“Napoleon … called the attention of the representative of the Bank of France to the fact that the success and permanence of that institution were of equal or even greater consequence … to the people of France than the victories he was achieving on the field of battle.”
From SENATOR NELSON W. ALDRICH BEFORE THE ECONOMIC CLUB OF NEW YORK NOVEMBER 29, 1909 ON THE WORK OF THE NATIONAL MONETARY COMMISSION (p.28):
Now, the Bank of France has always been from that day to this the Bank of France indeed—the bank of the people of France—sustaining her credit, upholding her honor. No ministry and no party could afford to ignore for a moment this great fact. It would result in the dismissal of any ministry or the overthrow of any party which undertook for a moment to influence the action of this great institution adversely to the public interests. The Bank of France has gone on under emperor, under king, under revolutionary government, and under the Republic—always the bank of the state and the bank of the people of France. Why, in the time of the Commune notes of the Bank of France were current, and the premium on gold in Paris was less than the premium on currency in New York in 1907, showing something of the character of this great institution, which has a place in the heart of every Frenchman that is absolutely unique.
When I was in Paris last year I met a grandson of one of Napoleon's great marshals, who was then investigating the early history of the Bank of France, and who had in his possession a dispatch sent by Napoleon from the field of Austerlitz, just after the battle, in which he called the attention of the representative of the Bank of France to the fact that the success and permanence of that institution were of equal or even greater consequence, in his opinion, to the people of France than the victories he was achieving on the field of battle.
Princes and feudal around the world have long tried to make more with less – and sneak those inflationary policies past the citizenry.
In a review of the Holy Roman Empire in December, the Economist noted that under the loose confederation of the 17th Century composed of “Kreise, ten of them....regional associations that implemented the laws of the Reichstag, regulated tariffs, collected taxes, mobilised troops and so forth. They also dealt with money. In fact, the Kreise ran currency regimes that look remarkably like the EU’s Exchange Rate Mechanism, the precursor to the euro.
The Economist noted: “Princes and cities retained the right to mint their own coins. These usually had the imperial eagle on one side and the local prince’s coat of arms on the other. Unco-ordinated, this would have led to chaos in trade. So the various groschen, florins and pfennigs in circulation were pegged to larger accounting units. The Upper and Lower Saxon Kreise formed the taler zone, for instance, and the Bavarian, Franconian and Swabian Kreise had the gulden zone. These blocks met at regular Kreistage, analogous to today’s euro group, the diet of finance ministers from the 17 countries in the euro zone.”
The Economist reported that even then, rules were tempted to debase their currency: “It fell to the Kreise to police monetary naughtiness. Typically, a prince tried to inflate away his own debt or make himself nominally rich by mixing bits of lead or copper into the gold or silver coins coming out of his mint, so that he could produce more of them. This debased the currency, until the coins were carefully weighed again at a Kreistag. The results were captured on conversion charts, in effect the new exchange-rate pegs.”
Je mehr die Dinge ändern, je mehr sie gleich bleiben.
Or as the French say: “Plus ça change plus c'est la même chose.”
Murray Rothbard, in Economic Thought Before Adam Smith: Austrian Perspective on the History of Economic Thought, referenced the great Greek poet Hesiod as the first economist.
From Hesiod we have many of the great Greek myths, such as that of Pandora. In Works and Days Hesiod retells the story about "a golden race of mortal men" who "lived like gods without sorrow of heart:"
(ll. 109-120) First of all the deathless gods who dwell on Olympus made a golden race of mortal men who lived in the time of Cronos when he was reigning in heaven. And they lived like gods without sorrow of heart, remote and free from toil and grief: miserable age rested not on them; but with legs and arms never failing they made merry with feasting beyond the reach of all evils. When they died, it was as though they were overcome with sleep, and they had all good things; for the fruitful earth unforced bare them fruit abundantly and without stint. They dwelt in ease and peace upon their lands with many good things, rich in flocks and loved by the blessed gods.
Hesiod also anticipated Supply Side economics. "Give is a good girl, but Take is bad and she brings death."
(ll. 352-369) Do not get base gain: base gain is as bad as ruin. Be friends with the friendly, and visit him who visits you. Give to one who gives, but do not give to one who does not give. A man gives to the free-handed, but no one gives to the close-fisted. Give is a good girl, but Take is bad and she brings death. For the man who gives willingly, even though he gives a great thing, rejoices in his gift and is glad in heart; but whoever gives way to shamelessness and takes something himself, even though it be a small thing, it freezes his heart. He who adds to what he has, will keep off bright-eyed hunger; for it you add only a little to a little and do this often, soon that little will become great. What a man has by him at home does not trouble him: it is better to have your stuff at home, for whatever is abroad may mean loss. It is a good thing to draw on what you have; but it grieves your heart to need something and not to have it, and I bid you mark this. Take your fill when the cask is first opened and when it is nearly spent, but midways be sparing: it is poor saving when you come to the lees.
