DarkRange55
We are now gods but for the wisdom
- Oct 15, 2023
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Part I-A.1: Caveats in the Financial Track Record of Gold and Silver (Mesopotamia to Rome)
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1. The Marketing Power of "5,000 Years"
The phrase "gold has a 5,000-year track record" is powerful because it implies permanence in a financial world where currencies and empires collapse in decades or centuries. The idea reassures investors that gold has always been there, a safe refuge through all of history. But as soon as we begin to ask what that track record actually consists of, problems appear. Are we measuring gold's presence as a cultural symbol, its use as proto-money, or its role in formal coinage? These are three very different histories.
Scholars typically break it down like this: about 5,000 years of ornamental and ritual continuity, where gold was prized as adornment or sacred metal; about 4,500 years of proto-monetary use, where silver, in particular, was employed as a weight standard for debts in Mesopotamia; and about 2,600 years of continuous coinage, beginning with the Lydians around 600 BCE. The marketing line is not false, but it merges these categories into a single sweeping story that oversells consistency.
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2. Mesopotamia: Silver as Proto-Money (~3500–3000 BCE)
Mesopotamia provides the first clear evidence of metal in a financial role. Cuneiform tablets from Ur, Lagash, and Uruk record contracts and wages denominated in shekels of silver, each weighing about 8.3 grams[1]. But these were not coins; silver circulated as ingots, rings, or fragments of "hacksilver." Archaeologists have found jars filled with cut silver in temple hoards. It was valuable, divisible, and relatively scarce, making it useful as a unit of account.
But silver's use was still cumbersome. Every transaction required weighing and purity testing, and fraud was common. Ordinary people used barley, dates, or beer for daily exchange. A worker's wage might be written down as "1 shekel of silver," but the actual payment could be delivered in grain at the equivalent rate. In this sense, silver was more of a notional standard than a universally circulating medium. It gave Mesopotamian economies an accounting unit, but not a coinage system in the modern sense.
[1] R. Powell, Weights and Measures in Mesopotamia (1994).
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3. Silver's Limits in Mesopotamian Trade
The limits of silver in Mesopotamia show why calling this the start of a "financial track record" requires caveats. Because silver was scarce and cumbersome to handle, it was mostly used in temple and palace economies, where institutional trust allowed larger transactions to be settled. For ordinary households, barter remained dominant. Even long-distance merchants preferred to combine silver with commodities like wool or copper, rather than rely on bullion alone.
David Graeber emphasizes this in Debt: The First 5,000 Years: Mesopotamian economies were fundamentally credit economies, with social obligations recorded on clay tablets and settled at intervals. Silver provided a shared measure of value for those obligations, but it was not the day-to-day medium of exchange. In other words, silver was financially important, but not in the way modern advocates of gold and silver imagine when they speak of an "unbroken record" of money[2].
[2] D. Graeber, Debt: The First 5,000 Years (2011).
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4. Egypt: Gold as Divinity (~3100 BCE onward)
Egypt's story runs parallel but in a very different way. Gold flooded into Egypt from Nubian mines and became deeply tied to religion and kingship. Pharaohs called it the "flesh of the gods," and it was central to their burial practices. The golden mask of Tutankhamun is just the most famous example of a tradition that lasted for millennia. Gold's role was primarily symbolic and sacred, a medium of eternity and authority, rather than a medium of everyday exchange.
Economically, Egypt was unusual: silver was rarer than gold, since there were no major local sources. As a result, silver was sometimes valued more highly than gold in official accounts[3]. Daily wages were paid not in metal but in rations of bread and beer. Copper was the practical working metal. Thus, while gold was ever-present in Egyptian culture and politics, its function was not financial in the way modern investors assume. It was a store of spiritual value, not a circulating currency.
[3] R. Klemm & D. Klemm, Gold and Gold Mining in Ancient Egypt and Nubia (2013).
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5. The Varna Necropolis (~4600 BCE)
The Varna Necropolis, on the Black Sea coast in modern Bulgaria, takes gold's symbolic role back even further. Dated to around 4600 BCE, it contains the earliest substantial gold hoard ever discovered, with hundreds of ornaments buried alongside elite individuals[4]. This shows that gold was tied to social prestige thousands of years before Mesopotamian silver became a standard of value.
But once again, this was not financial in any systematic sense. The gold was not used for trade or contracts; it was a burial marker of hierarchy. The "track record" here is cultural and archaeological. If one includes Varna and Egypt in gold's record, one is speaking about longevity of prestige, not continuity of money. This is an important caveat often overlooked when the 5,000-year figure is repeated uncritically.
[4] I. Ivanov, The Varna Necropolis (1978).
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6. Lydia: The Invention of Coinage (~600 BCE)
The real turning point for precious metals as money came in Lydia, in western Anatolia. Around 600 BCE, the Lydians struck the first electrum coins, a natural alloy of gold and silver, marked with royal stamps. These marks certified both weight and purity, solving the key problems of hacksilver systems. As Herodotus later observed, the Lydians were the first people "to strike and use coins of gold and silver"[5].
