Clipping Coinage: Prelude to Fiat Currency Abuse

Clipping Coinage: Setting the Stage for Fiat Currency & Central Bank Manipulation

Updated May 31, 2024

Introduction

Currency manipulation has been a persistent issue throughout history, from the ancient practice of coin clipping to modern-day inflation. Coin clipping, where portions of precious metal were shaved off coins, mirrors today’s inflationary practices by central banks. Both methods reduce the value of money, robbing individuals of their earnings and savings. This essay delves into the historical context of coin clipping, its parallels with modern inflation, and the broader implications for society, including mass psychology, contrarian thinking, and technical analysis.

Clipping coinage, a practice that emerged in the past, highlights the darker side of human nature. In an era when payment for goods was made in gold, some individuals sought to exploit the system by engaging in deceitful practices. Merchants and other unscrupulous individuals would shave off portions of the gold from coins or even replace the precious metal with cheaper substitutes like lead.

It seems the need to rob and cheat each other is wired into us, and as time passes by, we just seem to perfect this art. Sol Palha

Historical Overview of Coin Clipping

Ancient Practices:
Coin clipping dates back to ancient times when currencies were made from precious metals like gold and silver. Unscrupulous individuals would shave or clip small amounts of metal from the edges of these coins, reducing their weight and value while passing them off at total face value. A notable historical example is the medieval European practice where merchants and traders shave gold coins, leading to widespread economic instability.

In ancient Rome, the problem was so severe that Emperor Nero reduced the silver content in the denarius, which led to inflation and a loss of confidence in the currency. Similarly, the practice became so rampant in medieval England that King Henry III introduced a new coinage system, with milled edges on coins to prevent clipping.

Economic and Social Impacts:
The economic consequences of coin clipping were profound. It eroded trust in the currency, disrupted trade, and caused inflation. Merchants often discounted clipped coins, leading to a loss of wealth for those who possessed them. This practice created an environment of suspicion and mistrust as people became wary of the value of their money.

Clipped coins were essentially “bad money”, as described by Gresham’s Law, which states that “bad money drives out good.” People would hoard full-weight coins and circulate the clipped ones, further devaluing the currency in circulation. This phenomenon resulted in periods of economic turmoil, where the stability of economies was compromised, leading to social unrest and reduced economic growth.

Transition to Fiat Currency and Central Bank Manipulation

End of Gold Standard:
The transition from a gold-backed currency to a fiat currency marked a significant shift in monetary policy. The Federal Reserve and other central banks’ abandonment of the gold standard in the 20th century allowed for the unrestrained printing of money. This shift was epitomized by President Richard Nixon’s decision in 1971 to sever the link between the US dollar and gold, a move that effectively transformed the dollar into a fiat currency.

The lack of transparency surrounding the gold reserves, particularly the speculations about the actual gold held in Fort Knox, further fueled doubts about the currency’s integrity. Critics argue that without a tangible asset like gold backing the dollar, its value is subject to the whims of central bank policies, leading to inflation and currency devaluation.

Inflation as Modern Coin Clipping:

Inflation, driven by the increase in the money supply, parallels the effects of coin clipping. When central banks print more money, the purchasing power of each unit of currency decreases, much like how clipped coins have reduced intrinsic value. This “silent tax” erodes the value of savings and earnings, effectively reducing individuals’ wealth over time.

The Federal Reserve’s policies of quantitative easing and low interest rates have led to significant inflationary pressures. By increasing the money supply, the dollar’s value decreases, leading to higher prices for goods and services. This devaluation is akin to the historical practice of clipping coins, where money’s intrinsic value is diminished through deceit.

Psychological and Social Aspects

Mass Psychology and Inflation:

Inflation has a profound impact on mass psychology. As the value of money decreases, people are incentivized to spend rather than save, fearing that their money will be worth less in the future. This behaviour leads to increased consumption and reduced savings, contributing to a culture of debt and credit reliance.

