When Gold is King

February 15, 2002


There is a relationship between gold and silver that may have significant bearing on monetary systems of the latter part this century and beyond. Stated briefly, silver has always been the primary monetary metal of Western Civilization except for the final centuries of 1,000-year economic advances, when gold has temporarily played a greater role. During the declining periods following these long advances, silver regained its predominance, and maintained it for the majority of the subsequent 1000-year advance. This pattern implies that silver will likely play a much greater role in future monetary systems than is has over the past two centuries.

A little background is necessary before expanding on this theme. Since mid-1999 I have engaged in research for an Elliot Wave project resulting in several articles published by Joseph M. Miller, Daan Joubert and myself. The most recent is The Rise and Fall of Civilizations, Dec. 10, 2001 at www.gold-eagle.com/editorials_01/mbutler1210101.html. For the purposes of When Gold Is King, the only thing the reader needs to understand from The Rise and Fall of Civilizations is the concept that Western Civilization has experienced numerous 1,000-year economic advances, which Joe, Daan and I refer to as X Waves, and that Western Civilization is presently completing one of these X Waves. There have been ten X Waves from 10000BC to present, but only the most recent four concern this article. These four X Waves are presented in the table below.

Gold and silver have been mined extensively since c3200BC. They were initially used for ornamentation and decoration, but transitioned to a monetary function during the course of the Bronze Age. Silver has been the primary monetary metal of Western Civilization since the inception of money, except for three periods lasting roughly two centuries each, during which gold was more important than silver. Each of these three periods of gold ascendancy was at the end of an X Wave economic advance (see Table 1). The first was from c1400-1200BC, the second was from about the middle of the 3rd century AD to the fall of Rome, and the third was during the 19th and 20th centuries AD. The transitions between silver and gold as the primary monetary metal are discussed below. More details are provided in Elliott Waves and Monetary History www.gold-eagle.com/editorials_00/mbutler060500.html , June 5, 2000.

The Bronze Age

P.R.S. Moorey describes the evolution of Bronze Age money in Ancient Mesopotamian Materials and Industries (Oxford: Clarendon Press, 1994), page 237:

"One of the more important functional distinctions between silver and gold in Mesopotamia (for in much else they were interchangeable) was the general role of silver, passing by weight, as a primary means of exchange and payment. Silver is first attested as an index of value in the Fara texts of Early Dynastic IIIA when it was used together with copper with a silver:copper ratio of 1:180. (Powell 1990:82)…From the Akkadian period silver's primacy as an index of value is evident through to the middle of the second millennium BC…Powell (1990: 79-80) has recently summarized the textual evidence from the end of the Old Babylonian period (c.1600BC), when there is a two-century gap in the evidence: 'After which we find both gold and silver as a means of valuation, with gold seeming to predominate down to the end of the Bronze Age [c1200BC] (at least in the surviving sources), when silver emerges once again as the standard metal money. Exactly what this "gold interlude" means is still unclear.'"

Notes on the Moore and Powell Quotes
1. The source for the M.A. Powell quote is "The Identification and Interpretation of Long Term Price Fluctuations in Babylonia: More on the History of Money in Mesopotamia",Altorientalische Forschungen, 1990, 17, 76-99, and I have been unable to locate that article to quote Powell directly.

2. The Esnunna Law Code values 3 minas (180 shekels) copper at 1 shekel (8.4 grams) silver. Silver:copper as a price ratio should be stated as 180:1.

3. Moorey dates Early Dynastic III as c2600-2350BC, Akkadian as c2350-2100BC, and Old Babylonian as c2000-1600BC (p. XIX).

