By Overvaluing the Conversion Rate Between the Pound and Gold, The U.K. Economy Was in Depression by 1926 (NOT 1929)

Most important, nations [under the gold exchange standard] had to choose a conversion rate between their currencies and gold, then stick to that rate as the new system evolved. In view of the vast paper money supply increases that had occurred during the First World War, from 1914 to 1918, most participating nations chose a value for their currencies that was far below the prewar rates. In effect, they devalued their currencies against gold and returned to a gold standard at the new, lower exchange rate. France, Belgium, Italy, and other members of what later became known as the Gold Bloc pursued this policy. The United States had entered the war later than the European powers, and its economy was less affected by the war. The United States also received large gold inflows during the war, and as a result, it had no difficulty maintaining gold’s prewar $20.67-per-ounce exchange rate. After the Gold Bloc devaluations, and with the United States not in distress, the future success of the gold exchange standard now hinged on the determination of a conversion rate for U.K. pounds sterling.

The U.K., under the guidance of chancellor of the exchequer Winston Churchill, chose to return sterling to gold at the prewar rate equivalent to £4.86 per ounce. He did this both because he felt duty bound to honor Bank of England notes at their original value, but also for pragmatic reasons having to do with maintaining London’s position as the reliable sound money center of world finance. Given the large amount of money printed by the Bank of England to finance the war, this exchange rate greatly overvalued the pound and forced a drastic decrease in the money supply in order to return to the old parity. An exchange rate equivalent to £7.50 per ounce would have been a more realistic peg and would have put the U.K. in a competitive trading position. Instead, the overvaluation of pounds sterling hurt U.K. trade and forced deflationary wage cuts on U.K. labor in order to adjust the terms of trade; the process was similar to the structural adjustments Greece and Spain are experiencing today. As a result, the U.K. economy was in a depression by 1926, years before the conventional starting date of 1929 associated with the Great Depression and the U.S. stock market crash.

—James Rickards, The Death of Money: The Coming Collapse of the International Monetary System (New York: Portfolio / Penguin, 2017), 222-223.

Theft by Devaluation Is the Technocratic Equivalent of Theft by Looting and War that Europeans Set out to Eradicate

At present, Europe’s most tangible and visible symbol is the euro. It is literally held, exchanged, earned, or saved by hundreds of millions of Europeans daily, and it is the basis for trillions of euros in transactions conducted by many millions more around the world. In late 2014 the ECB will occupy its new headquarters building, almost six hundred feet high, located in a landscaped enclave in eastern Frankfurt. The building is a monument to the permanence and prominence of the ECB and the euro.

Many market analysts, Americans in particular, approach Europe and the euro through the lens of efficient-markets theory and standard financial models—but with a grossly deficient sense of history. The structural problems in Europe are real enough, and analysts are right to point them out. Glib solutions from the likes of Nobelists Paul Krugman and Joseph Stiglitz—that nations like Spain and Greece should exit the Eurozone, revert to their former local currencies, and devalue to improve export competitiveness—ignore how these nations got to the euro in the first place. Italians and Greeks know all too well that the continual local currency devaluations they had suffered in the past were a form of state-sanctioned theft from savers and small businesses for the benefit of banks and informed elites. Theft by devaluation is the technocratic equivalent of theft by looting and war that Europeans set out to eradicate with the entire European project. Europeans see that there are far better options to achieve competitiveness than devaluation. The strength of this vision is confirmed by the fact that pro-euro forces have ultimately prevailed in every democratic election or referendum, and pro-euro opinion dominates poll and survey results.

—James Rickards, The Death of Money: The Coming Collapse of the International Monetary System (New York: Portfolio / Penguin, 2014), e-book.

Charlemagne Engaged in an Early Form of Quantitative Easing by Switching to a Silver Standard, and He Created a Single Currency

Charlemagne’s monetary reforms should seem quite familiar to the European Central Bank. The European monetary standard prior to Charlemagne was a gold sou, derived from solidus, a Byzantine Roman coin introduced by Emperor Constantine I in A.D. 312. Gold had been supplied to the Roman Empire since ancient times from sources near the Upper Nile and Anatolia. However, Islam’s rise in the seventh century, and losses in Italy to the Byzantine Empire, cut off trade routes between East and West. This resulted in a gold shortage and tight monetary conditions in Charlemagne’s western empire. He engaged in an early form of quantitative easing by switching to a silver standard, since silver was far more plentiful than gold in the West. He also created a single currency, the livre carolinienne, equal to a pound of silver, as a measure of weight and money, and the coin of the realm was the denire, equal to one-twentieth of a sou. With the increased money supply and standardized coinage, along with other reforms, trade and commerce thrived in the Frankish Empire.

Charlemagne’s empire lasted only seventy-four years beyond his death in A.D. 814. The empire was initially divided into three parts, each granted to one of Charlemagne’s sons, but a combination of early deaths, illegitimate heirs, fraternal wars, and failed diplomacy led to the empire’s long decline and final dissolution in 887. Still, the political foundations for modern France and Germany had been laid. The Frankenreich’s legacy lived on until it took a new form with the creation of the Holy Roman Empire and the coronation of Otto I as emperor in 962. That empire, the First Reich, lasted over eight centuries, until it was dissolved by Napoleon in 1806. By reviving Roman political unity and advancing arts and sciences, Charlemagne and his realm were the most important bridge between ancient Rome and modern Europe.

Notwithstanding the institutions of the Holy Roman Empire, the millennium after Charlemagne can be seen largely as a chronicle of looting, war, and conquest set against a background of intermittent ethnic and religious slaughter. The centuries from 900 to 1100 were punctuated by raids and invasions led by Vikings and their Norman descendants. The period 1100 to 1300 was dominated by the Crusades abroad and knightly combat at home. The fourteenth century saw the Black Death, which killed from one-third to one-half the population of Europe. The epoch starting with the Counter-Reformation in 1545 was especially bloody. Doctrinal conflicts between Protestants and Catholics turned violent in the French Wars of Religion from 1562 to 1598, then culminated in the Thirty Years’ War from 1618 to 1648, a Europe-wide, early modern example of total war, in which civilian populations and nonmilitary targets were destroyed along with armies.

—James Rickards, The Death of Money: The Coming Collapse of the International Monetary System (New York: Portfolio / Penguin, 2014), e-book.