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As an educator, could you review the history of money and the critical role that gold has played over the years?

Stuart Veale

Video Transcript

In order to really appreciate gold, you actually have to take a little time and have a little appreciation for the history of gold and the history of money itself. In the early days, we used a lot of things as money. We used: cotton, bails of wheat, but everything was a warehouse receipt. You would take your cotton down to the center of town, you would put it in the warehouse, they'd test it to make sure it was of good quality, and they would give you paper receipts for your cotton. Then you could go to the various stores and buy what you wanted and you'd trade these sheets, but each sheet was backed by a bail of cotton. Those sheets could change hands 10, 15, 20 times, but then somebody at some point that wanted the cotton would show up at that same warehouse and say, "Give me my cotton or A bail of tobacco or a bushel of corn." That's a warehouse receipt. That's where our money started out, as a warehouse receipt. It was paper money that was backed by physical gold. It was just easier to hand carry around paper, than it was to carry around gold coins.

If you look at our early money, it says, "This certificate entitles bearer to fifty dollars in gold coin." or "twenty dollars in gold coin." You could go to any bank and you put the fifty-dollar bill under the teller’s window and they hand you back a fifty-dollar gold coin or a twenty-dollar gold coin. It was just literally a warehouse receipt.

The idea was that it was 100% backed, but governments being governments, of course, they print more dollars than there was actually gold. Then in the 1930's we found that out, when everybody wanted to take their paper money at once and exchange it for gold. The government had to fess up and say, "Well, we actually printed up more money than there was." The banks closed for three days. Roosevelt confiscated the gold. Trying to put more gold supply in. We went to a 40% backing and then a 20% backing. Today, it's minuscule how much gold backs our paper dollars; If in fact there is any. There's some dispute about that. No one has seen the gold in Fort Knox in decades. So, who knows if it's there? Who knows if it's there or not? Even if it's there, it's a minuscule amount relative to the number of paper dollars that are in existence. So warehouse receipts are real money.

What we have now is fiat money. If you take a look at what happened in Athens, if you take a look at the way the Roman Empire collapsed, take a look at the Byzantine Empire, the Lydian Empire, all of them, it's the same basic process all over again. What never changes is human nature. Particularly, the human nature politicians, whether it's a King, whether it's a Parliament, whether it's a Congress, whether it's a President; it makes no difference. They always want to provide more in services, than they want to collect in taxes. They provide services; they're popular. They keep taxes low; they're popular. So there's this inevitable pressure on them to provide more, tax less, and kick the can down the road, and it just grows and grows and grows, until the point where it becomes insurmountable. Then the society in its present form collapses and a new society, for better or for worse, emerges from it.

It's happened again hundreds of times throughout history. There's no change here. It's basic human nature and that's not going to change. We see that in Washington in the starkest of forms between the gerrymandering of the congressional districts. Nothing significant is going to happen. You've got a 50/50. We're a nation divided; half wants lower taxes, half wants bigger spending, and they'll do a little trimming around the edges to make it look like they're doing something useful. The reality is there is really nothing they can do. We're passed the point of no return.

So, it's just a question of how quickly it decays. Again, is that tomorrow; probably not. Is it next month; who knows. I'm not willing to take the risk. My family is too important to me. My future is too important to me. You never know with life insurance. Is tomorrow the day you get hit by a car? You run the risk. The price is right now.

For more information please get in touch with a Monex Account Representative at 1-800-444-8317.