In memory of John Allen Pugsley (January 5, 1934 – April 8, 2011).  He was a great libertarian… a prolific author…  Chairman of the Sovereign Society… a fantastic thinker… and possessed exceptional knowledgeable about economics.

The following article is an example of his insight into the world of currencies and precious metals.

Gold, Money & Freedom: Inseparable Siblings

By John A. Pugsley,  dated March 2007

“Money is the most important thing in the world. It represents health, strength, honor, generosity and beauty…money is the counter that enables life to be distributed socially: it is life as truly as sovereigns and bank notes are money.” — George Bernard Shaw

When Shaw wrote those words in 1906, the money he praised was not the money we hold today. The ‘sovereigns’ he referred to were quarter-ounce solid gold coins, and the bank notes he mentioned were redeemable in gold.

At the beginning of the 20th century, all the major nations, including the United States, Great Britain, France and Germany, were on the gold standard.

The governments of these nations chose gold as the medium of exchange for a simple reason. They knew that for over 2,000 years, governments that issued currencies not fully backed by gold or silver eventually toppled into economic chaos.

A History of Monetary Failure

The Roman Empire rose and fell through the debasement of gold money. By secretly pilfering gold from coins, emperors funded foreign adventures and expanded their power.

In 15 B.C., Emperor Augustus established the “Aureus” at 126 grains of gold. In 60 A.D., Nero devalued it to 110 grains. By 200 A.D., it was down to 60 grains. And by 268 A.D., the coin no longer contained any gold at all. Each reduction in the gold content was used to increase the number of circulated coins. Gradually, the Roman Empire crumbled.

In 1720, John Law convinced the King of France he could gain revenue without raising taxes. His money creation schemes brought hyperinflation and financial ruin to France.

Only 70 years later, during the French Revolution, the French government again pretended prosperity could be restored by issuing paper money, called assignats. Again this resulted in economic ruin for the country.

Mirabeau, a French politician of the day, said “that infamous word, paper money, ought to be banished from our language.”

The Gold Standard Crumbled

Near the end of the 19th century, U.S. bankers and politicians again argued to abandon the gold standard.

In 1876, Andrew Dixon White, American college president and diplomat warned a group of U.S. congressmen about the potential consequences. The expansion of paper money, he wrote, “stimulates overproduction at first and leaves every industry flaccid afterward…breaks down thrift and develops political and social immorality.”

Some listened, but in the end, the paper-money advocates won.

In 1906, Shaw could not have known the gold-backed money he praised was disappearing. The British, U.S. and German governments couldn’t finance war without abandoning the gold standard.

The U.S. passed the Federal Reserve Act, empowering the newly created Fed to issue IOUs backed not by gold but by Treasury IOUs. The German government simply began printing Reich marks. And the venerable British sovereign soon disappeared from circulation.

The gold standard crumbled, allowing the world to be inundated by paper money. The 20th century was its aftermath. World War I, the roaring Twenties, German hyperinflation, the tariff wars, the Great Depression, Hitler’s rise to power, Roosevelt’s outlawing of Americans’ right to own gold, and World War II, are all the offspring of the abandonment of gold-backed money.

Today rivers of dollars, pounds, yen, euros, pesos, yuan, rubles, flow freely from central banks. They finance government expansion, and erode every citizen’s control of his or her future.

As individuals alone, we are relatively helpless to alter how gold (and even silver) rises and falls as money. However, we can devise a personal gold or silver standard for ourselves, by investing in precious metals that tend to rise as the dollar falls.

We can also invest in companies that produce gold and silver and diversify into the strongest of the fiat currencies. By doing so, we help to insulate ourselves from the inevitable long-term consequences of our own fiat-money, the U.S. dollar.

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John Pugsley was a long-time hard money advocate, who authored many books on investing, politics and economics including Common Sense Economics and The Copper Play.

You may read a PDF copy of his 1981 New York Times bestseller, The Alpha Strategy by clicking this link.