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Gresham's Law
states that bad money drives good money out of circulation. In other words,
debased money drives non-debased money under mattresses and into shoe boxes.
Sir Thomas Gresham
Sir Thomas Gresham (1519-1579) lived during the reign of the Tudors in
England. Those of you who have been watching the excellent TV series, "The Tudors",
will appreciate this history. Gresham's father, Sir Richard Gresham, served
as the Mayor of London, a member of parliament, and was knighted by Henry
VIII.
Thomas served Henry VIII in his younger years and went on to serve King
Edward VI (son of Henry and Jane Seymour), Queen Mary (daughter of Henry and
Catherine of Aragon) and Queen Elizabeth (daughter of Henry and Anne Boleyn)
in the role of royal financial wizard.
Henry VIII and Edward VI, during their reigns, drastically debased the silver
coinage of the kingdom through both weight and purity. In 1544, young King
Edward VI issued a coin containing just one third silver and two thirds
copper — equating to .333 silver, or 33.3% pure. The result was a coin
copper in appearance, but relatively pale in color. A shocking debasement
considering England's first silver coins were .999 pure, followed by .925
which later came to be known as sterling silver.
The Tudors
Then, in 1552, a penny's weight was cut to only 8 grains (0.52 g). The penny
began at 22.5 troy grains of fine silver and was reduced to 15 grains around
1420, then to 12 grains in 1464, and 8 grains in 1552.
In 1551 Thomas Gresham was called upon by King Edward VI to rescue the pound
sterling which had embarrassed the king as it collapsed in value. Gresham's
solution was to manipulate the value of the pound sterling on the bourse
(exchange) in Antwerp (modern-day Belgium) through "ingenious, arbitrary
and unfair means". His methods were so successful that King Edward later
discharged almost all of Gresham's personal debts.
Sir Thomas Gresham went on to serve Edward's two half-sisters as they took
succession of the throne. Another interesting story is the fictional excerpt
from "The Virgin Lover" related by John Rubino in
A
Tremendous Secret. Sir Gresham was Queen Elizabeth's
closest monetary advisor at the time:
The year is 1560
and the young queen Elizabeth rules a country nearly bankrupted by a Spanish
alliance that produced only war and debt. The English treasury has been
systemically debasing its coins by clipping and shaving them, so that their
face value vastly exceeds their gold content.
Elizabeth’s advisors have decided that the monetary system needs to be
reset, and have been importing borrowed gold. On the appointed day they
intend to call in the circulating coins and replace them -- by weight rather
than face value -- with newly-minted coins. This devaluation will transfer
citizens’ wealth to the government, impoverishing the former and
enriching the latter. And if all goes as planned it will come as a surprise
to most of the country.
But Elizabeth’s lover, Sir Robert Dudley, learns of the plan and is not
happy:
Queen Elizabeth I
Elizabeth turned and smiled at him and took his hand and held it to her
cheek. “My Robert.”
“Tell me, my pretty love,” Robert said quietly. “Why are
you bringing in boatloads of Spanish gold from Antwerp, and how are you paying
for it all?”
She gave a little gasp and the color went from her face, the smile from her
eyes. “Oh,” she said. “That.”
“Yes,” he replied evenly. “That. Don't you think you had
better tell me what is going on?”
“How did you find out? It is supposed to be a great secret.”
“Never mind,” he said. “But I am sorry to learn that you
are still keep secrets from me, after your promises.”
“I was going to tell you,” she said at once. “It is just
that Scotland has driven everything from my mind.”
“I am sure,” he sad coldly. “For if you had continued with
your forgetfulness till the day that you called in the old coin and issued
new, I would have been left with a small treasure room filled with dross,
would I not? And left at a substantial loss, would I not? Was it your
intention that I should suffer?”
Elizabeth flushed. “I didn't know you were storing small coin.”
Sir Robert Dudley
“I have lands; my tenants do not pay their rents in bullion, alas. I
have trading debts which are paid in small coin. I have chests and chests of
pennies and farthings. Do tell me what I may get for them?”
“A little more than their weight,” she said in a very small
voice.
