The second part of Adrian Ash’s series on the rise and fall of the dollar looks at how an “obsessed” US Treasury hoarded almost all of the world’s monetary gold stock in the first half of the 20th century. In the process, the government nationalized the shiny metal and monopolized control over money. With its overactive printing presses, it still exercises this total control over today’s fiat currency…

More from Adrian in today’s Whiskey and Gunpowder:

It seems an odd quirk of history that Washington’s post-War obsession with its nationalized gold reserves - an obsession which Ian Fleming neatly tapped into with Goldfinger in 1959 - came so long after what historians call the “classical” Gold Standard ended.

Indeed, central bank gold reserves worldwide rose almost five-fold over the 50 years following the start of WWI in 1914 - the date traditionally given as the death of the international Gold Standard.

That system, running roughly between Bismarck’s defeat of France in 1871 and the bloody stand-off at Ypres a half-century later, saw nations settle their balance-of-trade debts with each other in bullion. Gold really was money, and only gold (and, progressively less, silver) would do in payment. And just like domestic cash transfers, the vast bulk of cross-border payments were made by private individuals using privately-held gold and fully-backed gold certificates.

~~~~~~~~~~~~~Special~~~~~~~~~~~~~

How This Beats the Best Royalty Play of All Time

Wouldn’t it be nice to know that without lifting a finger, you’re accumulating the kind of money that could free you from work…fund your retirement…and pay for your future?

That easily could have been the case if you’d have known to move early on Franco-Nevada.

But let me just walk you through how that unfolded. Because, you see, Franco-Nevada going from zero to $40 million per year in royalty income took about 12 years. And that was ultimately enough to take its shares from $4 to over $180 per share.

Not bad, right? Well, we got another one - which could cash out even bigger payments - right here…

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But as governments worldwide set about nationalizing welfare, health provision, pensions, insurance and the “commanding heights” of industry, so their nationalized gold reserves were also growing apace. The Gold Standard collapsed not only into the mud of Verdun, but also into state-owned and state-controlled gold vaults.

Put another way - as Texas Congressman Ron Paul did before the U.S. House of Representatives in Feb. 2006 - “Though money developed naturally in the marketplace, as governments grew in power they assumed monopoly control over money.”

That monopoly power has only grown stronger now paper and photons have replaced gold entirely as the world’s means of exchange. Governments and their central bank agencies set the price - and thus value - of what we now use to buy and sell, invest and spend. And since this control over money rests with politicians and bureaucrats, it’s worth noting how the surge in nationalized gold reserves coincided precisely with the surge in nationalist politics, war-mongering and state controls that first sparked World War One, before leading to the horrors of Nanking, Auschwitz, Stalingrad, Dresden and Hiroshima.

Mass slaughter wouldn’t come cheap, after all.

Rewind to 1875, and central bank gold reserves “amounted to no more than 1,100 metric tons,” wrote Timothy Green in a 1999 research paper for the World Gold Council, “while gold coin in circulation was approaching 3,000 metric tons.” Private citizens, in other words, then held the vast bulk of the industrialized world’s wealth, and the international Gold Standard - “a symbol of sound practice and badge of honor and decency,” according to one historian - had begun by default, not design. It was simply the way private individuals the world over chose to meet and exchange wealth. Nationalized money, at this stage, remained but a twinkle in the eye of would-be technocrats and tyrants.

Come 1895, however, and “of the 6,100 metric-ton of monetary stock, central banks held around 2,750 metric tons,” writes Green. “By 1905 the balance had swung in favor of central banks, who then had 4,710 metric tons of the monetary stock against private holdings of 3,916 metric tons.” On the eve of World War One - after a three-year surge in government gold hoarding - sovereign states held some 8,100 tons in total.

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More on this topic (What's this?)

Someone’s making money on Gold (Option ARMageddon, 11/7/08)

Wealthy Investors Hoarding Bullion (naked capitalism, 9/30/08)

Gold - a useless commodity, and an even worse indicator of anything. (Bapcha's Stocks., 10/27/08)

Read more on Investing In Gold at Wikinvest

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