increase in the cost of the more sophisticated tools that are required. Furthermore, similar technological efficiencies are being applied in the field of mining, so everything tends to balance out. History has shown that changes in this natural equilibrium are minimal and occur only gradually over a long 1. See Galbraith, p. 250.
THE BARBARIC METAL
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period of time. For example, in 1913, the year the Federal Reserve was enacted into law, the average annual wage in America was $633. The exchange value of gold that year was $20.67. That means that the average worker earned the equivalent of 30.6 ounces of gold per year.
In 1990, the average annual wage had risen to $20,468. That is a whopping increase of 3,233 per cent, an average rise of 42 per cent each year for 77 years. But the exchange value of gold in 1990 had also risen. It was at $386.90 per ounce. The average worker, therefore, was earning the equivalent of 52.9 ounces of gold per year. That is an increase of only 73 per cent, a rise of less than 1 per cent per year over that same period. It is obvious that the dramatic increase in the size of the paycheck was meaningless to the average American. The reality has been a small but steady increase in purchasing power (about 1 per cent per year) that has resulted from the gradual improvement in technology. This and only this has improved the standard of living and brought down real prices—as revealed by the relative value of gold.
In areas where personal service is the primary factor and where technology is less important, the stability of gold as a measure of value is even more striking. At the Savoy Hotel in London, one gold sovereign will still buy dinner for three, exactly as it did in 1913. And, in ancient Rome, the cost of a finely made toga, belt, and pair of sandals was one ounce of gold. That is almost exactly the same cost today, two-thousand years later, for a hand- crafted suit, belt, and a pair of dress shoes. There are no central banks or other human institutions which could even come close to providing that kind of price stability. And, yet, it is totally automatic under a gold standard.
In any event, before leaving the subject of gold, we should acknowledge that there is nothing mystical about it. It is merely a commodity which, because it has intrinsic value and possesses certain qualities, has become accepted throughout history as a medium of exchange. Hitler waged a campaign against gold as a tool of the Jewish bankers. But the Nazis traded heavily in gold and largely financed their war machine with it. Lenin claimed that gold was used only to keep the workers in bondage and that, after the revolution, it would be used to cover the floors of public lavatories.
The Soviet Union under Communism became one of the world's biggest producers and users of gold. Economist John Maynard 146
THE CREATURE FROM JEKYLL ISLAND
Keynes once dismissed gold as a 'barbaric metal.' Many followers of Keynes today are heavily invested in gold. It is entirely possible, of course, that something other than gold
NATURAL LAW NO. 1
The amazing stability of gold as a measure of value is simply the result of human nature reacting to the forces of supply and demand. The process, therefore, may be stated as a natural law of human behavior:
LESSON: When gold (or silver) is used as money and when
the forces of supply and demand are not thwarted by
government intervention, the amount of new metal added to the money supply will always be closely proportional to the
expanding services and goods which can be purchased witli it Long-term stability of prices is the dependable result of these forces. This process is automatic and impartial. Any attempt by politicians to intervene will destroy the benefit for all.
Therefore,
LAW: Long-term price stability is possible only when the
money supply is based upon the gold (or silver) supply without government interference.
As the concept of money was slowly developing in the mind of ancient man, it became obvious that one of the advantages of using gold or silver as the medium of exchange was that, because of their rarity as compared to copper or iron, great value could be represented by small size. Tiny ingots could be carried in a pouch or fastened to a belt for ease of transportation. And, of course, they could be more readily hidden for safekeeping. Goldsmiths then began to fashion them into round discs and to put their stamps on them to attest to purity and weight. In this way, the world's first coins began to make their appearance.
It is believed that the first precious metal coins were minted by the Lydians in Asia Minor (now Northwest Turkey), in about 600
B.C. The Chinese used gold cubes as early as 2100 B.C. But it wasn't until the kings stepped into the picture that true coinage became a reality. It was only when the
147
These light, shining discs, adorned with curious new emblems and a variety of vigorous, striking images, made a deep impression on both Greek and barbarian. And to the more practical minded, the abundance of uniform pieces of metal, each of a standard weight, certified by the authority of the state, meant a release from the cumbersomeness of barter and new and dazzling opportunities in every direction....
All classes of men succumbed to money, and those who had
formerly been content to produce only for their needs and the necessities of the household, found themselves going to the market place with their handicraft, or the fruits of their toil, to exchange them for the coins they might obtain.1
EXPANDING THE MONEY SUPPLY BY COIN CLIPPING
From the very beginning, the desire for a
