By Ralph Benko
Excerpt from Forbes.com:
September 21, 2017, is the 300th anniversary of Sir Isaac Newton’s accidental invention of the gold standard. This really is a monumental moment. Newton, as Master of the Royal Mint of Great Britain was, at Parliament’s behest, attempting to restore the silver standard. The “pound sterling” represented one pound of sterling silver. Due to a long era of shenanigans, the quality — and value — of the British coinage had depreciated. Newton set out to restore it. What he did still matters.
By inadvertently overvaluing gold to silver, Newton sowed the seed of the gold standard, which ramified into the world’s dominant monetary system presaging a Golden Age. The gold standard was a system that, together with other factors, helped propel England from an unimportant small island nation to the center of the world’s financial system. The true classical Newtonian gold standard also served America, and the world, very well for a long time. It could again do so.
Candidate Trump hit on something important respecting restoring America to greatness during the campaign. As I wrote here:
As I have repeatedly observed Donald Trump shows a strong affinity for gold. He has also shown a keen intuitive grasp of how the gold standard was crucial to having made America great:
“Donald Trump: ‘We used to have a very, very solid country because it was based on a gold standard,” he told WMUR television in New Hampshire in March last year. But he said it would be tough to bring it back because ‘we don’t have the gold. Other places have the gold.’
“Trump’s comment to GQ: ‘Bringing back the gold standard would be very hard to do, but boy, would it be wonderful. We’d have a standard on which to base our money.’
Trump has been misled to believe that “we don’t have the gold. Other places have the gold.” In fact, the United States, Germany, and the IMF together have about as much gold as the rest of the world combined and America has well more than Germany and the IMF combined.
Stay tuned on that.
For today, how did two centuries of a Golden Age begin 300 years ago?
Pretty much everyone knows the tale of Sir Isaac seeing a falling apple in his mother’s orchard, and, pondering that, thereby discovered the Law of Gravity. Newton’s apple is an icon. A descendant from that same apple orchard has been planted at my daughter Jessica’s alma mater, St. John’s College in Annapolis, in homage to that fateful moment.
So too was the classical gold standard iconic. It just might become so again.
Many are aware of Sir Isaac’s status as the founder of classical physics. Fewer know of his work in optics, fewer still of his having lost a fortune in the South Seas Bubble from which he observed that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Even fewer know of his long, secret labors in alchemy (which was not yet differentiated from chemistry).
Perhaps Newton’s greatest moment occurred 300 years ago today.
Hardly anyone in America is aware that Newton was Master of the Royal Mint of Great Britain. Therein he performed a famous miscalculation. It was a most happy accident.
Per JP Koning’s blog Moneyness: (described by no less than David Beckworth as “a ‘must read’ for anyone serious about understanding money and its history”):
By 1717, the silver outflow was getting significantly bad that the authorities decided to do something about it. Newton, still Master of the Mint, noted that the market price for the guinea was around 20s 8d, given the exchange rate between silver and gold in other European markets, and suggested an initial rate reduction from 21s 6d to 21 shillings.
But even at this lower price the English authorities were still overvaluing the yellow metal. They had now fixed the silver to gold ratio at 15.069 to 1, but because the rate was 14.8 to 1 in Holland and France, a profit still remained on exporting silver and importing gold. This silver outflow would continue over the decades until most silver was gone. England had gone from a bimetallic standard to a monometallic standard. Though it was still de jure bimetallic, de facto it had become a gold standard.
Thinking that others might find the tercentenary of this signal event worthy of celebration, I inquired among several substantial gold and gold standard aficionados, journalists specializing in the arcane, and monetary economists. Even the Royal Mint, which remains deeply devoted to its most famous Master.
To no avail. This column is one lonely 300th birthday tribute to the gold standard.
Join the birthday party!
Read more at Forbes.com