Happy 300th Birthday Mr. Gold Standard, Thank you Sir Isaac Newton

 Portrait of  Isaac Newton  (1642-1727) by Barrington Bramley,  Public Domain

Portrait of Isaac Newton (1642-1727) by Barrington Bramley, Public Domain

by Ralph Benko

The traditional gift for the 50th wedding anniversary is gold. And according to thespruce.com “Optimism and wealth are often associated with gold. Not only is the metal gold beautiful, it is strong, and resistant to corrosion.”

The classical gold standard was invented exactly 300 years ago, in 1717. So, a 300th anniversary would be Gold X 6.

Pretty much everyone knows that Sir Isaac Newton discovered the law of gravity -- the famous falling apple story -- and the three laws of Classical Physics. Fewer people know that Newton’s “day job” was that of Master of the Royal Mint of Great Britain. And as the Master of the Mint he wrote, at the request of Parliament, the paper that is generally seen as the invention of what became the classical gold standard.

As it happens, Newton was trying to restore the silver standard -- “the pound sterling” having originally been a pound of sterling silver. But as rather often happens in science -- Penicillin, Superglue, it’s a long list -- he had a happy accident. It turned out so well that the classical gold standard -- in which paper currency in circulation could be taken to the bank in return for gold coins, and vice versa, at no charge -- worked so well that it became the monetary standard of the world for around 200 years.

It helped propel England from a modest, marginal, nation to the center of a worldwide empire upon which “the sun never set.” Until, of course, the sun set. The fall of the gold standard, like the beginning of the end of the British Empire, began in 1914 with the “Guns of August.”

But in its heyday, gold, and the gold standard, worked wonderfully well (and would work well again if tried). Forbes.com contributor, and author of a series of erudite books about the gold standard, Nathan Lewis, author of Gold, The Final Standard, wrote in Forbes.com:

Britain – which in the 17th century had been an economic backwater of no great significance – then became the financial capital of the world, the birthplace of the Industrial Revolution, and ruler of the greatest global empire of the era.

Not bad.

Britain’s monetary leadership faltered after World War I. The devaluation of 1931 was followed by a period of floating currency, and then several devaluations after WWII.

After 1914, the world’s greatest example of gold standard discipline was the United States. Although there was a devaluation in 1933, the dollar remained linked to gold afterwards, and there were no more devaluations until 1971.

The United States, which had been secondary to Britain in 1914, then rose to be the world’s financial center, the leading example of industrial excellence, and ruler of what amounted to the greatest global empire of the era.

What a coincidence.

Nathan Lewis is being sarcastic, of course. No coincidence at all. The gold standard has been a source of equitable prosperity repeatedly, over thousands of years, and in many countries on many continents.

After World War I, gold fell out of fashion. In 1922, it was replaced by a phony “gold standard” that did not play by its rules.  John Maynard Keynes, the first celebrity economist, famously ridiculed that phony standard, calling it “a barbarous relic.”

He was entirely right. But he wasn’t ridiculing the classical gold standard. He was ridiculing its phony version.

And, now, as we celebrate the Holiday season, let us also raise a toast to the birth of Newton, also born on Christmas Day. Keynes’s final words, delivered posthumously, extolled Newton:

In the eighteenth century and since, Newton came to be thought of as the first and greatest of the modern age of scientists, a rationalist, one who taught us to think on the lines of cold and untinctured reason.

I do not see him in this light. … Newton was not the first of the age of reason. He was the last of the magicians, the last of the Babylonians and Sumerians, the last great mind which looked out on the visible and intellectual world with the same eyes as those who began to build our intellectual inheritance rather less than 10,000 years ago. Isaac Newton, a posthumous child born with no father on Christmas Day, 1642, was the last wonderchild to whom the Magi could do sincere and appropriate homage.

Why do I call him a magician? Because he looked on the whole universe and all that is in it as a riddle, as a secret which could be read by applying pure thought to certain evidence, certain mystic clues which God had laid about the world to allow a sort of philosopher's treasure hunt to the esoteric brotherhood. He believed that these clues were to be found partly in the evidence of the heavens and in the constitution of elements (and that is what gives the false suggestion of his being an experimental natural philosopher), but also partly in certain papers and traditions handed down by the brethren in an unbroken chain back to the original cryptic revelation in Babylonia.

Newton was not the first great scientist to leave his imprint on monetary policy.  The iconic astronomer, Nicholas Copernicus, who discovered that the Earth went around the Sun, rather than the Sun going around the Earth, conducted an entire study devoted to why the gold standard was so important.

Copernicus, in his Essay on The Minting of Money, wrote:

ALTHOUGH THERE ARE COUNTLESS MALADIES that are forever causing the decline of kingdoms, princedoms, and republics, the following four (in my judgment) are the most serious: civil discord, a high death rate, sterility of the soil, and the debasement of coinage. The first three are so obvious that everybody recognizes the damage they cause; but the fourth one, which has to do with money, is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way.

“The debasement of coinage” is econospeak for inflation, a common, even prevalent, condition under paper money regimes.  The Powers That Be ignored Copernicus’s wise counsel “On The Minting of Money” … and paid the price. Prussia, ignoring the monetary “rules of the game,” declined.

So, the classical gold standard has two of the greatest scientists in history in its provenance.

There is a major difference between gold and the gold standard. The gold standard kept, and would keep, the value of a nation’s currency solid.  Candidate Trump he told WMUR, “We used to have a very, very solid country because it was based on a gold standard.” Whatever else you may think of President Trump he got this right.

Until America (and the world) returns to the classical gold standard there is a way for you to protect the buying power of your savings. Put a portion into gold. 

At Responsible Gold, you can buy it a gram at a time, easily, safely, and with confidence in the security of its storage in high security Swiss vaults.  Then, whatever happens with the stock market, the bond market, or the economy you have some insurance against the tail risk. 

On this tercentenary of the invention of the gold standard treat your portfolio to something associated with “Optimism and wealth…. beautiful, … strong, and resistant to corrosion.” Responsible Gold.

About the author:

Ralph Benko is editor-in-chief of The Supply Side and, with Charles Kadlec, author of The 21st Century Gold Standard: For Prosperity, Security, and Liberty, and lead co-editor of the Laissez Faire Books edition of Copernicus’s Essay on Money.

Benko also wrote The Webster’s Dictionary: How to use the Web to transform the world and was editor of The Lehrman Institute’s gold standard website. He was one of 23 official witnesses before the Reagan Gold Commission, testifying on the constitutional history of American monetary policy.