The banks, they seem to have thought, could extend their credits to whatever sum might be wanted, without incurring any other expense besides that of a few reams of paper. They complained of the contracted views and dastardly spirit of the directors of those banks.... -- Adam Smith
"Quantitative Easing" is a fancy new euphemism for an old practice: bailouts demanded by merchants of bankers.
Adam Smith, in An Inquiry into the Nature and Causes of the Wealth of Nations, was an early critic of the practice. From Book II, Chapter II:
It is now more than five-and-twenty years since the paper money issued by the different banking companies of Scotland was fully equal, or rather was somewhat more than fully equal, to what the circulation of the country could easily absorb and employ. Those companies, therefore, had so long ago given all the assistance to the traders and other undertakers of Scotland which it is possible for banks and bankers, consistently with their own interest, to give. They had even done somewhat more. They had overtraded a little, and had brought upon themselves that loss, or at least that diminution of profit, which in this particular business never fails to attend the smallest degree of overtrading. Those traders and other undertakers, having got so much assistance from banks and bankers, wished to get still more. The banks, they seem to have thought, could extend their credits to whatever sum might be wanted, without incurring any other expense besides that of a few reams of paper. They complained of the contracted views and dastardly spirit of the directors of those banks, which did not, they said, extend their credits in proportion to the extension of the trade of the country; meaning, no doubt, by the extension of that trade the extension of their own projects beyond what they could carry on, either with their own capital, or with what they had credit to borrow of private people in the usual way of bond or mortgage. The banks, they seem to have thought, were in honour bound to supply the deficiency, and to provide them with all the capital which they wanted to trade with. The banks, however, were of a different opinion, and upon their refusing to extend their credits, some of those traders had recourse to an expedient which, for a time, served their purpose, though at a much greater expense, yet as effectually as the utmost extension of bank credits could have done. This expedient was no other than the well-known shift of drawing and redrawing; the shift to which unfortunate traders have sometimes recourse when they are upon the brink of bankruptcy.
The work of Sir Isaac Newton, as Master of the British Mint, in creating the classical gold standard is relatively well known.
The work of an equally great scientist, Copernicus, who gave us the heliocentric model of the solar system, is less so.
Leszek Zygner of Nicolaus Copernicus University, recently referenced in another entry here, provides substantial information on Copernicus's great contributions to monetary theory. These are by no means no less relevant today than are his breakthrough contributions to astronomy.
Copernicus wrote three versions of his treatise on the reform of Prussian coinage in the years 1517-26 which have survived in the form of copies and translations. As has been proved in the course of a thorough analysis of their contents, they are subsequent versions of the same work. The text of the first draft, usually referred to as Meditata, was written in Latin in 1517. This document was produced with Bishop Fabianus Lusianus and members of the cathedral chapter of Warmia in mind and was to support their arguments in debates on monetary reform held during assemblies of the Estates of Royal Prussia (Stany Prus Królewskich). The treatise consisted of two parts. In the first Copernicus discusses general issues related to the theory of money and formulates inter alia a law of bad money driving out good. In the second he focused on the current monetary situation in Royal Prussia and in particular on the decline in the value of Prussian coinage, enumerating its types and explaining the reasons for the decrease in value of individual coins. The second version, known from the 16th c. as Modus cudendi monetam (The Way to Strike Coin), was a German translation of the Meditata of 1517. This translation, incidentally abounding in oversimplifications and inaccuracies, was made in 1519 most probably as a document to be presented to the Prussian Assembly attended by the Polish King Sigismund I the Old (Zygmunt I Stary). Copernicus read the German version of his treatise before the Royal Prussian Assembly attended by King Sigismund Is envoys at Grudzi?dz (Graudenz) on 21 March 1522. Referring to the debate held before his speech, he concluded his presentation with a proposal to mint three Prussian szel?gi as an equivalent of one Polish grosz (groshen) and thus to equalize the value of the new Prussian coinage with that issued by the Crown. The third version of his treatise on money entitled Monete cudende ratio (On the Minting of Coin) survives in three copies and was most probably written before April 1526. This revised version partly based on the text of his 1517 paper, was complemented by a general theory of money with special emphasis placed on the debasement of money as one of the main reasons for the fall of a state.
The gold standard, in short, has an unrivaled intellectual pedigree.