Edwin Walter Kemmerer - Gold and the Gold Standard: The Story of Gold Money, Past, Present, and Future

GOLD AND THE
GOLD STANDARD

The Story of Gold Money
Past, Present and Future

BY

EDWIN WALTER KEMMERER

Emeritus Professor of International Finance
Princeton University

FIRST EDITION

McGRAW-HILL BOOK COMPANY, INC.
NEW YORK AND LONDON
1944

Prefatory Note

At the end of the war, this world will be confronted with the problem of rehabilitating its monetary systems and of thereby bringing order out of the monetary chaos that has been created. Many different kinds of monetary standards will have their advocates, and the debate will be a vigorous one in terms of both light and heat. Early discussions of the problem should contribute to the formation of an intelligent public opinion. It is with the thought of making such a contribution that this book is being written.

Prominent among the contenders for first position in the worlds monetary systems of the early postwar future will be the gold standard, which, though badly battered and bruised, can still claim, by reason of its past record, to be the heir apparent.

The discussion that follows attempts to explain briefly the origin and history of gold money and of the gold standard, the fundamental principles of the gold standard, its defects and merits, and to outline a plan for a future international gold standard.

In the preparation of this book I have received aid from many friendstoo many to mention by name in a brief prefatory note. I must, however, make exception by expressing my particular gratitude to Dr. Louis C. West and Professor Philip K. Hitti, of Princeton, for their valuable suggestions concerning the money of ancient times, and to my son Professor Donald L. Kemmerer, of the University of Illinois, and Professor Oskar Morgenstern, of Princeton, both of whom read the entire manuscript and gave me many useful criticisms and suggestions, most of which I have adopted.

EDWIN WALTER KEMMERER.

PRINCETON, N. J.,
October, 1944.

Gold and the Gold Standard

Speak of the moderns without contempt and of the ancients without idolatry; judge them all by their merits and not by their age.LORD CHESTERFIELD, 1748.

The gold standard in its orthodox form is a product of the nineteenth century. Its roots, however, go deep into the past. This chapter will explore briefly this early history of gold as money, i.e., as a commonly accepted medium of exchange.

Gold, by reason of its beauty, its world-wide distribution, the facility with which it could be obtained from the streams by crude methods of panning, and the ease with which it could be worked, probably had a wider use as a medium of exchange in very ancient times, and among primitive peoples in modern times, than any other metal.

This metal was first used as money in such forms as nuggets of gold, gold molded in the shape of shells, which served also as ornaments, and gold dust. In ancient Mexico, Africa, and elsewhere, gold was put into transparent quills, which were used as a common means of payment. It circulated in small cubes in China as early as 1100 B.C. Many hundreds of years before the beginning of the Christian Era, gold media of exchange were used in Asia Minor and a large part of Europe. These early media were usually made of almost pure gold, the art of hardening the metal by means of alloy apparently not having been introduced until after the beginning of the Christian Era.

The earliest references I have been able to find in recorded history to the use of one of the precious metals as a medium of exchangein these cases, passing by weightare in the Code of Hammurabi,

The peoples of classical times had very little knowledge of the money of their early ancestors. They had no books on money, and the few written records available to them were chiefly on stone and papyri in the form of laws, decrees, and scattered miscellaneous notes. By far the most important part of our records of these early times consists of the money itself, which has been preserved and is now held largely in the museums of the world, where it is classified and catalogued. The coined money alone of classical times that has been thus preserved runs into tens of thousands of pieces; and the weights of these pieces, the materials of which the coins are made, their forms, and especially the designs and legends that they bear give us valuable information.

Thanks to the careful studies made by classical scholars over many generations, we know today much more about the money of classical times than the ancients knew. There are, however, many gaps in the chronology of the coins that have come down to us, and the story that these coins tell is far from complete. It is still full of controversial questions concerning which the modern literature is voluminous, but progress in their solution is being, made continually.

Coinage was originally of the nature of a seal or hallmark punched on a nugget of metal as a guarantee of its quality or its weight. The beginnings of coinage appear to have been made in the countries of the Sennacherib, King of Assyria (705-681 B.C.), said, I built a form of clay and poured bronze into it as in making half-shekel pieces.

Many of the early coins were made of electruma natural alloy, consisting of about three parts of gold to one part of silver, which was found abundantly in Lydia and which caused that country to be known as the land of gold. Because of the difficulty in separating the gold from the silver, the ancients regarded electrum almost as a distinct metal. Early coins of pure gold in Asia Minor were probably made from placer gold obtained from the valley of the Oxus or from the Ural Mountains. The electrum coins were ancient examples of what in modern times is called symmetallism.

I have in my possession a gold daric, one of the oldest and most famous gold coins in history. It is made of almost pure gold and is about the weight of our late American $5 gold piece. It looks like a roughly molded gold nugget and bears a crude stamp of an archer with his bow and spear. The coin was made during the reign of Darius the Great of Persia, about 500 years before Christ. Only about two generations before this, in the reign of Croesus, which began 561 B.C., there circulated in Asia Minor the coins of which Herodotus said, The Lydians were

In those early times, gold coins and silver coins circulated for several centuries under a dual standard. Gold gained in importance at the time of Alexander the Great, under the stimulus furnished by the large amount of gold produced in his Pangean mines.

In Homeric times values in Greece were reckoned in terms of the cow. According to Ridgeway,... weighing was first invented for traffic in gold, and since the weight-unit of gold is found regularly to be the value of a cow or ox... the unit of weight is ultimately derived from the value in gold of a cow.

The first gold coin to circulate in Hellas proper was the aforementioned Persian daric or stater (meaning to weigh), which weighed about 130 It was known in Palestine during Biblical times.

The Greeks learned the use of gold coin from the Asiatics, but they were slow to coin gold themselves. The first place in Hellas proper to mint money was Aegina, which was a commercial center. The silver coins of this small island and the Persian gold darics circulated extensively in Magna Graecia. Solon is believed to have been the first person to coin silver money in Athens. Coins of silver and gold apparently passed at approximately their respective bullion values. In this dual-standard system, silver coins were those most widely used, but gold coins played an extensive part in the countrys foreign trade, also in many of the larger domestic transactions and for reserves in the temples. In times of war and other great emergencies, there was an increased coinage of gold from metal obtained by melting down golden statues and ornaments, which were obtained largely from the temples.