So there is evidence of silver used as money from as early as 2600BC. However, from the Code of Hammurabi, www.yale.edu/lawweb/avalon/medieval/hamframe.htm (tr. M.L. King) we can see that even as late as 1780BC exchange was conducted via a mixed system of money and barter. The Code contains 282 laws defining numerous punishments, fines, wages and prices, and while many involve money, there is still a heavy reliance on barter transactions. According to my count, there are 31 laws specifying exact amounts of silver, 18 laws specifying exact amounts of grain, and 5 laws specifying exact amounts of gold. This provides a rough approximation of the relative importance of silver, gold, and barter in the Mesopotamian exchange system c.1780BC. An example of each type of law is provided below:

  • SILVER. Law 114: "If a man have no claim on another for corn or money, and try to demand it by force, he shall pay one-third of a mina of silver in every case."
  • GRAIN. Law 44: "If anyone take over a waste-lying field to make it arable, but is lazy, and does not make it arable, he shall plow the fallow field in the fourth year, harrow it and till it, and give it back to its owner, and for each ten gan (a measure of area) ten gur of grain shall be paid."
  • GOLD. Law 203: "If a free-born man strike the body of another free-born man or equal rank, he shall pay one gold mina."

Therefore, we can describe the evolution of the early Western monetary system as follows. Prior to c2600BC exchange was conducted only via barter, but silver played an increasing monetary role after that date. By 1780BC there was a mixed exchange system predominated by silver, but supplemented by barter (chiefly grain) and to a lesser degree by gold. For two centuries c1400 to 1200BC there was a "gold interlude" during which gold supplanted silver as the primary monetary metal. Then, after c1200BC, with the collapse of Bronze Age civilizations, silver returned to its role as the primary monetary metal, and it maintained that role throughout the subsequent dark age from c1200BC to c700BC.


X Waves, in Elliott Wave parlance, are composed of three Grand Super Cycles, each lasting about 300 years. To avoid dragging the reader through the Elliot Wave Principle here, I will simply divide the Roman X Wave, 700BC - 337AD, into Early, Middle, and Late periods. During the Early Roman period to 390BC, Rome became the leading city of Central Italy; in the Middle period to 30BC, Rome became a world power; while the Late period represents the Roman Empire through Constantine.

The Early Roman period corresponds with the period of Classical Greece, at a time when Rome was insignificant in world affairs. The early Roman period also corresponds with the development of coinage, from the first royal mint in Lydia to the dominance of Mediterranean trade by coin. During these three centuries the Greek monetary system was based entirely on silver, with the primary coin, the silver drachm, supplemented by both larger and smaller silver denominations.

During the Middle and Late Roman periods we can trace the history of Roman money, which followed a curious dual process of simultaneous development and destruction that proceeded through two phases, the first phase corresponding with the Middle Roman period, and the second phase corresponding with the Late Roman period. As an overview, during the Middle period Rome transitioned from a purely copper-based monetary system to a system that was primarily silver. Concurrent with this development the copper money was severely debased over time, while the silver coinage was debased to a lesser degree. At the beginning of the Late (Imperial) period, the primary coin of the Roman monetary system was the silver denarius, supplemented with smaller silver and copper denominations, as well as large gold denominations of regular issue. As the Late period progressed, the copper and silver denominations were severely debased, while the gold coins were debased to a lesser degree, leaving gold as the primary monetary metal. Some details of these developments follow.

The Middle Roman Period
The monetary system of the Roman Republic was based on the as, originally a pound (12 ounces) of bronze. Silver money came late in Roman history, with the 7 gram didrachm introduced in 280 BC, and equivalent to 3 asses. The transition to silver money was required for international trade as Rome grew in power, because silver was the predominant money metal throughout the Mediterranean at that time.

Financial pressures caused a gradual debasement, which by 240 BC reduced the didrachm to 6.65 grams silver, and the as to 295 grams bronze. In the Great Monetary Reform of 225 BC, the as was reduced to 140 grams. The didrachm did not change in size, but it was made equal to 6 asses rather than 3 asses as before. The first Roman gold coin was introduced, the stater worth 48 asses, although gold coinage was extremely rare and never a regular issue under the Republic. Another monetary reform in 211 BC introduced the denarius of 4 grams silver, the ancestor of the modern penny, worth 10 asses. The as, still the Roman unit of account, was reduced to 48 grams of bronze. During the following century, the Roman monetary system remained fairly stable, after which the coinage was debased further. During the last 51 years of the Republic, from 82 BC to 31 BC, the production of bronze coinage ceased altogether.

