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2

January 5th, 2012

HERE are always two sides to a coin as well as issues.

When it

comes to this argument that only gold should be money and all “fiat" is really

worthless, the premise is about as sound as saying markets only decline because of

short players. Paper currency began in the West as receipts for coin that was placed

into storage at a money dealer/merchant. The problem with “tangible" precious

metals is the same today as it was in the 1500s. The problem is simply its authenticity. Coins were

routinely clipped (shaved down) and thus they did not fairly reflect the intended or original quantity of

precious metals. Each coin had to be inspected for each and every transaction. This was the same

problem from the very beginning of monetary history and this played a major role in the Panic of 1789

that took place solely in the United States focused in New York City and Philadelphia.

3

From ancient times the problem has always been to verify the

quality and authenticity of the precious metals in a transaction.

Pictured above are the first “coins" produced in Lydia, the city of

Sardes located in modern Turkey. At first it was a standardize weight

with punch marks on one side to facilitate trade. These were

replaced with a design of a lion on one side. Look closely at the coin

to the right. You will notice additional punch marks on the edge.

There are nine in total showing that each time the coin changed hands, the moneychanger (ancient FX

dealer) place his mark on the coin verifying he tested it before.

We have all hear of

“fool's gold",

which is simply a

pyrite, or iron

pyrite, that has a metallic luster of a brass-yellow hue that has earned

it this nickname since it resembles gold. This has been used to dupe

many a person over the 6,000 years of history. Aside from that

substitute, all sorts of

tricks have been played to

plating coins as well as

debasing the metal fineness. Here is a gold plated English

half-penny of Queen Victoria (1838-1901). It feels light, looks

great, but it can easily slip-by in a large transaction unless

you check each and every coin. It is just a gold plated copper

coin.

4

The trick of debasing coins has been around in ABSOLUTELY every society in every corner of the globe.

Above is a visual example or the debasement of the gold coinage of the Byzantine Empire going into the

Great Monetary Collapse of 1092. Silver was being mixed with gold so going into 1092, what was once

gold had been debased to such a point it was reduced to just a silver coin. This prompted a major

economic reform and in 1092, gold coinage had to be restored. However, this did not last long and gold

disappeared once again.

We see debasement everywhere. In China,

bronze coins were debased using iron. We can

see once again the visual debasement of bronze

coinage in Japan and the steady reduction in

weight. There is simply NO exception in history

where debasement has not occurred. This is why

I have stressed that it is NOT the fact that money

is fiat, but the fact that government can never

resist spending more than it has.

Adam Smith in his Wealth of Nations wrote in Chapter III, Of the Accumulation of Capital, or of

Productive and Unproductive Labour:

That kings "are always, and without any-exception, the greatest spendthrifts in the

society. Let them look well after their own expense, and they may safely trust

private people with theirs. If their own extravagance does not ruin the state, that of

the subject never will."

So the problem has never been “fiat" or even what is money. The problem has always been that

government simply cannot live within its means. It is always this tendency to debase the money supply

5

to create more spending power, and/or to borrow as much as they can with no intention of ever paying

anything back. In Chapter III, of Public Debts, Smith also wrote about the fiscal mismanagement of

government and their constant abuse of credit.

"Like an improvident spendthrift, whose pressing occasions will not allow him to

wait for the regular payment of his revenue, the state is in the constant practice of

borrowing of its own factors and agents, and of paying interest for the use of its

own money."

Sir Thomas Gresham (1518-1579),under

Queen Elizabeth (reigned 1558 - 1603), was the

financial agent of the crown. In effect, Gresham

was in Antwerp acting as agent borrowing

money for the Crown in the money market

there.

What became obvious was that one could

borrow in precious metal based coin, agree to

repay, and then debase the coinage to cheat

the lender. Gresham’s Law is thus stated that

bad money drives out good money, meaning

that people will hoard the old coinage and

spend the new debased coinage and thus

debasement had the tendency to also reduce the

money supply. The gold coinage under Elizabeth

was slightly debased from .994 (1559-1578) to

.979 (1583-1600) for the “Fine Sovereign" and

the lessor denomination less than 30 shillings

were .916 fine. Her father, Henry VIII (1509-1547)

debased the silver by about 50% from 1544 to

1546 and the gold he debased from 23 carat to

eventually 20 carat. Obviously, making gold

money will accomplish nothing. It is always the

debt.

6

HE

   United States dollar was actually based upon the Spanish silver 8 Reales coins that had

become the mainstay of the European monetary system since the treasure ships from the

Americas began pouring gold and silver onto the streets of Europe. Such coins were first

minted by the Spanish in America during 1530. These early pieces are known as “cob"

coinage and tended to vary in weight in addition to being struck rather irregularly. The

designs were never fully struck and as such the coinage appeared very crude. Introduction of machine

“milled" did not take place until 1732 and thus it is from that period onward that we find the term

“milled" dollars distinguishing the standardized products from that of this early “cob" coinage. The gold

coinage was often referred to as a doubloon.

There had been a great

scarcity of coins in the New World, especially in the more remote

areas. The early colonists sometimes used other mediums of exchange, such as bullets,

tobacco, animal skins, and even adopted the Indian monetary system using mussel shells

strung-together into what would appear to be a necklace called wampum composed of

polished beads made from seashells.

Wampum was made from hard-shelled clams, usually the Northern Quahog (purple) and

Atlantic Whelk (white), which were broken up into small beads, polished, drilled through

lengthwise, and then strung together. Native Americans were the first makers of wampum

where in Asia similar value was attached to pearls. It took a considerable amount of labor to

produce these strings, and it was their natural beauty and scarcity that gave wampum its

intrinsic value. In this sense, wampum emerged as a medium of exchange because of its

attractiveness which was the same reason gold became desirable or pearls in Asia.