King Croesus (c. 561–546 BCE) went further by issuing separate pure gold and pure silver coins, eliminating the variability of electrum. This system spread rapidly to Persia, Greece, and eventually Rome. From Lydia onward, we can finally speak of a continuous 2,600-year history of gold and silver as coined, standardized money. This is the financial record modern advocates usually have in mind, but it is shorter and more contingent than the marketing claim suggests.
[5] Herodotus, Histories 1.94; C. Howgego, Ancient History from Coins (1995).
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7. The Roman Denarius and Aureus: Reliability
Rome perfected the coinage system. The denarius, introduced in 211 BCE, weighed ~4.55 g at ~98% silver[6]. The aureus, struck at ~8 g of nearly pure gold, became the empire's high-value coin. Together they created a stable system that lasted for centuries. Taxes, military pay, and trade across the Mediterranean depended on their trustworthiness.
Roman coins circulated far beyond imperial borders, accepted in distant markets because of their consistent weight and purity. This was gold and silver at their most reliable — a period that justifies the claim of a durable financial record. For several centuries, the Roman system represented the high point of precious metals as international money.
[6] C.H.V. Sutherland, Roman Coins (1974).
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8. Rome: Debasement and Collapse of Trust
But Rome also shows how fragile metal money can be. By the 3rd century CE, under the pressure of military spending and declining silver mines, the denarius was debased to less than 5% silver content[7]. Prices soared; soldiers demanded pay in gold or commodities. Inflation during the Crisis of the Third Century may have reached 1,000%.
Pliny the Elder captured Roman anxieties in Natural History (77 CE), complaining that India, China, and Arabia drained 100 million sesterces each year for luxuries[8]. Rome's silver mines, particularly in Spain, could not keep pace. The empire clung to gold longer, but silver collapsed as reliable money. Rome's "track record" is thus double-edged: centuries of stability, followed by catastrophic erosion.
[7] K. Hopkins, Taxes and Trade in the Roman Empire (1980).
[8] Pliny, Natural History 12.41.
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9. Rome's Dual Legacy
Rome leaves us with two lessons. First, gold and silver coinage can provide centuries of stable, trusted money when state integrity is maintained. Second, the same system can collapse quickly when political expediency drives debasement. Rome preserved the form of money but lost its value. This duality — resilience mixed with fragility — is a theme that repeats throughout gold and silver's long history.
Part I-A.2: Caveats in the Financial Track Record of Gold and Silver (Medieval to Modern)
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10. Medieval Europe: The Long Silver Age
After Rome's collapse, Europe's monetary system contracted dramatically. For centuries, silver was the only significant precious metal in circulation. The denier (France), penny (England), and pfennig (Germany) were small silver coins introduced by Charlemagne's reforms in the late 8th century[9]. These coins contained just 1–2 grams of silver, a far cry from the heavy denarii of the Republic. They became the backbone of medieval economies, especially for everyday transactions.
But the system was fragile. Silver pennies were frequently clipped, debased, or underweight. Archaeological hoards reveal coins of wildly varying purity. For peasants, barter and tally sticks remained common, while lords often preferred rents in kind. Gold virtually disappeared from circulation in Europe until the high medieval revival of trade. Thus, while silver provided continuity, it was a continuity of scarcity and instability rather than strength.
[9] P. Spufford, Money and Its Use in Medieval Europe (1988).
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11. The Return of Gold: Florins and Ducats
The revival of international commerce in the 13th century brought gold back into European circulation. Florence introduced the florin (1252), a nearly pure 3.5 g gold coin, and Venice followed with the ducat (1284)[10]. These coins quickly became trusted international media of exchange, circulating from London to Constantinople. Merchants prized them for their consistency, and their wide adoption marked the return of gold as a reliable international standard.
Yet this revival highlights a caveat. These coins were not everyday money for ordinary Europeans; they were merchant and elite money, useful for large-scale trade, diplomacy, and church finances. The common person's economic life still ran on barter, silver pennies, and obligations in kind. Gold was back, but it was not universal. Its track record was one of elite stability, not popular ubiquity.
[10] Spufford, Money and Its Use in Medieval Europe.
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12. Islamic Bimetallism: The Dinar and Dirham
While Europe stagnated, the Islamic world achieved remarkable monetary stability. From the 7th century onward, the caliphates issued the gold dinar (~4.25 g) and silver dirham (~2.9 g)[11]. The Abbasid caliphate in particular maintained a relatively stable ratio of ~1:10 between the metals for centuries. These coins spread across a vast territory, underpinning trade from Spain to Central Asia.
But this stability was always contingent. The sack of Baghdad by the Mongols in 1258 disrupted minting, and regional rulers began debasing or over-issuing coins. Local shortages of silver sometimes forced reliance on copper fulūs, which suffered from inflation. The Islamic record shows both the potential of bimetallism and its vulnerabilities: metals could unify global commerce, but political shocks could destabilize them quickly.
[11] L. Bolshakov, Financial Life under the Abbasids (1990).
