A Review of Philip Barton’s Dawn of Gold: The Real Story of Money

“Money” lacks a standard definition. In his 2014 book Dawn of Gold: The Real Story of Money, Gold Standard Institute President Philip Barton defines money as a “store of stable value,” and it is this stable value that separates gold from everything else that aspires to be called money.

Barton cites two theories about the origins of money: (a) Carl Menger’s story, in which money, “the most marketable good,” is a logical extension of barter; and (b) gift economics, which says people give things away with the expectation of getting something back in the future. Gift economics is an offshoot of Georg Knapp’s idea that money is an abstract institution created by governments. According to Barton, both of these origin theories are inaccurate.

Barton believes that a valid origin theory should not only explain history, but still be relevant today. The theory should explain the origin and nature of the relationship between gold and silver, and why only these two metals succeeded as money over the long term. It should also allow us to say with certainty whether something is a valid money.

According to Barton, the actual origin of money stems from gold’s stock to flow ratio. The vast majority of gold ever mined, around 174,000 tons, is still available for use — the “stock”. Around 2,700 tons are mined annually — the “flow.” This ratio of 64:1 gives gold the most stable value of any commodity. Nothing but silver comes close to this ratio. Gold is expensive to dig out of the ground, but it is not scarce. It combines great value with great stability. That is the main reason why gold is money and things like platinum and bitcoins are not. (Platinum coins were actually minted in Russia during the early 19th century, but failed to circulate because their value was unstable.) Gold is money not because it is scarce but because it is both valuable and plentiful.

How did this huge stock accumulate in the first place? Gold seemed to possess a primordial, religious significance that caused it to be hoarded before it became money. It was already perceived as something to be stored for reasons independent of its future use in the exchange of goods. It preceded markets. The Incas are a good example of this. The sun god and gold were considered synonymous, which led the Incas to accumulate gold and created the large stock-to-flow ratio. Gold was always highly valued and hoarded, long before people invented the concept of money. High stock-to-flow ratio has ensured that gold is the one and only money.

Egypt invaded Nubia around 1550 B.C. and gold from Nubia’s mines became widely distributed. Prior to that, gold ownership was restricted to the ruling classes. The general circulation of gold created a “big bang” of social evolution — with trade igniting all over the Mediterranean.

 Gold satisfied all the requirements of money.

  • High value relative to weight and volume.
  • Useful in everyday transactions (although silver played this role on behalf of gold)
  • Fungible — any sample is the same as the next (not true for coffee or wheat
  • Divisible
  • Durable
  • Recognizable
  • Transferable — over both time and space
  • Universal acceptance

 

The Meaning of Value

Barton asks, What is value? It is based on individual perception and changes constantly. Besides non-exchangeable values (core values, aspirations, desires) there are exchangeable values: things produced in an attempt to express a non-exchangeable value with something quantifiable. For example, I buy a ring to show my love for someone. An economic good is an exchangeable, quantifiable value.

Core values such as family, integrity, friendship, honor, love and beauty tend to be stable. Goods values are generally unstable, affected by such volatile forces as fashion. The material advance of society consists of giving ever-more sophisticated form and substance to core values. (Today, someone can show love for family by purchasing an expensive minivan.) Prior to its discovery as a trading lubricant, gold uniquely represented a core value of “being at one with God” — in exchangeable form. While goods per se have no intrinsic value, people use money to quantify their perception of the value of a good at any particular moment and in any particular circumstance.

Barton vs. Menger

Barton defines money as “a known weight and fineness of gold.” Money performs two roles:
(a) to be a measure of value; (b) to be a known value. These both depend on it being a store of stable value.

Barton disagrees with Menger, for whom “measure of value” and “store of value” were not essential to the concept of money. Menger was also wrong to claim that money evolved over thousands of year through a process of natural selection. In reality, gold’s stability of value in the marketplace gave it instantaneous status as money. Menger claimed that money is an economic “good,” but Barton views it as a measure of value. The marginal utility of money does not decline, as the desire for its expression of core values is infinite.

