon as they existed, “it became increasingly feasible for banks to communicate with each other, sending payments efficiently across space when needed and debiting accounts instead of having to send physical payments.”
- The banks kept precious metals in vaults and emitted cheques and bills. This solved gold’s divisibility problem, so silver was no longer needed.
- Still, some nations decided to store silver instead of gold. We can still feel the consequences of that decision. Britain chose gold from the very beginning and achieved “economic supremacy” One by one, Europe followed.
- The last countries to join the gold standard were India in 1898 and China and Hong Kong in 1935. By the time they did it, India’s coins had lost 56% of their value, and China’s 78%.
La Belle Époque
- By the 19th Century, most of Europe was under the same monetary standard. “allowing the improvements in telecommunications and transportation to foster global capital accumulation and trade like never before.”
- The only difference between the coins was the weight of the gold they were made from. “The British pound was defined as 7.3 grams of gold, while the French franc was 0.29 grams of gold and the Deutschmark 0.36 grams.”
- Sound money brought prosperity, which brought la belle époque, or the beautiful era. ”Some of the most important technological, medical, economic, and artistic human achievements were invented during the era of the gold standard.”
- Gold became too valuable to carry around and tended to go into vaults. However, “Gold being centralized made it vulnerable to having its monetary role usurped by its enemies.” Namely, the government, “the banks and central banks holding the gold could create money unbacked by physical gold and use it for settlement.”
A new kind of devaluation arose its ugly head. It always comes to that. And basically, that’s where we are now, in the paper money era. Throughout the whole 20th century, government and central banks progressively got rid of gold as a medium of exchange and as a unit of account. It still is a store of value, though.
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