Throughout much of the 17th and 18th centuries, the exchange rate for white wampum was

360 beads = 5 shillings and 6 beads = 1 penny. The Purple wampum, less abundant in

nature, was worth at least twice as much as the white. Wampum was even legal tender for

paying taxes due to the Commonwealth of Massachusetts. Even tuition at Harvard

University was payable in wampum as was transportation costs such as the passage on the

Brooklyn Ferry. Wampum became less important for barter; however it was not until around

1890 that the last wampum mill shut down.

7

The coinage actually minted in Spain was quite professional as illustrated by this 2 Excelente gold piece

depicting the two Catholic monarchs who funded Columbus’ journey. Consequently, the production of

“cob" money was not to facilitate a circulating medium of exchange for Europe, but more of a

colonial/transportation coinage that was used in the Americas and was remelted into European style

coinage upon arrival in Europe.

In the Americas, there was clearly the

dominance of Spanish coinage and the absence

of English. These Spanish silver “milled"

dollars were also known also as “Pillar Dollars"

based upon the design showing two worlds –

the old and the new. They were minted

between 1732 and 1771 with a weight of 26.8

grams.

The term “Piece

of Eight" refers to the fact that these coins were often cut into “pieces"

to

make small change. These pieces were called a “bit" representing 12.5

cents and thus 8 bits was equal to 8

shillings which equaled a pound. By the time the US dollar was

created in 1794,

"two bits" was equal to 25 cents (quarter dollar).

Here we have two bits stamped Saint Lucia Island declaring this to

be a valid coin of the colony.

These bits are common also among the cob coinage. They tend to

be referred to also a “fleet money" implying their ultimate export

to Europe. They are also commonly reffrered to as “pirate money"

since this is the booting seized from a treasure ship.

8

Nevertheless, the very first paper money issued in the American colonies reflected the English monetary

system. Illustrated here is a note from 1717 issued by the colony of New Hampshire in the amount of 4

shillings and sixpence. This note states it is an “indented bill" of credit. Effectively, these notes were

IOUs in the form of circulating bonds that paid 5% interest and were receivable for taxes. They were

known as “cypher’d bills" where the first issue was also known as “red figured bills" whereby the

monogram was that of Queen Ann.

This is true for the first issues of

paper money in 1690 at

Massachusetts Bay Colony.

Additionally, looking at

Pennsylvania, the early

denominations of paper currency

were clearly in the British

monetary system. Illustrated

above is a note of Delaware issued

in a British denomination of 40

shillings in 1760.

9

General George Washington told Congress "the soldiers eat every kind of horse fodder but hay".

Revolutionary Soldiers were promised six dollars and two thirds to be paid monthly. Pay was made until

August, 1777, when it ceased. Inflation had been unbridled and of course the politicians viewed its rise

due to corruption rather than the lack of confidence in the currency being backed solely by promises.

The six dollars and sixty seven cents of this "Continental currency" was virtually worthless for it would

scarcely purchase a man a single dinner. Virginia was the richest state and to defend it, in the year 1781,

they paid the soldiers in species.

The cost of the American Revolution was

huge, not just to the Americans, but also to

Britain and set in motion the rise in British

debt. Britain’s total accumulative war

expenditures against the Americans, French

and Spanish cost about Ł100 million. The Gold

Guinea was first issued in 1663 and weighed

8.4 grams. The price of gold was never really

fixed and it rose in value considerably thanks

to the massive import of silver from the New

World. The Guinea began as one pound equal

to sterling silver constituting 20 shillings. By the start of the reign of William & Mary (1689-1694), the

Guinea rose in value relative to silver reaching 21s 6d. By 1694, gold rose sharply against silver causing

the Guinea to circulate now at 30s. By 1696, all the coinage of England was recalled due to massive

clipping while about 10% of the silver coin was counterfeit. The other problem was the great fluctuation

between gold and silver, which made trying to maintain some sort of standard impossible. The value of

10

silver bullion in Paris and Amsterdam was greater than the

face value in London, which prompted a tremendous

arbitrage whereby silver simply migrated from Britain to

the Continent. This shortage of silver contributed to the

American Colonies adopting silver coinage of Spain. The

Guinea ceased to be minted between 1797 and 1813 during

the Napoleonic War. We also find Spanish silver dollars (8

reals) being counterstamped by Britain making them 4s 9d

in value illustrating the shortage of money during this

period in time. A series of bad harvests pushed up food

prices and this culminated in riots in 1801 – 1802 in

addition to the shortage of money. In 1804, these Spanish

dollars were raised in value to 5s. Finally, It was not until

the recoinage of 1816 that when silver coins were declared legal tender only for sums of money up to Ł2

and the gold Guniea was replaced by the Sovereign with a reduced fineness to 22 carat values at 20

shillings. The silver coinage was also reduced to ensure that the stated value of the coinage was greater

than the metal content.

The British Treasury borrowed 40% of the money it needed to fund the war effort and had maintained

good credit. In sharp contrast, the Continental Congress and the American states had persistent

difficulty in financing the war. In 1775 there was at best $12 million dollars in gold in all the colonies.

There was no enough to finance trade no less a war. The British made tightened the noose by enforcing

a blockade on every American port in an effort to cut

off trade to starve the colonies into submission.

Consequently, at first the resistance was composed of

largely volunteer militiamen, while donations from

patriotic citizens also help to a marginal extent. The

American government now delayed payments on just

about everything including soldier’s pay. Then soldiers’

pay and suppliers were paid in depreciated paper

currency with the promise to pay at the end of the war

in Spanish milled dollars. In 1783 the soldiers and

officers were then given land grants to cover the wages

they had earned but had not been paid during the war.