“Not their face value?”
She shook her head in silence. “We are calling in the coins and issuing
new,” she said. “It is Gresham’s plan -- you know of it
yourself. We have to make the coins anew.”
Robert let go of her hand and walked to the center of the room while she sat
and watched him wondering what he would do. She realized that the sinking
feeling in her belly was apprehension. For the first time in her life she was
afraid what a man was thinking of her -- not for policy but for love.
“Robert, don't be angry with me. I didn't mean to disadvantage
you,” she said and heard the weakness in her own voice.
“I know,” he said shortly. “It is partly that which amazes
me. Did you not think that this would cost me money?”
She gasped. “I only thought it had to be a secret, a tremendous secret,
or everyone will trade among themselves and the coins will be worse and worse
regarded,” she said quickly. “It is an awful thing, Robert, to
know that people think that your very coins are next to worthless.”
Here is an interesting fact: Sir Thomas Gresham did not formulate "Gresham's
law"! It was actually a well known concept of the time, though it didn't
carry any name. It wasn't until 300 years later, in 1857, when an economist
named Henry Dunning MacLeod attributed Gresham's name to the concept.
I think it is clear from this story that Thomas Gresham was not exactly a
hard money hero. In fact, he was an agent of monetary control and debasement.
Which brings me to the main concept of this post, that Gresham's Ghost is
still with us today, debasing our medium of exchange and unit of account and
driving the evolution of money to Freegold.
Money. It is what confuses our soul and drives us to do that which makes
absolutely no sense. It is only because we have been led by a chronological
history, rife with warnings of debasement, into thinking that we must retain
that which is only an ephemeral medium of exchange as our ultimate store of
life-long value. Do the truly wealthy hold rooms-full and truckloads of paper
cash? Hell no! They hold real stores of wealth, like artwork, antiques,
property, collectibles and land. Why then have we, the subjects of the world,
the masses, been led to only hold that one faulty medium of exchange as our
main store of value? Why? Because it is the one thing in this world that is
vulnerable to the collective, the government and banker debasement and the
surreptitious theft of the inflation tax!
With each new advancing stage of civilization we climb one step higher on the
ladder of economic sophistication. And once there, we perceive the need for a
more sophisticated way to use money. We are told that this newfound monetary
sophistication is responsible for our higher standard of living. What a lie!
It is here, at this step of sophistry, that men always attempt to combine
receipts with real wealth. Each time we come to this point, each new idea
throughout history promises to undo the prior problems. And each time the
wealth of the common man, his life-long savings is risked, plundered and
squandered once again as the world tries to make gold into something it
isn't.
It is the mashing of the gold wealth concept with the circulating credit
receipt concept that opens the door to some of the greatest problems man has
ever seen. Take, for example, the period of the modern gold exchange
standard. 1913: Creation of the Federal Reserve System. 1914: WWI. 1923:
Weimar hyperinflation. 1930: The Great Depression. 1939: WWII. 1950: The
Korean War. 1959: The Vietnam War. 1971: Off the gold exchange standard.
Inflation of the circulating money supply is simply a fact of life in our
imperfect world. The collective or the King always finds a way to inflate or
debase money to its own advantage. And if circulating money is gold, or based
on gold, then inflation is historically done through the golden spoils of war
or confiscation. The cry of the hungry collective is "if fiat is our
money, we must borrow it. We must print it. If gold is our money we must take
it. We must have money when it is needed!"
It is for this reason that electronic fiat money is here to stay. Yet evolution
still takes us forward, not back. Gresham's Ghost is with us today, driving
the finite physical gold supply of the world into private hands, into
mattresses and shoe boxes as the collective's play money is inflated to the
heavens. Moving forward with the flow of evolution means embracing this fiat
money experiment that society will always tamper with, and at the same time
owning the wealth of ages as the ancients did, in your possession. In this
way, the average family can know their wealth is real while society at large
pursues its greedy folly while issuing unlimited receipts of credit.
Embrace Gresham's Ghost, for it is leading us to Freegold!
Sincerely,
FOFOA
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