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13. China's Silverization and Global Dependence
China's monetary history illustrates another major caveat. Copper cash dominated everyday trade, but silver became increasingly important for larger transactions. By the late Ming dynasty, especially after the Single Whip Reform (1580s), taxes had to be paid in silver, binding the empire's fiscal health to bullion inflows[12]. Spain's Manila galleons carried New World silver directly to Asia, and by some estimates, one-third of global silver production ended up in China.
This dependence created fragility. When inflows slowed in the 1640s, shortages destabilized the Ming, contributing to rebellion and collapse. Later, in the Qing dynasty, the Opium Wars and Britain's manipulation of silver flows created further crises. Silver gave China centuries of continuity, but it was a continuity dependent on global trade routes. When those flows failed, the system faltered.
[12] Dennis Flynn & Arturo Giráldez, Born with a "Silver Spoon": The Origin of World Trade in 1571(1995).
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14. India's Mughal Rupees and Cultural Hoards
India combined a vibrant coinage system with deep cultural hoarding traditions. The Mughal Empire (16th–18th centuries) minted the silver rupee, which became one of the world's most widely recognized coins[13]. Its stability made it a benchmark across South Asia and even beyond.
At the same time, India absorbed and stored staggering amounts of gold. Temples, households, and dowries accumulated bullion, much of which never re-entered circulation. Even today, scholars estimate that 20–25% of global above-ground gold stock is held in India[14]. This preserved wealth across generations but also meant much of gold's "track record" here was one of cultural storage rather than financial activity.
[13] S. Chaudhuri, The Trading World of Asia and the English East India Company (1978).
[14] World Gold Council, Gold Demand Trends (2022).
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15. West Africa's Gold Empires
From the 9th to 16th centuries, West Africa was among the world's dominant sources of gold. The Ghana, Mali, and Songhai empires controlled mines that fed Saharan caravans, exchanging gold dust for salt, textiles, and slaves[15]. Gold's role here was central to state formation and wealth accumulation.
Yet again, volatility intruded. When trade routes shifted or political fragmentation occurred, supplies dried up and economies faltered. Gold was foundational but not consistent: its abundance created powerful kingdoms, but its scarcity led to collapse. This regional track record demonstrates both the prestige and fragility of bullion-based wealth.
[15] J. Devisse, The Image of the Black in Western Art, Vol. II: From the Early Christian Era to the "Age of Discovery" (1979).
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16. Mansa Musa's Supply Shock (1324–25)
The most famous West African example is the pilgrimage of Mansa Musa, ruler of Mali. In 1324, Musa traveled to Mecca with an entourage carrying perhaps 18 tons of gold. Chronicler al-Umari reported that he spent so lavishly in Cairo that gold prices fell by 10–25% and did not recover for over a decade[16].
This episode underscores gold's double-edged nature. Musa's pilgrimage made him legendary in history as one of the richest men of all time, but his actions destabilized regional markets. Gold was both wealth and risk. The "track record" here includes spectacular prestige and equally spectacular volatility.
[16] Nehemia Levtzion, Ancient Ghana and Mali (1980).
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17. Japan's Tokugawa Bimetallism
In Tokugawa Japan (1603–1868), gold, silver, and copper circulated together at fixed ratios. The government set the gold-to-silver ratio at about 1:60, while the global market was closer to 1:15. This imbalance allowed Dutch and Portuguese traders to arbitrage, exporting undervalued silver in exchange for Japanese gold[17].
By the mid-19th century, estimates suggest Japan had lost nearly 20% of its gold reserves through such arbitrage. The Meiji Restoration (1868) reformed the system, moving toward a modern gold standard. Japan's experience shows that even when precious metals form the base of money, poorly set ratios can create systemic leakage.
[17] Marius Jansen, The Making of Modern Japan (2000).
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18. The Global Bullion Cycle (16th–18th Centuries)
The early modern period created the first truly global bullion cycle. Spanish silver from Potosí (Bolivia)and Zacatecas (Mexico) poured into Europe, much of it rerouted to Asia through Manila. Gold from Africa and Brazil supplemented the flows. This integration meant bullion linked Europe, Africa, and Asia in a single economic web[18].
But integration did not mean stability. Sudden inflows caused inflation in Europe (the Price Revolution), while shortages created crises in Asia. Precious metals unified the world economy but also amplified shocks. Their "track record" was global presence, not smooth performance.
[18] Flynn & Giráldez (1995).
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19. Spain's Price Revolution
The Spanish experience illustrates the downside of bullion inflows. Historian Earl Hamilton showed that between 1500 and 1650, prices in Spain rose roughly 300%, an early example of sustained inflation[19]. Gold and silver poured in, but real purchasing power eroded.
This episode complicates the notion of metals as inflation hedges. In Spain's case, bullion abundance produced inflation rather than stability. The lesson is clear: gold and silver can protect against scarcity, but oversupply erodes value just as effectively as debasement.
[19] Earl Hamilton, American Treasure and the Price Revolution in Spain, 1501–1650 (1934).
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20. Britain and the Rise of Paper Credit
By the late 17th century, Britain pioneered a new model. The founding of the Bank of England (1694)institutionalized paper credit, while coins remained in circulation as a base[20]. Bills of exchange and banknotes increasingly lubricated commerce.
