During the Roman empire, ruthless leaders became fascinated with the possibility of world domination. By extending its military and conquering lands throughout Europe and Egypt, Rome became arguably the greatest sovereign state the world has ever seen. Eventually, however, it became a mammoth too large to contain, and enormous amounts of money were required to sustain Rome’s control over distant lands. Without enough gold in the bank to finance their operations, the government decided to trick its citizens, by placing less gold into each Roman coin.
This allowed the government to stretch its money further than it could have otherwise. The debasing of the currency did not end there, though. Every few years, less and less gold was placed into each coin, until finally, there was almost nothing of value left in the coins. The collapse of the empire occurred when their citizens realized how little value this money actually contained.
Fast forward 2000 years to 1793 and the first minting of United States coins. The smallest coin, the penny, was a coin made of pure copper, while the second smallest coin would be made of nickel. Both metals had value on the marketplace and could always be melted down and sold for its metallic content, if nothing else. For hundreds of years, the value of these coins remained stable until military desire and large debts required larger sums of money. In 1973, Nixon closed the gold window, not allowing any currency to be exchanged for metal. With continuous monetary inflation now in progress, the price of copper became extremely expensive, and the government was forced to change the content of the coins. Pennies would now be primarily Zinc, while Nickels would now get most of the copper.
Fast forward another 30 years, and a history is repeating itself once again. Yesterday, the US government announced that the metal value of each penny is worth nearly 20% more than the 1 cent it is used for, while each nickel could easily fetch 7 cents if melted down and sold for its content. While enterprising individuals may have considered a large scale meltdown of such coins, the government has blocked such possibilities by outlawing the melting and exportation of these coins. In addition, measures are on the table to find other, cheaper materials to mint pennies and nickels with, since each coin produced is a loss making operation for the US Mint. While history is clear on how this continued monetary inflation will end, it seems the bureaucrats in Washington learned nothing from the experience of the Roman empire.
The Commodity Investor
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