Finally, in 1781, when Robert Morris was named

Superintendent of Finance of the United States, this

experience financier took charge of the financial

matters. Morris used a French loan in 1782 to set up

the private Bank of North America to finance the war.

Morris introduced efficiency by creating competitive bidding for contracts in addition to introducing

accounting procedures that had not existed and demanded the full share of money and supplies from

the states for the federal government.

11

The American cost of the war was about 66 million dollars in specie (gold and silver). Congress issued of

paper currency in 1775-1780, and again in 1780-81. The first issue amounted to $242 million dollars.

This paper currency would supposedly be redeemed for state taxes. By 1780, the paper currency was

"not worth a Continental", as they said, and yet a second issue of new currency was attempted. Once

again, this second issue also became virtually worthless. Nonetheless, the Continental Currency issue

was redeemable in 1791 at the rate of one cent on the dollar. Additionally, the States had issued over

200 million dollars of their own currency.

The depreciation of the paper currency amounted to an effective tax on the people. Inflation has always

an indirect form of taxation that imposes a hardship on those with fixed incomes. Debtors benefit since

they are able to pay off their

debts with depreciated

currency, which included the

private sector as well as

government. The farmers

tended to ride the inflation

wave as commodities prices

rose in terms of the

depreciating

currency.

Ironically, the greatest burden

fell upon the soldiers of the

Continental Army, whose

wages were delayed and their

pay declined in value every

month.

The first Continental currency

series was May 10, 1775 for a

total issue of $3 million payable

in Spanish milled dollars. The

denominations issued ranged

from $1-$30. The notes states:

“This Bill entitles the Bearer to receive Four Spanish milled Dollars, or the Value thereof in

Gold or Silver, according to the Resolutions of the CONGRESS, held at Philadelphia, the 10th of

May, 1775."

All subsequent issues merely change the date of the resolution authorizing the issue and the

denomination. On November 29, 1775, the second issue of Continental currency totaling $3 million was

payable in Spanish milled dollars. The denominations issued for the second series range from $1-$8.

12

An additional $10,000 was approved on

January 6, 1776 to exchange warranty

billows that were outstanding. The third

series was issued May 9, 1776 totaling $5

million also payable in Spanish milled dollars.

The denominations of this third series range

from one dollar to eight hours.

The fourth series was July 22, 1776 once

again totaling $5 million. It was this fourth

series where we find the smallest

denomination in paper currency was ranging from $2 up to $30. The absence of a one dollar note

reflected the contemplation of issuing a one dollar silver coin – the Continental Dollar pictured above.

The fifth series of Continental

currency totaling $5 million was

authorized by the November 2, 1776

resolution. The denominations of the

series range from $2-$30.

There was also authorization to issue

half $1 million in small fractional

notes reflecting 19161 third and two

thirds of the dollar. This indicates that

there was a shortage of small change

developing. However, no notes were

actually printed.

The sixth issue was authorized by

resolution on February 26, 1777

totaling $5 million. The

denominations ranged from $2-$30

and still stated that the notes were to

be redeemable in Spanish silver milled dollars. Of course, this

promise of redemption in Spanish coin was never regarded

very highly among the citizens. Consequently, the notes

tended to trade at a discount to the stated redemption

promise, which in truth was never honored by the new United

States government no less the Continental Congress.

13

The seventh issue of Continental

currency totaling $16,500,000

and was authorized by resolution

May 20, 1777. The

denominations still range from

$2-$30 and stated that the

bearer was entitled to Spanish

milled dollars. The cost of the

Revolutionary war was clearly

rising rapidly for the eighth issue

of Continental currency was

authorized on April 11, 1778 with a total issue now of $25 million. The denominations are now $4-$40.

The notes still suggested that the bearer will receive Spanish milled dollars or quote the value bearer of

in gold or silver according to a resolution of Congress. The ninth issue of Continental currency was

authorized by September 26, 1778

resolution with a total issue of $75,001,080.

The denominations now range from $5-$60.

These bills passed at about 22% of their

species value when first issued reflecting

the lack of confidence that existed in the

redemption of these notes.

The 10th issue of Continental currency was

authorized January 14, 1779 by resolution

of Congress with a total issue of

$95,051,695. The caption on these notes

still suggested that the bearer would

receive Spanish milled dollars however

$50,000,400 was intended to exchange

older notes issued on May 20, 1777 and

April 11, 1778 which were called in for

redemption because of extensive British

sponsored counterfeiting. The

denominations now ranged from $1-$80

dollars.

Essentially, all issues of Continental currency continued to be the foundation of speculation in the

American colonies after their circulation ceased in April 1780. The articles of Confederation had

promised payment on this outstanding currency. However it was not until the Constitution United States

in 1787 Dave validity's to such allegations that some hope a partial payment was there by revised. On

October 9, 1787, Continental currency was selling on the open market for $250 equal to $1 in actual

species.

14

One of the most important events in the Monetary History of modern society was the Crisis of 1789 that

is once again largely omitted from the history books. During the colonial period there was an inadequate

coin supply throughout the American colonies. Colonists had to adapt to foreign silver coins as the

British government outlawed the export of silver coinage from the homeland and discouraged colonial

minting. This is the primary reason why the most popular coin became the Spanish 8 Reales, even

though there were Dutch coins that had also been used from the late 1500s.

Maintaining an adequate money supply of small change copper coins in America had also been a

continual problem. There was no restriction on

importing copper coins whereas Britain needed

silver and gold and thus sought to extract specie

from the colonies. The colonists had to look

toward foreign coinage for their silver since

they could only expect to be paid by the British

in small change coppers. The earliest supplies of

copper coins were privately imported. In 1681

Mark Newby brought a large supply of Irish St.