This marked a structural shift. Gold and silver were still present, but their role was changing: from active circulation to reserve anchors. The "track record" persisted, but it was now mediated through paper claims. This dual system would set the stage for the modern gold standard.
[20] John Clapham, The Bank of England: A History (1944).
Part I-A.3: Caveats in the Financial Track Record of Gold and Silver (Modern Era to Jastram)
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21. The Classical Gold Standard (1870–1914)
The late 19th century marked the high point of gold's role as an international anchor. Britain had already defined the pound in gold under the 1816 Coinage Act, but it was not until the 1870s that most major powers — Germany, France, the U.S., and Japan — followed suit[21]. Under the classical gold standard, paper money and bank deposits were redeemable in gold at fixed rates, and international trade balances were settled in bullion shipments. This system brought extraordinary stability: exchange rates were fixed, global trade expanded, and investors trusted the permanence of gold convertibility.
Yet this triumph was short-lived and brittle. Gold discoveries — in California (1849) and South Africa (1880s) — periodically disrupted the balance. More importantly, the system required strict fiscal discipline; countries had to defend their pegs even during downturns. This made recessions harsher, as governments could not easily expand the money supply. Despite its reputation for stability, the gold standard was operational for less than 50 years in full form before the outbreak of World War I in 1914 forced its suspension.
[21] M. Bordo & H. Rockoff, "The Gold Standard as a 'Good Housekeeping Seal of Approval'" (Journal of Economic History, 1996).
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22. Fragility of the Gold Standard
The classical gold standard's apparent permanence hid fragility. When financial crises struck — such as the U.S. panic of 1893 — governments scrambled to defend reserves. The U.S. Treasury nearly defaulted on its gold obligations and had to borrow from J.P. Morgan's syndicate to maintain convertibility[22]. Britain, though more resilient, also faced periodic drains when capital fled abroad.
The onset of World War I shattered the illusion of permanence. Nations suspended gold convertibility to finance war spending, issuing paper unbacked by bullion. Although attempts were made to revive the system in the 1920s (the "gold exchange standard"), it was weaker, relying partly on sterling and the dollar instead of direct bullion flows. By the 1930s, during the Great Depression, most nations abandoned gold entirely. Thus, what is often remembered as a century of gold-backed stability was in fact a few decades of contingent order, undone by war and politics.
[22] R. Timberlake, The Origins of Central Banking in the United States (1978).
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23. Bretton Woods and Nixon's Shock
After World War II, gold was revived symbolically under the Bretton Woods system (1944–1971). The U.S. dollar was pegged to gold at $35 per ounce, and other major currencies were pegged to the dollar[23]. In theory, foreign governments could redeem dollars for gold at the fixed price, anchoring the world's monetary system once more in bullion.
In practice, Bretton Woods was fragile from the start. As U.S. deficits ballooned in the 1960s, foreign claims on American gold exceeded the Treasury's holdings. European governments, led by Charles de Gaulle's France, began converting dollars into gold. By 1971, the U.S. could no longer sustain the peg. President Richard Nixon suspended convertibility in the so-called Nixon Shock, ending the last vestige of a formal gold standard. From that point onward, gold became a reserve asset and commodity, not the backbone of the monetary system.
[23] B. Eichengreen, Globalizing Capital: A History of the International Monetary System (1996).
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24. Jastram's "Golden Constant"
The economist Roy Jastram undertook the first major statistical study of gold's long-term purchasing power in The Golden Constant (1977). Examining prices in England from 1560–1976 and the U.S. from 1800–1976, Jastram found that gold's real return averaged just ~0.5% per year[24]. Gold preserved purchasing power remarkably well over centuries, but it did not generate compounding growth. Jill Leyland later updated the study to 2007 with similar conclusions: gold tends to maintain value across centuries, but it underperforms equities and even many bonds.
Jastram also emphasized gold's "retrievability": during periods of inflation, gold prices often lagged initially but later surged, restoring purchasing power; during deflations, gold tended to lose value in real terms because it became more abundant relative to falling prices. This explains why gold fared poorly in long deflationary episodes (e.g., the 19th century "Long Depression") but well during inflations (e.g., the 1970s). The "golden constant" is not upward growth but survival.
[24] R. Jastram, The Golden Constant (1977); J. Leyland, The Golden Constant: The English and American Experience 1560–2007 (2009).
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25. Survival vs. Performance
The overarching lesson of gold and silver's 5,000-year "track record" is that survival does not equal performance. These metals have indeed endured — outlasting countless fiat currencies, empires, and financial experiments. But their record is uneven. Rome's debasements, Spain's inflation during the Price Revolution, China's dependency on silver inflows, Mansa Musa's supply shock, Japan's arbitrage losses, and the collapse of the gold standard all show that continuity is not the same as consistent reliability.
Gold and silver are unique: they are assets that carry no counterparty risk and whose cultural and monetary significance spans civilizations. But as investments, they have historically produced low long-term real returns, vulnerable to oversupply, deflation, and political shocks. Their real utility lies as a form of financial insurance — a hedge against systemic crises — not as compounding engines of wealth. The 5,000-year claim is true in one sense, but misleading in another. It is a record of endurance, not a record of consistent financial success.