The Late Roman Period
In the early days of the Empire Augustus established a monetary system including gold, silver, and copper-based denominations. The principle coin was the silver denarius, so this system was not a true "gold standard" as I improperly characterized it in Elliott Waves and Monetary History. The Augustan system remained intact until 64AD, when Nero reduced the weight of the denarius from 3.5 to 3.36 grams, while reducing the fineness from 98% to 93.5% silver. The gold aureus was reduced in weight but not purity. Modest as this initial debasement was, it set a precedent for future emperors to follow. By 250AD Roman coins were only 40% silver, and by 270AD they contained virtually no silver at all. Table 2 below shows the destruction of the denarius through 231AD.

Caracalla introduced the antinonianus or double denarius in 215 with the same fineness as the denarius and weighing 50% more. By 250 the denarius no longer circulated, and the antinonianus became the principle denomination. By the reign of Gallienus (261-268) the antinonianus was reduced to a silver-plated bronze coin. There were later attempts to restore the silver coinage, but none of these reforms had a lasting effect.

Roman gold coinage fared much better. David R. Sears discusses Imperial gold inRoman Coins And Their Values, Vol. I (London: Spink and Son Ltd, 2000) p. 311. "The only real stability in the late Roman currency system was provided by the gold coinage." He continues on p.313: "Augustus transformed the aureus into an integral part of his new currency system and thereafter it was produced on a regular basis by virtually all of his successors. Over the centuries there were occasional adjustments to the weight standard of the aureus. In the second half of the 3rd century this process became more frequent and sometimes quite erratic, as a result of the political and economic disruption which characterized this period, but the purity of the metal was always maintained. Eventually, during the early decades of the 4th century, the aureus was gradually superceded by Constantine the Great's newer and lighter standard gold denomination, the solidus." Table 3 below shows examples of the aureus's weight at various times.

Sources for Table 2 and Table 3
[1] Roman Imperial Coinage. www.roman-britain.org/coinage.htm
[2] Museum of London: Exhibitions: Roman Gold. www.museum-london.org.uk
[3] Armstrong, Martin A. Imperial Rome-Monetary History. 1996 (web site defunct)
[4] www.elsen.be/oromemp2.htm

Constantine's replacement of the aureus with the 4.54 gram solidus represented the establishment of a true gold standard, as all of the subsidiary denominations were defined in terms of the solidus. In the eastern half of the Empire this gold standard survived for 800 years. In the Western Empire the money economy had collapsed by the end of the 3rd century, and Constantine's reform did not halt the economic decline of the West. Details of the economic and military collapse of the Western Empire are provided in The Rise and Fall of Civilizations.

To summarize the monetary history of the Roman Empire, at the beginning it was primarily a silver-based system. Over the course of several centuries, the silver coinage was severely debased until there was virtually no silver remaining in the monetary system. The gold coinage, meanwhile, was debased only modestly (apart from the temporary disruption in the middle of the 3rd century) as we can see from Table 3. This left gold as the primary monetary metal by the end of the Roman X Wave.

Medieval and Modern Times

During the Dark Ages, following the fall of Rome, European monetary systems were once again based on silver, with no European gold coins issued until 1252. The silver coinage of both England (penny) and France (denier) were based on the Roman denarius. The British pound sterling of the 9th century, for example, was a troy pound (12 ounces) of silver, with 20s. (shillings) to the pound, and 12d. (pence) to the shilling. The monetary systems of England and France remained intact until financial pressures from the Hundred Years War (started 1337) forced both countries to debase their currency. The English penny, originally 24 grains silver, was reduced to 20 grains in 1344, 18 grains in 1351, 15 grains in 1412, and 12 grains in 1464. By the beginning of the 18thCentury, the British pound was reduced to about 4 ounces silver, one third of its original weight. Then in 1717 England adopted a gold standard, defining the pound as equal to ¼ ounce gold.

Elsewhere during the 18th century silver remained the primary monetary metal. For example, early American money is described by Leslie V. Brock in The Colonial Currency, Prices, and Exchange Rates, found athttp://etext.lib.virginia.edu/journals/EH/EH34/brock34.htm . "The money metal of the eighteenth century was silver, not gold. The chief coin of the colonies was the Spanish milled dollar (piece of eight), worth 4s. 6d. sterling. There were supplementary gold coins in circulation, the Johannes of Portugal, which circulated after 1722 and was worth 36s. sterling, and the Spanish Pistole, which was worth 12s. 2.8d. sterling, and had substantial circulation in Virginia prior to the French and Indian War" (p.5).