Patrick coppers to New Jersey. The Quakers

brought some 300 pounds of British halfpence

and farthings to Philadelphia in 1682.

Not only did the British pay the American

colonists in lightweight base metal coinages,

this had set the tone where monetary

transactions between the British and

Americans were one of a financial adversarial

confrontation. In 1688, with government

approval, Richard Holt coined tin "American

Plantations Tokens" that were never accepted

by the colonists due to their base metal.

15

During 1722-1724 William Wood made another attempt at minting coins for the colonies obtaining royal

authorization to produce "Rosa Americana" coppers, which were actually made of a compound called

Bath Metal that was composed of Brass, zinc and a tiny bit of silver. These coins were two and a half

times lighter than royal British halfpence and were also rejected by the colonists as being worth less

than a real copper. In Massachusetts the colony printed small change currency notes on parchment so

citizens would have an alternative to the hated Rosa Americanas. Wood had produced coinage for

Ireland with the reverse depicting Hibernia. Because of their unpopularity in Ireland, these also found

their way to the American Colonies.

The shortage of money in the American Colonies had set the stage for the evolution of paper money. In

1737, Samuel Higley minted his own coppers in Simsbury, Connecticut in an effort to deal with the

shortage. These were made of good copper and Higley marked a value of three pence on the coins.

However, the supply of these coppers was certainly not enough for all the colonies, but they were too

much for that region. Colonists began to protest against their value. Higley had to issue a new series still

noting “III" for the value, but the legion now read “VALUE ME

AS YOU PLEASE – AM GOOD COPPER."

The money supply was largely made up of tokens, counterfeit

and some royal British coppers imported from Britain and

Ireland. Finally, during 1734-1735 an unknown number of

tons of copper coins were made their way to Georgia. There

was such a shortage of small change that Massachusetts

began to issue small change currency issued in June of 1722

(of parchment 1d, 2d and 3d notes) to prevent the

16

acceptance of William Wood's base metal Rosa Americana coinage. An emission of Ł2,625 in small

change bills of credit was again authorized on July 7

th

, 1737, which were issued at 6s8d per ounce of

silver that was a 300% increase in value of small change over the 1722 issue. A third issue in 1742

represented a 400% increase in the value of small change over 1722. It was not until 1749 when

Massachusetts received payment of 800,000 royal halfpence and 420,000 royal farthings as part of a

reimbursement for expenses incurred during a military expedition against Fort Louisbourg on Cape

Breton. Counterfeit coppers were now starting to find their way to America in quantity. During 1753 in

Boston and New York notices began to be posted regarding the seizure of large quantities of lightweight

counterfeit halpence coins that were being

smuggled into the colonies.

Privately minted coins (tokens) continued to

appear to try to deal with the chronic shortage of

money, Undenominated tokens most likely

designed by James Smither of Philadelphia in 1766

that honored William Pitt as a leader in repealing

the Stamp Tax, made their debut.

In 1765, in order

to pay for the French and Indian Wars, the British

Parliament imposed a system of stamp tariffs on the American colonies. William Pitt, with strong

backing in England, took up the colonists' cause and demanded a repeal of the Stamp Act. The work of

Pitt and Benjamin Franklin led to its repeal in 1766. Thus, the Pitt tokens were a bit more patriotic

compared to Woods’ Rosa Americana issues.

Finally, it was in 1773 just before the war that at last

about five tons (approximately 670,000 coins) of

specially designed halfpence were minted in London

for the colony of Virginia. These were official coins

struck by England. By no means did this solve the

shortage of coin in the Colonies. Still, it reflected that

Britain would not provide gold or silver coins for the

American Colonies.

Nonetheless, tokens continued to be struck as

was the case of the Rhode Island Ship Tokens.

The obverse shows Lord Howe at anchor and

the reverse shows the American forces in

retreat. There were also some French coppers

that circulated in the New World as well being

struck in 1670, 1722 and again in 1767. There

had also been English Elephant Tokens the

circulated being struck back in 1694.

17

Today, the Chamber of Commerce is but a hallow shell of what it once was. The After the New York

Chamber of Commerce was founded in 1768 and it actually served as a place for merchant deliberations

on agreements that were recorded, what also took place there was the establishing of currency

exchange rates. During this period, the exchange rates in effect in New York were routinely published in

especially the Gaine’s New-York Pocket Almanac. Whenever the New York Chamber of Commerce

changed the exchange rates and established the minimum allowable weight for guineas due t6o the

problem of clipping, the almanac values would immediately reflect the changes. (John A. Stevens,

Jr. Colonial Records of the New York Chamber of Commerce, 1768-1784, New York: John F. Trow & Co.,

1867, pp. 56-7. 69)

The exchange rate table above, reproduced from The New-York Pocket Almanack for the Year

1771, illustrates how the early colonial foreign exchange market operated in reality noting: “At a

Meeting of the Chamber of Commerce, the 7

th

of August 1770…" Here we can see the foreign exchange

rates for English, Spanish, Portuguese, French, and German currencies against English, New York,

Philadelphia, and Quebec with the minimum weights acceptable. We can see that a Guinea was of

bdifferent value in Philadelphia compared to New York.