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1. The Marketing Power of "5,000 Years"
The phrase "gold has a 5,000-year track record" is powerful because it implies permanence in a financial world where currencies and empires collapse in decades or centuries. The idea reassures investors that gold has always been there, a safe refuge through all of history. But as soon as we begin to ask what that track record actually consists of, problems appear. Are we measuring gold's presence as a cultural symbol, its use as proto-money, or its role in formal coinage? These are three very different histories.
Scholars typically break it down like this: about 5,000 years of ornamental and ritual continuity, where gold was prized as adornment or sacred metal; about 4,500 years of proto-monetary use, where silver, in particular, was employed as a weight standard for debts in Mesopotamia; and about 2,600 years of continuous coinage, beginning with the Lydians around 600 BCE. The marketing line is not false, but it merges these categories into a single sweeping story that oversells consistency.
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2. Mesopotamia: Silver as Proto-Money (~3500–3000 BCE)
Mesopotamia provides the first clear evidence of metal in a financial role. Cuneiform tablets from Ur, Lagash, and Uruk record contracts and wages denominated in shekels of silver, each weighing about 8.3 grams[1]. But these were not coins; silver circulated as ingots, rings, or fragments of "hacksilver." Archaeologists have found jars filled with cut silver in temple hoards. It was valuable, divisible, and relatively scarce, making it useful as a unit of account.
But silver's use was still cumbersome. Every transaction required weighing and purity testing, and fraud was common. Ordinary people used barley, dates, or beer for daily exchange. A worker's wage might be written down as "1 shekel of silver," but the actual payment could be delivered in grain at the equivalent rate. In this sense, silver was more of a notional standard than a universally circulating medium. It gave Mesopotamian economies an accounting unit, but not a coinage system in the modern sense.
[1] R. Powell, Weights and Measures in Mesopotamia (1994).
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3. Silver's Limits in Mesopotamian Trade
The limits of silver in Mesopotamia show why calling this the start of a "financial track record" requires caveats. Because silver was scarce and cumbersome to handle, it was mostly used in temple and palace economies, where institutional trust allowed larger transactions to be settled. For ordinary households, barter remained dominant. Even long-distance merchants preferred to combine silver with commodities like wool or copper, rather than rely on bullion alone.
David Graeber emphasizes this in Debt: The First 5,000 Years: Mesopotamian economies were fundamentally credit economies, with social obligations recorded on clay tablets and settled at intervals. Silver provided a shared measure of value for those obligations, but it was not the day-to-day medium of exchange. In other words, silver was financially important, but not in the way modern advocates of gold and silver imagine when they speak of an "unbroken record" of money[2].
[2] D. Graeber, Debt: The First 5,000 Years (2011).
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4. Egypt: Gold as Divinity (~3100 BCE onward)
Egypt's story runs parallel but in a very different way. Gold flooded into Egypt from Nubian mines and became deeply tied to religion and kingship. Pharaohs called it the "flesh of the gods," and it was central to their burial practices. The golden mask of Tutankhamun is just the most famous example of a tradition that lasted for millennia. Gold's role was primarily symbolic and sacred, a medium of eternity and authority, rather than a medium of everyday exchange.
Economically, Egypt was unusual: silver was rarer than gold, since there were no major local sources. As a result, silver was sometimes valued more highly than gold in official accounts[3]. Daily wages were paid not in metal but in rations of bread and beer. Copper was the practical working metal. Thus, while gold was ever-present in Egyptian culture and politics, its function was not financial in the way modern investors assume. It was a store of spiritual value, not a circulating currency.
[3] R. Klemm & D. Klemm, Gold and Gold Mining in Ancient Egypt and Nubia (2013).
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5. The Varna Necropolis (~4600 BCE)
The Varna Necropolis, on the Black Sea coast in modern Bulgaria, takes gold's symbolic role back even further. Dated to around 4600 BCE, it contains the earliest substantial gold hoard ever discovered, with hundreds of ornaments buried alongside elite individuals[4]. This shows that gold was tied to social prestige thousands of years before Mesopotamian silver became a standard of value.
But once again, this was not financial in any systematic sense. The gold was not used for trade or contracts; it was a burial marker of hierarchy. The "track record" here is cultural and archaeological. If one includes Varna and Egypt in gold's record, one is speaking about longevity of prestige, not continuity of money. This is an important caveat often overlooked when the 5,000-year figure is repeated uncritically.
[4] I. Ivanov, The Varna Necropolis (1978).
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6. Lydia: The Invention of Coinage (~600 BCE)
The real turning point for precious metals as money came in Lydia, in western Anatolia. Around 600 BCE, the Lydians struck the first electrum coins, a natural alloy of gold and silver, marked with royal stamps. These marks certified both weight and purity, solving the key problems of hacksilver systems. As Herodotus later observed, the Lydians were the first people "to strike and use coins of gold and silver"[5].