The monetary role of gold increased in the 19th century, with most European states adopting gold standards in the late 1800s. America went to a gold standard with the adoption of the Gold Standard Act, March 14, 1900. For readers interested in the details of the modern transition from silver to gold, I recommend three articles:

In Gold Standard = Fiat In Disguise, Tlaga argues that there is a connection between the adoption of modern gold standards and the adoption of fiat currency. He says:

"It was the demonetization of silver that introduced a fiat unit of account. But because it was done through the kitchen door, so to speak, by way of pricing gold in terms of gold rather than in terms of silver, no one had any reason to question this tautology as long as the gold definition of the fiat unit of account was maintained, i.e. as long as Sterling Bills were being redeemed in gold Sovereigns.

"We can have honest money regime when gold is priced in silver and silver is priced in gold; physical silver and physical gold. But once gold is priced in printed pieces of paper instead of pieces of silver, the honest money regime is gone, even though the formerly silver and now fiat units of account are defined in weight of gold, because there is no natural limit on the overall amount of printed pieces of paper as there was an overall amount of pieces of silver" (p.3).

Therefore we can see a parallel between the last centuries of the present X Wave (1000AD to 2000AD) and the last centuries of the Roman X Wave (700BC to 337AD). In both cases, the monetary role of silver was virtually eliminated, while the monetary role of gold was enhanced. In Rome's case, severe debasement led to a complete breakdown of the money economy. In the modern case, the worldwide monetary system has been reduced to fiat currency with no intrinsic value.


This article has demonstrated that silver has always been the primary monetary metal of the West except in the final centuries of 1000-year X Wave economic advances, when gold was more important. The three periods of gold ascendancy are:

  • in Mesopotamia prior to collapse of the Bronze Age civilizations c1200BC
  • in Rome prior to the Dark Ages in Europe, and
  • in England after 1717, expanded to the whole of Western Civilization in the late 19th century.

In the first two instances the enhanced role for gold and reduced role for silver was temporary, and reversed during the subsequent economic decline. Therefore, it is likely that the present relative importance of gold vis-à-vis silver will reverse sometime in the 21st Century.

In Elliott Waves and Monetary History I argued that fiat money (including precursor systems of debasement and clad coinage) and debt bubbles are typical developments in the latter part of long economic advances such as Grand Super Cycles and X Waves. At first glance this appears to contradict the theme of this article - that gold's role is enhanced at the latter part of X Waves. Upon reflection of the facts, however, you can see that these two developments can, in fact, occur simultaneously. Roman monetary debasement was concurrent with the transition from bronze to silver, and finally from silver to gold. In modern times, the transition from bi-metallic monetary systems to the gold standard is intimately connected with the introduction of fiat currency, as Tlaga ably showed.

This article does not attempt to explore the causes of these two seemingly contradictory developments at the end of X Waves. The Rise And Fall Of Civilizations discussed similarities between developments in different X Waves and the risks associated with peak periods of civilization. Readers interested in causes can start there, and by reading Tlaga's Gold Standard = Fiat In Disguise. My comment here is that X Waves measure the wealth of Western Civilization, and wealth is maximized at the end of those waves. Therefore, the enhanced role for gold at the end of X Waves is probably a result of the increased wealth and economic activity of those periods. At the same time, as we showed in The Rise And Fall Of Civilizations, at the end of long economic advances, great nations tend to bankrupt themselves in pursuit of their final terminal self-expression, regardless whether they are theocracies, empires, kingdoms or republics. If these statements appear contradictory, I suggest that you look around you. We are living in a time of unparalleled wealth, and simultaneously a time of unparalleled debt, both public and private.

The worldwide fiat system is in its death throes now. In the coming decades it will die the same death as all it predecessors. Apart from a few people such as Tlaga and Hugo Salinas Price (see www.plata.com.mx/plata/english.htm ) virtually all proponents of metal money advocate a return to the gold standard rather than a bi-metallic system. It is my opinion that when fiat dies, silver will play a much greater monetary role than virtually anyone expects.

18 karat gold is 75% pure gold.

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