Barton thinks that the terms “medium of exchange” and “most marketable good” are superfluous to an understanding of money. Both refer to “trade goods” like horses or salt. Their use turned the subject of money into a complicated, grand unified theory that tries to identify paper money as the medium of exchange. For Barton, money is not science and we don’t need monetary scientists.

A “trade good,” Barton writes, is “an easily exchangeable good used to transfer value into the future.” Trade goods were used prior to the emergence of money. They were an improvement on barter, but lacked gold money’s guaranteed stability of value. Commercial transactions can take place with (a) gold money (direct exchange), (b) barter (direct exchange), (c) trade goods (indirect exchange), or (d) paper money. Governments can force paper money to circulate only because of taxation and legal tender laws.

Barton notes that many items can be used in exchange, but only money provides stable value over time, and this function is critical for investment to occur. Accumulation (hoarding) increases investment, which creates new technologies, products, and jobs. Direct exchange is one thing, but higher-level investment and manufacturing is something else. A sophisticated economy requires exchanging surplus goods for future security in the form of accumulations of money. Money is more than a tool for the present: it is the fullest expression of future possibilities. Money’s first and foremost function is as a means of storing and accumulating value. Only gold can serve this function.

Barton views money’s use in the exchange of goods as a secondary function — important, but secondary, because no other trade good can perform the primary function of saving and investment. The removal of gold as money means saving is no longer a viable option. All that is left is speculation or living for the moment. To facilitate speculation, interest rates for loans are lowered to rock bottom levels. The falling value of paper money accompanies the rising price of assets. During the 1970s and 1980s, inflation was evident in rising consumer prices. Since then, inflation is evident in falling interest rates and skyrocketing stock and bond prices.

Incidentally, silver was always gold’s surrogate and was probably responsible for gold’s original success in the market. On the other hand, gold’s stability of value is what makes silver useful. The two are completely symbiotic.

Money, Language, and Freedom

Barton defines society as “an enduring state of harmonious, widespread and complex exchange.”

Language and money are the ultimate and most sophisticated expressions of the need to exchange — the former to exchange concepts, the latter to exchange goods. The primary importance of these exchanges is obliquely acknowledged in the defense of freedom of speech and of property rights.

Withdrawing gold and silver from the exchange of goods is the equivalent of withdrawing verbs and nouns from the exchange of concepts. Circulating money actually precedes the development of language above a rudimentary level. The inability to exchange either goods or ideas is the precursor to the breakdown of harmony and the onset of the most extreme expression of the anti-social state — war. Barton notes that it is difficult to separate the urge of governments to debase their coinage from their urge to go to war.

We live in a world where what is used as money is fast approaching a complete breakdown. As it is money that builds societies, so its removal destroys them. Barton believes that the freedom to mine, refine, hold, hoard, save, mint, exchange, invest, and transport gold, unimpeded by the state at any step along the way, is the most fundamental requirement of a free society. All other rights and freedoms can only exist with these freedoms intact.

Barton argues that gold is the money of the world; it is the only money possible. Lack of understanding this fact has brought societies to the brink of destruction. It does not require a degree in economics to know that a known weight and fineness of gold is money. From Croesus of Lydia right down to the present day, the only thing that has kept humanity in scarcity instead of plenty, in war instead of peace, in misery instead of happiness and under surveillance instead of freedom, is government control of money.

The odd thing is that this observation will be regarded as contentious by some, or even extreme. It is neither. It is a statement of the obvious.

You can get a copy of Barton’s book here. Mark Farrelly has written an excellent review that is worth checking out.

Sign up here to be notified of new articles from John R. Skar and AIER.

John R. Skar

John Skar served as AIER president pro tempore from August  2016 through May 2017. A voting member of AIER since 2013, he was elected corporate secretary in 2014. John is an actuary with more than 30 years of senior management experience in US and international life-insurance industries.