King Croesus (c. 561–546 BCE) went further by issuing separate pure gold and pure silver coins, eliminating the variability of electrum. This system spread rapidly to Persia, Greece, and eventually Rome. From Lydia onward, we can finally speak of a continuous 2,600-year history of gold and silver as coined, standardized money. This is the financial record modern advocates usually have in mind, but it is shorter and more contingent than the marketing claim suggests.
[5] Herodotus, Histories 1.94; C. Howgego, Ancient History from Coins (1995).
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7. The Roman Denarius and Aureus: Reliability
Rome perfected the coinage system. The denarius, introduced in 211 BCE, weighed ~4.55 g at ~98% silver[6]. The aureus, struck at ~8 g of nearly pure gold, became the empire's high-value coin. Together they created a stable system that lasted for centuries. Taxes, military pay, and trade across the Mediterranean depended on their trustworthiness.
Roman coins circulated far beyond imperial borders, accepted in distant markets because of their consistent weight and purity. This was gold and silver at their most reliable — a period that justifies the claim of a durable financial record. For several centuries, the Roman system represented the high point of precious metals as international money.
[6] C.H.V. Sutherland, Roman Coins (1974).
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8. Rome: Debasement and Collapse of Trust
But Rome also shows how fragile metal money can be. By the 3rd century CE, under the pressure of military spending and declining silver mines, the denarius was debased to less than 5% silver content[7]. Prices soared; soldiers demanded pay in gold or commodities. Inflation during the Crisis of the Third Century may have reached 1,000%.
Pliny the Elder captured Roman anxieties in Natural History (77 CE), complaining that India, China, and Arabia drained 100 million sesterces each year for luxuries[8]. Rome's silver mines, particularly in Spain, could not keep pace. The empire clung to gold longer, but silver collapsed as reliable money. Rome's "track record" is thus double-edged: centuries of stability, followed by catastrophic erosion.
[7] K. Hopkins, Taxes and Trade in the Roman Empire (1980).
[8] Pliny, Natural History 12.41.
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9. Rome's Dual Legacy
Rome leaves us with two lessons. First, gold and silver coinage can provide centuries of stable, trusted money when state integrity is maintained. Second, the same system can collapse quickly when political expediency drives debasement. Rome preserved the form of money but lost its value. This duality — resilience mixed with fragility — is a theme that repeats throughout gold and silver's long history.
Part I-A.2: Caveats in the Financial Track Record of Gold and Silver (Medieval to Modern)
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10. Medieval Europe: The Long Silver Age
After Rome's collapse, Europe's monetary system contracted dramatically. For centuries, silver was the only significant precious metal in circulation. The denier (France), penny (England), and pfennig (Germany) were small silver coins introduced by Charlemagne's reforms in the late 8th century[9]. These coins contained just 1–2 grams of silver, a far cry from the heavy denarii of the Republic. They became the backbone of medieval economies, especially for everyday transactions.
But the system was fragile. Silver pennies were frequently clipped, debased, or underweight. Archaeological hoards reveal coins of wildly varying purity. For peasants, barter and tally sticks remained common, while lords often preferred rents in kind. Gold virtually disappeared from circulation in Europe until the high medieval revival of trade. Thus, while silver provided continuity, it was a continuity of scarcity and instability rather than strength.
[9] P. Spufford, Money and Its Use in Medieval Europe (1988).
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11. The Return of Gold: Florins and Ducats
The revival of international commerce in the 13th century brought gold back into European circulation. Florence introduced the florin (1252), a nearly pure 3.5 g gold coin, and Venice followed with the ducat (1284)[10]. These coins quickly became trusted international media of exchange, circulating from London to Constantinople. Merchants prized them for their consistency, and their wide adoption marked the return of gold as a reliable international standard.
Yet this revival highlights a caveat. These coins were not everyday money for ordinary Europeans; they were merchant and elite money, useful for large-scale trade, diplomacy, and church finances. The common person's economic life still ran on barter, silver pennies, and obligations in kind. Gold was back, but it was not universal. Its track record was one of elite stability, not popular ubiquity.
[10] Spufford, Money and Its Use in Medieval Europe.
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12. Islamic Bimetallism: The Dinar and Dirham
While Europe stagnated, the Islamic world achieved remarkable monetary stability. From the 7th century onward, the caliphates issued the gold dinar (~4.25 g) and silver dirham (~2.9 g)[11]. The Abbasid caliphate in particular maintained a relatively stable ratio of ~1:10 between the metals for centuries. These coins spread across a vast territory, underpinning trade from Spain to Central Asia.
But this stability was always contingent. The sack of Baghdad by the Mongols in 1258 disrupted minting, and regional rulers began debasing or over-issuing coins. Local shortages of silver sometimes forced reliance on copper fulūs, which suffered from inflation. The Islamic record shows both the potential of bimetallism and its vulnerabilities: metals could unify global commerce, but political shocks could destabilize them quickly.
[11] L. Bolshakov, Financial Life under the Abbasids (1990).
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13. China's Silverization and Global Dependence
China's monetary history illustrates another major caveat. Copper cash dominated everyday trade, but silver became increasingly important for larger transactions. By the late Ming dynasty, especially after the Single Whip Reform (1580s), taxes had to be paid in silver, binding the empire's fiscal health to bullion inflows[12]. Spain's Manila galleons carried New World silver directly to Asia, and by some estimates, one-third of global silver production ended up in China.
