The doom and gloom surrounding the Presidential race is both undeniable and justified.
America seems tapped out. It's out of money. It has lost the moral high ground. It resorts to coercion to keep its allies - or rather, vassal states - in line. And it prints money to cover its lies.
There's a reason the Founding Fathers wrote hard money into the Constitution. Article 1, Section 10 of the Constitution reads as follows:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
The Fathers knew that the new government wouldn't succeed for very long with elastic fiat paper money. Heck, "not worth a Continental" became a saying soon after the Continental Congress began issuing Continental notes.
From AIER:
In 1775, practically at the outset of hostilities, the Continental Congress authorized an issue of $2 million in paper money. By the end of 1776, $25 million was in circulation, already at a 30 percent discount relative to silver. By the end of 1777, $38 million was in circulation, at a 70 percent discount relative to silver. By the end of 1779, $192 million was in circulation, and $1 in paper money was worth only 1 or 2? in silver. The states were issuing their own paper money, contributing to the inflation.
So, from our own history, we know elastic currencies all go to their intrinsic value: zero. And we even know how to get out of the mess: by making gold and silver legal tender.
But in these dark times, it's worth learning how another empire bought itself another 700 years.
We don't concentrate too much on that empire in our history classes, much to our detriment. The Byzantine Empire has much to teach us, particularly about how to get out of an elastic currency hole.
The Byzantine Empire offers a critical case study of the effective restoration of economic stability through monetary reform. As the United States grapples with the consequences of its long experiment with elastic money, it's worth examining how the Byzantines saved themselves from similar turmoil. This historical blueprint could provide a roadmap for America to reclaim financial integrity and stability.
But first, let's review why elastic fiat paper money is a bad thing.
One of the most significant risks of elastic money is inflation. As the money supply increases, the value of money decreases, leading to higher prices for goods and services. We still haven't recovered from Bidenflation in 2022 and may never do so.
With no tangible value backing it, fiat currency is susceptible to devaluation. This devaluation erodes savings and diminishes purchasing power. The dollar has lost 97% of its purchasing power since the Federal Reserve came into being in 1913.
The ability to print money can lead to fiscal irresponsibility. Governments may finance deficits and debt through money creation rather than sound economic policies, leading to long-term economic instability. You're living through a case study in fiscal dominance, which is when a legislature handcuffs a central bank from doing its rightful job of raising rates and forces the bank to buy the government's debt.
Now, let's go back in time to see how the Byzantines made a mistake and corrected it.
The Byzantine Empire, which arose from the Eastern Roman Empire, initially continued the Roman tradition of solid gold coinage with the solidus.
However, by the 7th century, the empire faced severe economic pressures: invasions, plagues, and internal strife. These challenges led to the debasement of their currency. The once-reliable gold solidus became increasingly adulterated with lesser metals, undermining trust in the currency and destabilizing the economy.
By the 10th century, the Byzantines had realized the perils of a debased currency and initiated a series of reforms. Under the leadership of emperors like Constantine VII, the gold content of the nomisma (the Greek term for the solidus) was restored to its former purity. This move re-established the currency's integrity, stabilized the economy, and restored trust both domestically and internationally.
The Byzantines recommitted to a high gold content in their primary coinage, re-establishing the nomisma as a coin of significant value and reliability. Byzantine rulers enforced strict controls to maintain the gold content, preventing future debasement. With a stable and trustworthy currency, the Byzantine economy flourished. Trade expanded, and economic confidence was restored, leading to several centuries of relative prosperity.
The answer is quite simple, but not easy. Get America back on the gold standard and stop printing its way out of trouble. Money has to be reliable and trustworthy.
The United States' monetary policy has undergone significant transformations, especially since the abandonment of the gold standard with the Nixon Shock in 1971.
This shift marked the beginning of the elastic money era, characterized by the Federal Reserve's ability to expand and contract the money supply at will. While this system offers flexibility in responding to economic crises, it also presents risks, including inflation, currency devaluation, and loss of fiscal discipline. We've experienced all these things in the past few years.
The first step for the United States is to reestablish a hard money standard, akin to the Byzantine return to the gold nomisma. This could be done in one of two ways.
Pegging the U.S. dollar to a fixed quantity of gold would limit the Federal Reserve's ability to print money indiscriminately. This move would stabilize the currency and restore confidence domestically and internationally.
If returning to the gold standard is politically or practically unfeasible, the U.S. could introduce a new gold-backed currency alongside the existing dollar. This dual system would allow market forces to determine the preferred medium of exchange.
Just as the Byzantines enforced strict controls to maintain the gold content of their coinage, the U.S. would need robust mechanisms to uphold the integrity of its hard money standard.
The U.S. must establish an independent monetary authority to oversee the implementation and maintenance of the hard money standard. This body should operate free from political influence to ensure objective decision-making.
Finally, listen to Ron Paul's excellent advice: conducting regular audits and transparent reporting on gold reserves and monetary policy would foster trust and accountability.
Monetary reform must be accompanied by sound fiscal policies to ensure long-term economic stability.
The U.S. must reduce fiscal deficits through prudent spending and efficient tax policies. This move would complement the hard money standard by reducing the need for debt financing through money creation.
It must also create tax incentives for savings and investment that would support economic growth and stability. A stable currency would naturally encourage these behaviors by preserving the value of savings.
Hopefully, this step takes care of itself.
A stable, gold-backed currency would restore confidence in the U.S. dollar, encouraging domestic and international trade.
With a trustworthy currency, consumers and businesses would be more likely to engage in long-term planning and investment, driving economic growth.
A gold-backed dollar would be attractive in international markets, potentially becoming the preferred currency for global trade. This move would enhance the U.S. position in the global economy and increase demand for the dollar.
The Byzantine Empire's return to hard money offers valuable lessons for the United States. By restoring the integrity of their currency, the Byzantines stabilized their economy and laid the foundation for centuries of prosperity.
The U.S. can replicate this success by committing to a hard money standard and implementing complementary fiscal and economic policies.
The United States stands at a crossroads. The experiment with elastic money has yielded the current undesirable state, and the risks of continuing on this path are becoming increasingly evident. By learning from the Byzantine Empire and returning to a hard money standard, the U.S. can restore economic stability, control inflation, and foster long-term prosperity.
The path forward requires courage and discipline, but the rewards are substantial.
A stable, trustworthy currency would benefit all Americans, preserving the value of their hard-earned money and fostering a more robust and resilient economy. The Byzantine blueprint is a proven model, and it's time for the United States to embrace it.
By adopting these reforms, the U.S. can overcome the economic challenges posed by elastic money and secure a stable and prosperous future for posterity.
And that's something to celebrate. Have a wonderful 4th!
The Daily Reckoning