18

Coppers after the Revolutionary War

Prior to the American Revolution, the only copper coins minted by England were the halfpenny with a

weight of 11.78 grams and the farthing. Pictured here are the post-Revolution issues of 1797 known as

the twopence “cartwheel" of 57.6 grams and the penny of 28.37grams. During the Revolutionary war

the occasional supplies of British coppers which had sustained the colonies through trade were

completely cut off. The small change money supply became even more critical because what supplies

had existed of coppers were melted down for the war effort. Throughout the American Revolution all

coins simply became scarce. The substitute became the ever increasing supply of small change paper

currency notes printed by some of the states as well as by individual businessmen in order to even

conduct business.

Many British manufacturers saw America as a

profitable market to mint coins. Suddenly, a

flood of lightweight coppers for use in America

began to emerge. The Nova Constellatio was

created by a joint partnership that even included

Governor Morris of New York. Additional pieces

appeared such as the Immune Columbia displaying

liberty with the scales of justice.

19

The chronic shortage of coinage was addressed as states began to mint coins. New Hampshire was the

first out of the gate in 1776, but it did not introduce any real quantity. The Republic of Vermont opened

a mint for coining coppers in 1785 and was soon followed by the state of Connecticut. In 1786 New

Jersey began minting followed by New York and then Massachusetts in 1787. By 1787 the Continental

Congress also began to produce copper coinage authorizing the Fugio Cent designed by Ben Franklin,

whereas previously, they had produced only Continental Dollars in silver and white metal.

The minting of coins was put out for contract and there was lively bidding on the expectation that this

would be a highly profitable venture. However, competition for the contracts was extensive and all but

Massachusetts awarded contracts to private parties. Contractors soon realized that the minting process

was far more costly than anticipated. Consequently, the quality of the product began to decline with

time and this resulted in a form of debasement whereby the idealized weight was not maintained.

Profits were achieved only by issuing lighter weighing coins.

The copper coinage was being dramatically reduced. The British regal copper halfpence weighed about

153.3 grains. Only the Massachusetts and Federal Fugio copper issues were produced at the British

standard, with weights that even exceeded slightly coming in about 157.5 grains. Vermont coppers were

the lowest with a weight of about 111 grains. Connecticut coppers were slightly reduced with a weight

of about 144 grains. New Jersey coppers were very close to the English standard with a weight of about

150 grains. Counterfeits of Connecticut coins were also being made with a lightweight counterfeit

causing the Connecticut coppers to be viewed a suspect.

20

During this period individuals were keenly aware of the circulation of lightweight and counterfeit

coppers. The confidence in the currency simply collapsed. Individuals effectively stopped accepting the

inferior lightweight coppers and they began to trade at substantial discounts. On March 5

th

, 1787 the

New York Assembly issued a report discussing the copper coinage then in circulation. The report stated

copper coinage in New York consisted of mostly British counterfeits, Irish halfpence, and counterfeit

New Jersey coppers. [Crosby, Sylvester S. The Early Coins of America; and the Laws Governing their

Issue, 1875, rpt., New York: Sanford Durst, 1983 pp. 290-292]

Responding to this report on April 20

th

, 1787 the New York legislature passed an act regulating the

circulation of copper coins prohibiting the circulation of coppers “except such as are of the Standard

and weight of one third part of an Ounce avoirdupois, of pure copper.." (145.8 grains) and that such

“coppers shall pass current at the rate of twenty to a Shilling of the lawful current Money of this State

and not otherwise." New York declared that any other coin it might regularly seize and "...shall forfeit

five time the Value of the Sum for which such coppers shall be so offered or passed in payment,..."

Similarly, New Jersey passed a law that after July 20, 1787 only New Jersey coppers and the federal

Fugio cents would be legal tender money in the state and would pass at the exchange rate of 15 coppers

per New Jersey shilling of account.

21

With the enactment of such laws, the value of the lightweight coppers began to plummet. This

contributed to the closure of mints in Connecticut, Vermont and Massachusetts the next year in 1788.

While Massachusetts had continually produced full weight coins, their value in exchange was depressed

and thus their actual cost to produce them was double their purchasing value. In New Jersey there were

serious problems as well to the point that by the end of 1788 the only coppers being produced were the

lightweight counterfeits at the private mint of Thomas Machin in Newburgh, New York. In

Elizabethtown, New Jersey, Matthais Ogden was taking lightweight coins he purchased at a discount and

overstamped it as a New Jersey copper passing them off at 15 to the shilling.

The Federal "Fugio" cent production of James Jarvis also amounted to fraud. Jarvis had produced only

about 400,000 Fugio cents while illegally diverting most of the copper to produce some 3,500,000

unauthorized lightweight Connecticut coppers that had flooded the economy. This first shipment of

Fugio cents was delivered to the treasury in May of 1788. Jarvis had gone to England in search of buying

additional copper. His partner and father-in -law realized the fraud would be expose and he fled

Connecticut for England. The Federal government was now also left without its copper and money

supply.

The Panic of 1789

Against this backdrop, the state of the coppers insofar as a viable money supply was particularly

deplorable in New York where the only mint was Machin's counterfeiting operation. With the money

supply flooded with underweight coppers that were now officially illegal, the public simply lost all

confidence in coppers. It was in New York City during summer of 1789 the Panic of 1789 unfolding just a

few months after George Washington became President and the French Revolution began.

22

February 4

th

, 1789 marked the election of George Washington and the birth of the United States

government when he was inaugurated on April 30

th

, 1789. Meanwhile, unemployment in Paris reached

about 150,000 out of a total work force of 600,000. This set the stage for the French Revolution. On July

11

th

, Louis XVI of France fired the popular Chief Minister Necker and the following day an angry Parisian

mob demonstrated against the King’s decision to dismiss Minister Necker. Tensions were rising in Paris

and the next day, July 13

th

, the people began to seize arms for the defense of Paris. Then on the

memorable next day, July 14

th

, the French Revolution (1789–1799) began with citizens of Paris storming

the Bastille to free seven prisoners. In rural areas, peasants began to attack noble manors. On August

4

th

, French members of the Constituent Assembly took an oath to end feudalism and abandon their

privileges. By August 26

th

, the Declaration of the Rights of Man was proclaimed in France by the

Constituent Assembly. In October 1789, about 7,000 women marched 12 miles (19 km) from Paris to

Versailles to demand action. On December 23

rd

, a leaflet began to circulate in France accusing Marquis

de Favras of plotting to rescue the royal family. Conspiracy plots began ushering the Reign of Terror.