This dependence created fragility. When inflows slowed in the 1640s, shortages destabilized the Ming, contributing to rebellion and collapse. Later, in the Qing dynasty, the Opium Wars and Britain's manipulation of silver flows created further crises. Silver gave China centuries of continuity, but it was a continuity dependent on global trade routes. When those flows failed, the system faltered.
[12] Dennis Flynn & Arturo Giráldez, Born with a "Silver Spoon": The Origin of World Trade in 1571(1995).
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14. India's Mughal Rupees and Cultural Hoards
India combined a vibrant coinage system with deep cultural hoarding traditions. The Mughal Empire (16th–18th centuries) minted the silver rupee, which became one of the world's most widely recognized coins[13]. Its stability made it a benchmark across South Asia and even beyond.
At the same time, India absorbed and stored staggering amounts of gold. Temples, households, and dowries accumulated bullion, much of which never re-entered circulation. Even today, scholars estimate that 20–25% of global above-ground gold stock is held in India[14]. This preserved wealth across generations but also meant much of gold's "track record" here was one of cultural storage rather than financial activity.
[13] S. Chaudhuri, The Trading World of Asia and the English East India Company (1978).
[14] World Gold Council, Gold Demand Trends (2022).
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15. West Africa's Gold Empires
From the 9th to 16th centuries, West Africa was among the world's dominant sources of gold. The Ghana, Mali, and Songhai empires controlled mines that fed Saharan caravans, exchanging gold dust for salt, textiles, and slaves[15]. Gold's role here was central to state formation and wealth accumulation.
Yet again, volatility intruded. When trade routes shifted or political fragmentation occurred, supplies dried up and economies faltered. Gold was foundational but not consistent: its abundance created powerful kingdoms, but its scarcity led to collapse. This regional track record demonstrates both the prestige and fragility of bullion-based wealth.
[15] J. Devisse, The Image of the Black in Western Art, Vol. II: From the Early Christian Era to the "Age of Discovery" (1979).
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16. Mansa Musa's Supply Shock (1324–25)
The most famous West African example is the pilgrimage of Mansa Musa, ruler of Mali. In 1324, Musa traveled to Mecca with an entourage carrying perhaps 18 tons of gold. Chronicler al-Umari reported that he spent so lavishly in Cairo that gold prices fell by 10–25% and did not recover for over a decade[16].
This episode underscores gold's double-edged nature. Musa's pilgrimage made him legendary in history as one of the richest men of all time, but his actions destabilized regional markets. Gold was both wealth and risk. The "track record" here includes spectacular prestige and equally spectacular volatility.
[16] Nehemia Levtzion, Ancient Ghana and Mali (1980).
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17. Japan's Tokugawa Bimetallism
In Tokugawa Japan (1603–1868), gold, silver, and copper circulated together at fixed ratios. The government set the gold-to-silver ratio at about 1:60, while the global market was closer to 1:15. This imbalance allowed Dutch and Portuguese traders to arbitrage, exporting undervalued silver in exchange for Japanese gold[17].
By the mid-19th century, estimates suggest Japan had lost nearly 20% of its gold reserves through such arbitrage. The Meiji Restoration (1868) reformed the system, moving toward a modern gold standard. Japan's experience shows that even when precious metals form the base of money, poorly set ratios can create systemic leakage.
[17] Marius Jansen, The Making of Modern Japan (2000).
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18. The Global Bullion Cycle (16th–18th Centuries)
The early modern period created the first truly global bullion cycle. Spanish silver from Potosí (Bolivia)and Zacatecas (Mexico) poured into Europe, much of it rerouted to Asia through Manila. Gold from Africa and Brazil supplemented the flows. This integration meant bullion linked Europe, Africa, and Asia in a single economic web[18].
But integration did not mean stability. Sudden inflows caused inflation in Europe (the Price Revolution), while shortages created crises in Asia. Precious metals unified the world economy but also amplified shocks. Their "track record" was global presence, not smooth performance.
[18] Flynn & Giráldez (1995).
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19. Spain's Price Revolution
The Spanish experience illustrates the downside of bullion inflows. Historian Earl Hamilton showed that between 1500 and 1650, prices in Spain rose roughly 300%, an early example of sustained inflation[19]. Gold and silver poured in, but real purchasing power eroded.
This episode complicates the notion of metals as inflation hedges. In Spain's case, bullion abundance produced inflation rather than stability. The lesson is clear: gold and silver can protect against scarcity, but oversupply erodes value just as effectively as debasement.
[19] Earl Hamilton, American Treasure and the Price Revolution in Spain, 1501–1650 (1934).
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20. Britain and the Rise of Paper Credit
By the late 17th century, Britain pioneered a new model. The founding of the Bank of England (1694)institutionalized paper credit, while coins remained in circulation as a base[20]. Bills of exchange and banknotes increasingly lubricated commerce.
