Monday, July 8, 2019

Silver is the monetary metal with proven historical resilience

This is based on a comment I made here:

Milton Friedman suggested that the pre-1873 mix of silver standard, gold standard, and dual standard countries was possibly more stable than having almost all the major countries on the gold standard.  I think he is correct: that international monetary order certainly lasted a lot longer.

Athenian "owl".
The notion that all of monetary history somehow peaked in 1873-1913 (the "classical" gold standard era) and it has been downhill ever since does not make much sense. Historically, silver was a much more important monetary metal than gold, and silver-dominated eras lasted centuries longer than "the" gold standard.  Even if one just sticks to coins, Eurasia was essentially on the silver standard from around 500BC (the beginning of the Athenian tetradrachm) to the crisis of the C3rd, where every major Eurasian state except Rome collapsed. A crisis that was predominantly driven by the collapse of Roman silver production knocking a key prop out of the Roman-Han trading system.

Leaving out the steppe trade routes, as is sadly common.
The Eurasian-come-global trading system was on the silver standard (based after 1497 primarily on Spanish silver dollars/pieces of eight/peso: the first world currency) from the (re)invention of the suction pump and liquation (copper-silver smelting process) in the mid C15th, which brought to an end the Great Bullion Famine, followed by the looting of the Aztec and Incan empires and then discovery of the Potosi silver mountain and other silver mines until the collapse of the Spanish Empire in the Americas in the 1820s and subsequent failure of coins minted in the former empire to retain their silver content consistency. (A consistency the Spanish crown had managed to essentially maintain from 1497 until the 1820s).

From the reign of Ferdinand and Isabella.
If you want to go with historically proven resilience, the silver standard makes more sense than the gold standard. It was true that medieval rulers were more likely to debase their silver coins (used internally) than their gold coins (used more for international trade) but states where the branding value for their coins of consistent silver content was sufficiently high could manage such consistency for centuries.

And, while history does not repeat, it does rhyme.  China exported lots of goods in return for American-minted Spanish coins from the early 1500s to the 1820s (which is why Spain conquered the Philippines--to get a base close to China.) Possibly about a third of American-mined silver went to China.  Now China exports lots of goods in return for lots of printed portraits of American presidents.

BTW the suggestion that the Chinese "disdained" Western goods is mostly just silly. China produced about a third of world output but much less of its silver and used silver bullion as its main medium of account. The European economies were (by comparison) "flooded" with mined-in-the-Americas silver. Of course goods flowed to where they were exchanged for more silver and silver flowed to where it was exchanged for more goods. Having even the occasional esteemed economic historian (I am looking at you Douglass North) repeat this economically illiterate canard is sad.

[Cross-posted at Skepticlawyer.]

2 comments:

  1. I seem to recall reading that the English silver penny was one of the hardest and most stable currencies in Europe (despite regular civil strife and external wars).

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    1. Sounds about right, but it never quite made it as a major international currency, as England was just a bit too peripheral (at the time).

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