The United States Department of the Treasury was founded on September 2

nd

, 1789 with the

Department of State following on the 15

th

of that month. On September 24 – The Judiciary Act of 1789

establishes the federal judiciary and the United States Marshals Service. By September 29

th

, the US

Department of War established the nation's first regular army.

The value of colonial coppers collapsed. It was on July 12

th

, 1789 when the New York Common Council

recommended valuing coppers at 48 to the shilling compared to 15 to the shilling which had been the

official value just across the river in New Jersey. Merchants refused to cooperate and soon coppers were

being refused in trade at any price. Coins that had traded at 14 to the shilling in New York City were now

completely worthless. An advertisement in the New York Daily Advertiser that appeared on July 24

th

,

1789 captured the financial chaos.

C O P P E R S,

TAKEN for YORK RUM, on delivery, at No.

21, Ferry-street, at SIXTY to the SHILLING, or

10d per pound.

This was a hyperinflation of tangible coins where the CONFIDENCE simply collapsed. Rum dealers were

now offering to take them at 60 coppers to the shilling reflecting a near 430% rate of inflation within

one year. On August 3

rd

, 1789, the collapse in the value of money had continued where The Federal

Gazette in Philadelphia reported the value of coppers had fallen now to 96 coppers to the shilling. The

New York Packet on August 18

th

, 1789 it reported that business failures were everywhere and food was

no longer available be it bread or vegetables in the marketplace. Not even full weight coppers were

negotiable. The entire money supply became suspect. The Federal government abandoned all hope of

issuing copper coins and sold their supply full weight Fugios to a speculator at a discount. The

speculator, Royal Flint, received the coins in June of 1789. The panic had already begun. The value of the

23

Fugios collapsed to at best 29 cents for every 100 Fugio cents. He lost everything and ended up in

debtor's prison unable to pay what he had bargained for.

The epic center of the Panic of 1789 was New York City and Philadelphia. On August 6

th

, 1789 the Bank

of America in Philadelphia printed 1d and 3d small change notes to help alleviate the economic crisis.

The notes were printed by Benjamin Bache in Philadelphia on paper that had been supplied by Benjamin

Franklin with a marbled border along the top of the sheet. This emergency solution was greeted with

great eagerness and this lead to a real boom in small change note production. Here we have the tangible

coins collapsing in value and a fiat currency replacing them. By September 1789, New York City had now

communicated a strategy whereby they were accepting only New Jersey coppers and no other coins of

any other origin. This measure at least stabilized the crisis to some extent whereby the value of New

Jersey coppers returned to 24 to the shilling, which was an improvement to the 60 level or higher, but

still well above the intended official value of 15 to the shilling. Outside of New York City, coppers were

still trading over 60 to the shilling. Even by September 1789, the price for coppers in Connecticut was

still trading at least at 48 to the shilling. The Panic did not reach Boston where coppers were trading at

18 coppers per shilling, but an arbitrage was quickly developing whereby worthless coppers from New

York and Philadelphia were making their way northward in trade. It was really the fiat small change

notes that help to stabilize the financial crisis. Numerous businesses and churches now began to issue

small change notes in substitute of actual coins.

The Panic of 1789 illustrated the crisis in CONFIDENCE. The transition to becoming the United States was

not entirely smooth sailing. It was the Whiskey Rebellion

that began in 1791 against federal taxation. This came to a

climax on August 7

th

, 1794, when then President George

Washington issued a proclamation and summoned almost

15,000 troops using the military against American citizens.

This was the action that gave birth to Thomas Jefferson’s

Democratic-Republican Party to opposed Federalism.

24

In 1792, there was finally

agreement that the coinage

should not portray the picture

of the President, but of Liberty.

The coins proposed were

designed and produced by

Robert Birch. The penny

illustrated here contains a

center spot of silver. This is clearly a desire to avoid the problems of the Panic of 1789 with debased and

underweight coppers. This coin was never produced. Likewise, there was also proposed the silver 5 cent

(Half-Disme) and 10 cent pieces (Disme).

The following year, 1793, saw the beginning of the new

Federal monetary system. The first coins to appear

were the half-penny and the penny. These coins were

reduced in weight from the 1792 Birch series with the

half-penny dropping from 132 grains to 104 by the Act

of January 14

th

, 1793. The weight would be further

reduced to 84 grains on January 26, 1796. Eventually,

the penny fell from13.48 grams

in 1793 to 3.11 grams in 1864

with the introduction of the

Indian Head penny. The silver

center in the Birch cents was

eliminated for 1793.

The Act of April 2, 1792, which

established the U.S. Mint,

authorized the production of the

United States Silver Dollar .8924 fine silver with a weight of 416 grains or 26.9563 grams. A troy ounce

weighs 480 grains and thus the silver dollar began with a gross weight of .866 of an ounce with a fine

silver weight of only .773 of a troy ounce. The

United States continued to mint silver dollars until

1804. Britain had stopped striking gold coinage in

1797 and did not resume until 1813 after the

Napoleonic War. It was during this period in time

that Britain was counter-stamping Spanish silver

dollars and thus in 1804 it began to over-strike

these coins with British designs. The United States

did not resume striking silver dollars until 1837.