This marked a structural shift. Gold and silver were still present, but their role was changing: from active circulation to reserve anchors. The "track record" persisted, but it was now mediated through paper claims. This dual system would set the stage for the modern gold standard.
[20] John Clapham, The Bank of England: A History (1944).
Part I-A.3: Caveats in the Financial Track Record of Gold and Silver (Modern Era to Jastram)
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21. The Classical Gold Standard (1870–1914)
The late 19th century marked the high point of gold's role as an international anchor. Britain had already defined the pound in gold under the 1816 Coinage Act, but it was not until the 1870s that most major powers — Germany, France, the U.S., and Japan — followed suit[21]. Under the classical gold standard, paper money and bank deposits were redeemable in gold at fixed rates, and international trade balances were settled in bullion shipments. This system brought extraordinary stability: exchange rates were fixed, global trade expanded, and investors trusted the permanence of gold convertibility.
Yet this triumph was short-lived and brittle. Gold discoveries — in California (1849) and South Africa (1880s) — periodically disrupted the balance. More importantly, the system required strict fiscal discipline; countries had to defend their pegs even during downturns. This made recessions harsher, as governments could not easily expand the money supply. Despite its reputation for stability, the gold standard was operational for less than 50 years in full form before the outbreak of World War I in 1914 forced its suspension.
[21] M. Bordo & H. Rockoff, "The Gold Standard as a 'Good Housekeeping Seal of Approval'" (Journal of Economic History, 1996).
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22. Fragility of the Gold Standard
The classical gold standard's apparent permanence hid fragility. When financial crises struck — such as the U.S. panic of 1893 — governments scrambled to defend reserves. The U.S. Treasury nearly defaulted on its gold obligations and had to borrow from J.P. Morgan's syndicate to maintain convertibility[22]. Britain, though more resilient, also faced periodic drains when capital fled abroad.
The onset of World War I shattered the illusion of permanence. Nations suspended gold convertibility to finance war spending, issuing paper unbacked by bullion. Although attempts were made to revive the system in the 1920s (the "gold exchange standard"), it was weaker, relying partly on sterling and the dollar instead of direct bullion flows. By the 1930s, during the Great Depression, most nations abandoned gold entirely. Thus, what is often remembered as a century of gold-backed stability was in fact a few decades of contingent order, undone by war and politics.
[22] R. Timberlake, The Origins of Central Banking in the United States (1978).
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23. Bretton Woods and Nixon's Shock
After World War II, gold was revived symbolically under the Bretton Woods system (1944–1971). The U.S. dollar was pegged to gold at $35 per ounce, and other major currencies were pegged to the dollar[23]. In theory, foreign governments could redeem dollars for gold at the fixed price, anchoring the world's monetary system once more in bullion.
In practice, Bretton Woods was fragile from the start. As U.S. deficits ballooned in the 1960s, foreign claims on American gold exceeded the Treasury's holdings. European governments, led by Charles de Gaulle's France, began converting dollars into gold. By 1971, the U.S. could no longer sustain the peg. President Richard Nixon suspended convertibility in the so-called Nixon Shock, ending the last vestige of a formal gold standard. From that point onward, gold became a reserve asset and commodity, not the backbone of the monetary system.
[23] B. Eichengreen, Globalizing Capital: A History of the International Monetary System (1996).
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24. Jastram's "Golden Constant"
The economist Roy Jastram undertook the first major statistical study of gold's long-term purchasing power in The Golden Constant (1977). Examining prices in England from 1560–1976 and the U.S. from 1800–1976, Jastram found that gold's real return averaged just ~0.5% per year[24]. Gold preserved purchasing power remarkably well over centuries, but it did not generate compounding growth. Jill Leyland later updated the study to 2007 with similar conclusions: gold tends to maintain value across centuries, but it underperforms equities and even many bonds.
Jastram also emphasized gold's "retrievability": during periods of inflation, gold prices often lagged initially but later surged, restoring purchasing power; during deflations, gold tended to lose value in real terms because it became more abundant relative to falling prices. This explains why gold fared poorly in long deflationary episodes (e.g., the 19th century "Long Depression") but well during inflations (e.g., the 1970s). The "golden constant" is not upward growth but survival.
[24] R. Jastram, The Golden Constant (1977); J. Leyland, The Golden Constant: The English and American Experience 1560–2007 (2009).
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25. Survival vs. Performance
The overarching lesson of gold and silver's 5,000-year "track record" is that survival does not equal performance. These metals have indeed endured — outlasting countless fiat currencies, empires, and financial experiments. But their record is uneven. Rome's debasements, Spain's inflation during the Price Revolution, China's dependency on silver inflows, Mansa Musa's supply shock, Japan's arbitrage losses, and the collapse of the gold standard all show that continuity is not the same as consistent reliability.
Gold and silver are unique: they are assets that carry no counterparty risk and whose cultural and monetary significance spans civilizations. But as investments, they have historically produced low long-term real returns, vulnerable to oversupply, deflation, and political shocks. Their real utility lies as a form of financial insurance — a hedge against systemic crises — not as compounding engines of wealth. The 5,000-year claim is true in one sense, but misleading in another. It is a record of endurance, not a record of consistent financial success.