25

We must realize that there are always two sides to every issue. Paper currency is NOT the problem. The

problem has always been the fiscal mismanagement. There are plenty of examples from history that

illustrate that a paper currency that is maintain with fiscal management has produced a stable monetary

system without chronic inflation. But to assume that merely returning to tangible coinage will solve all

the problems is simply childish. There is 6,000 years of history to draw from and you cannot find a single

empire or nation no less a city state that has ever not debased its currency or borrowed without fiscal

restraint and collapsed.

The first step in solving our problems is to identify what is actually causing the problem. To return to a

gold standard solves nothing. What about the outstanding debt. We will still go broke regardless of

what we call money because we CANNOT service the outstanding debt that is there.

We must tackle the real problem. We must eliminate the existing debt and by law prohibit ANY public

borrowing whatsoever be it directly or indirectly through debasement be it by increasing the supply of

money in an intangible system or by reducing the metal content in a tangible system. WE NEED TERM

LIMITS to prevent a professional political class and we MUST eliminate the party backroom

dictatorships. We do NOT have a

democracy for we can vote for an

individual, but he is constraint to vote as

the backroom dictatorship instructs him to

retain party support and funding. All

elections MUST be funded by the state –

no private funding whatsoever be it direct

or indirect. Anyone may run and to get

state funding he must win in the run-offs as

they unfold.

26

We will be holding three World Economic Conferences this year. These will be substantially

different from the Philadelphia Conference. That was a combination of an Analytical Training

Seminar and a World Economic Conference. Normally, each type of session is a two day event.

Consequently, these two events had to be crammed into two days. Unfortunately, we could not

accommodate everyone. We had to turn down 365 people. Traditionally, these events are

limited to 100 attendees. Because of the overwhelming response, the room was full to capacity

at 300+. That prohibited Mr. Armstrong from mingling with the crowd at the cocktail party and

he was unable to see each and every person. These three upcoming conferences will be

smaller, just forecasting, and will be two day events instead of the single day WEC which was

provided in Philadelphia. Seating will be $1500 per seat. Those who are interested in attending

please send your email to reserve a seat to:

27

A lot of people have written asking how they can buy Roman Coins. I have contacted some old friends

and have manage to get a deal for those who just want a piece of history rather than go collecting

expensive rarities. Here are three Roman Emperor of the mid to late 3

rd

Century that are common

enough to satisfy that desire to own a piece of history. Aurelian (270-275AD), Probus (276-282AD), and

Carinus (283-285AD) are relatively common enough emperors to provide a nice piece of history you can

actually touch. These coins are usually sold for $100 or more on Ebay. The Aurelian and Probus are

available at $50 and $65 respectively. The third is Carinus which has most of the silver plating intact,

which is quite rare to find. These are available at $150 each. Since there is no desire to get into this

business, but this is purely an accommodation for so many people that have written, the supply is

limited and it is on a first come first serve basis.

Lucius Domitius Aurelianus was born of humble parents at

Sirmium sometime between 207 and 215 AD most likely on

September 9th, 214 AD. Aurelian adopted a military career,

and by his skill, courage and bodily strength he ultimately

became one of the Empire's greatest generals of the 3rd

century. Aurelian's reputation as a commander of cavalry was

perhaps his greatest strength.

During the siege of Mediolanum (Milan), Aurelian became

embroiled with Marcus Claudius (Claudius Gothicus) in an

imperial intrigue. Gallienus was murdered, and Claudius

Gothicus became Emperor, with Aurelian serving as Master of

the Horse. A series of campaigns against the Goths followed,

but in January 270 AD, Claudius died of the plague in

Sirmium. His brother Quintillus aspired to the throne, but

Aurelian gained support of the army and was elevated to the throne over Quintillus, who later killed himself.

The state of the Roman Empire was deplorable at the time when Aurelian came to power. The barbarians hoards

were threatening the frontiers across much of the north. The usurpers had virtually divided the Roman world with

Tetricus on the Rhine at the head of a Gaulish Empire begun under Postumous and Zenobia, the Queen of Palmyra,

stood in the East with various generals and pretenders in her camp.

Aurelian, faced with enormous political and economic difficulties, took the only offensive course of action that was

open to him. The Empire, he concluded, had to be strengthened and reunified. It would be his determination alone

that would postpone the collapse of the Roman Empire and win for him in the process, the title Restitutor Orbis,

the "Restorer of the World."

Aurelian began his restoration of the Empire by marching first against the Germanic Juthungi, who had invaded the

province of Baetia and thus threatened Italy. Aurelian forced the barbarians into a retreat and routed them on the

Danube. The Juthungi sued for peace, and Aurelian allowed them to return home. Aurelian then headed for Rome,

where he received the imperial powers from a rather reluctant Senate.

28

Shortly thereafter, Aurelian received an urgent request from the province of Pannonia, where the Vandals were on

the attack. Aurelian responded quickly by crushing them in 270-271 AD. Once again, the German Juthungi

threatened Rome but this time they allied themselves with the Alamanni and the Marcomanni. The tribes

ambushed Aurelian near Placentia, defeating him and forcing a retreat into northern Italy. However, the Germans

were too disorganized to follow up on their victory, and Aurelian used the time to rebuild his defenses on the

north. He marched against the Germans a second time and this time virtually exterminated them all.

Aurelian returned to Rome in 271 AD, where he had to pacify a terrified city. He immediately halted the rioting and

restored order to the capital. The controller of the mint in Rome began a rebellion over the monetary reforms laid

out by Aurelian. He ordered that all the debased currency be purchased back and replaced with a new currency of

higher content in silver. The rebellion was led by Felicissimus. It appears that those who had been running the mint

were embezzling the intended silver and issuing the debased coinage at least in part on their own authority.

Obviously, any reform to the monetary system that called for an increase in silver content would have been

unprofitable for those running the mint for personal gain. In the rebellion, as many as 7,000 soldiers died when

Aurelian was forced to trap and execute them and their allies, some of senatorial rank, in a terrible battle on the

Caelian Hills.

The barbarian invasions had made a profound impact upon Rome. It was the first time they saw their city as being

vulnerable. Aurelian thus commissioned new defense walls (the Aurelian Walls) to encircle Rome itself, although

they were not fully complete d until the reign of Probus. N onetheless, these are the great walls of Rome t hat still

remain largely intact today.

Aurelian then turned his attention to Thrace, which had been invaded by the Goths. Aurelian invaded with his

usual determination and reconquered the region while chasing the Goths back over the Danube. Aurelian realized

that the imperial frontiers were proving impossible to defend, and as a result, the province of Dacia, the conquest

of Trajan, was entirely abandoned.

With the northern frontiers reestablished, Aurelian then turned his attention to the Palmyrene Queen, Zenobia. A

battle near the Orontes River ended the revolt of Palmyra. Then, in 274 AD, Aurelian turned his attention this time

toward the usurper state - the Gallo-Roman Empire of Postumous. Aurelian marched into Gaul to attack the

usurper Tetricus and his Gallic supporters. At the battle near Chalons, Tetricus abandoned his troops and

surrendered. The Empire had been pacified, and Aurelian could at last look forward to a splendid triumph in Rome.

Both Queen Zenobia of Palmyra and Tetricus, former Emperor of the Gallo-Roman usurper state, appeared as

captives in the magnificent triumph which the Emperor celebrated in Rome where at last senatorial resistance to

his position finally disappeared.

With the Roman Empire restored and military conquests complete , Aurelian turned his attention to the domestic

reform issues of the state. The currency of the Empire had been severely reduced in value, plagued by countless

debasements one on top of the other. The once silver denarius had been replaced by the double de narius of

Caracalla (Antoninianus) and that had been reduced to a mere bronze shell of its former glory. The continued

debasements had caused massive inflation, and the Empire would not survive without also restoring the monetary

system.

Aurelian's reforms did not end with the monetary system. He also attempted to end the social and moral decay

that had festered amid such poor economic conditions. Aurelian sought to somehow unify society as a way to

accomplish this so he also tried to reform religion. From the East, Aurelian tried to encourage religious devotion to

the sun god, Sol Invictus. His goal was to develop a universal deity that would unite the pagan world. In the process

he began the persecution of the Christians once again in an effort to create social unity.

Aurelian had one last goal in mind so with his domestic reforms accomplished, or underway, he returned to the

East during the summer of 275 AD with a glorious ambition for the conquest of Mesopotamia. Always the

disciplinarian, Aurelian caught his secretary, Eros, in a lie during the campaign and promised dire punishment. Eros,

fearing the worst, went to the Praetorian Guards and told them that Aurelian was planning to kill them as well. In

29

an effort to save his own skin, Eros began a plot which proved to be successful. Aurelian, at the age of 68, was

assassinated at Caenophruriun in Thrace and Rome lost not merely one of its greatest generals, but a man truly

worthy to have occupied the throne of the Roman Empire.

(M. Aurelius Probus). Born at Sirmium in 232 AD, Probus adopted

the profession of arms and gained rapid promotion until, by the

reign of Aurelian, he had become one of the leading generals of

the Empire. Soon after the death of Tacitus he was proclaimed

emperor by his troops and, following the murder of Florianus, he

became undisputed master of the Roman world. His reign was

notable not only for his considerable military successes, but also

for his attempt to restore the economic life of the Empire. To this

end he introduced viticulture into several of the western

provinces, and had he been able to carry out all his plans the

Roman State might have recovered much of its ancient power

and prestige. However, in the autumn of 282 AD he was

murdered at Sirmium by a band of mutinous soldiers who were

enraged at having been employed on public works instead of

military duties.

(M. Aurelius Carinus). The elder son of Cams, Carinus was born about 249 AD and was given the rank of Caesar

soon after his father's accession. When his

father and his younger brother set out for the

Eastern frontier early in 283 AD, Carinus was

left in Rome to look after the government of

the Western provinces, and in July or August of

the same year he was raised to the rank of

Augustus. Early in 285 AD he left Rome to meet

the challenge of M. Aurelius Julianus who, after

having been proclaimed emperor in Pannonia,

was marching against Italy. Carinus defeated

him near Verona, but then had to advance

against Diocletian who had been proclaimed

emperor by the Eastern army following the

death of Numerian. In the battle which

followed, Carinus was victorious, but soon

afterwards he was murdered by one of his own

officers, and the Empire fell into the hands of

Diocletian (spring, 285 AD).

30

We will be starting up the subscription and per access service to the regular forecasting. This will not

alter the current public service reports on explaining the events that surround us. The subscription

services will be the computer generated reports that will cover the entire world. These reports will

provide the specific forecasts for time and price. Those who are not trading will still have free access to

the reports provided currently. Nothing there will change.

As far as services are concerned, there will be the general written reports on a monthly basis per

market. You can obtain access on this level that will be reasonably priced for the average individual. For

the institutions and individuals, there will be the daily reports available per access so you can gear the

level of service and the number of markets to you particular needs.

We will also restore the alert service where you can input which markets to watch and the computer will

send you an alert when it is time to add a position or to change direction. This will provide the full world

economy for those with major portfolios. Those interested may get on the list by sending an email to:

31