The psychological impact of inflation can be observed in how people react to rising prices. The fear of losing purchasing power drives individuals to make hasty financial decisions, often leading to poor investment choices and increased financial instability. This phenomenon was evident during the hyperinflation in Weimar, Germany, where people would rush to spend their money as soon as they received it, fearing it would lose value within hours.

Contrarian Thinking:

In an environment of rampant inflation, contrarian thinking becomes crucial. Investors need to recognize the long-term implications of central bank policies and make decisions that go against the prevailing sentiment to protect their wealth. This approach involves understanding the underlying economic trends and making informed investment choices that safeguard against inflation.

Contrarian investors often seek refuge in assets that have intrinsic value, such as gold, real estate, and commodities. These assets tend to retain their value over time, providing a hedge against inflation. By thinking differently and avoiding the herd mentality, contrarian investors can more effectively navigate inflationary periods.

Technical Analysis:

Technical analysis can be a valuable tool in understanding and predicting inflationary trends. By examining historical data and market patterns, investors can better anticipate the impact of central bank actions on currency value. Technical analysis involves studying price charts, volume data, and other market indicators to identify trends and make informed investment decisions.

For instance, during periods of quantitative easing, technical analysts might observe patterns indicating a weakening dollar and rising commodity prices. By identifying these trends, investors can adjust their portfolios to mitigate the impact of inflation. Technical analysis provides a systematic approach to understanding market dynamics and making data-driven investment decisions.

Expert Opinions and Examples

Ludwig von Mises, an Austrian economist, warned about the dangers of unrestrained monetary expansion. He argued that credit expansion and inflationary policies inevitably lead to economic collapse. In his seminal work, “Human Action,” Mises stated, “There are no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is whether the crisis should come sooner due to voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”

Mises’ insights highlight the long-term consequences of inflationary policies and the need for sound monetary practices. His warnings are particularly relevant today, where central banks continue to expand the money supply without sufficient regard for the long-term implications.

Modern Perspectives:

Contemporary analysts highlight the risks associated with central bank policies and currency debasement. Nassim Nicholas Taleb, renowned author and risk analyst, argues that the current monetary system is inherently fragile due to its reliance on debt and the unconstrained power of central banks. In his book, “Antifragile,” Taleb emphasizes the importance of building systems that can withstand shocks and benefit from volatility rather than relying on the false stability provided by central bank interventions.

Taleb points out that the repeated cycles of boom and bust, fueled by easy credit and monetary expansion, are not sustainable in the long run. He parallels the current financial system and historical currency debasement instances, warning that such policies’ consequences are inevitable and often severe.

Similarly, economist and author Nomi Prins exposes the inner workings of central banks and the global financial system in her book Collusion: How Central Bankers Rigged the World. Prins argues that central banks’ actions, particularly in the aftermath of the 2008 financial crisis, have primarily benefited the wealthy elite while leaving the majority of the population behind.

Prins highlights the dangers of central bank policies, such as quantitative easing and near-zero interest rates, which have led to asset price inflation, widening wealth inequality, and the erosion of the middle class. She emphasizes the need for greater transparency and accountability in the financial system to ensure a more equitable distribution of wealth and opportunities.

These expert opinions underscore the importance of questioning the current monetary system and the role of central banks in shaping our economic reality. By understanding the historical context of currency manipulation and the potential risks associated with unchecked central bank power, individuals can make informed decisions to protect their wealth and advocate for a more stable and equitable financial future.

Conclusion

Coin clipping in ancient times and modern inflationary practices by central banks both serve to devalue currency, eroding the wealth of the general population. This historical parallel underscores the need for vigilance and informed financial strategies. The psychological impact of inflation, the importance of contrarian thinking, and the role of technical analysis are crucial aspects of navigating an inflationary environment.

To mitigate the effects of inflation, individuals must stay informed about monetary policies and consider alternative investments that preserve value. Greater transparency and accountability in central banking are essential to protect the interests of the public. By understanding the historical context and implications of currency manipulation, individuals and policymakers can work towards a more stable and equitable financial system.

In conclusion, the practice of clipping coinage serves as a stark reminder of the darker aspects of human nature and the need for a financial system based on trust, empathy, and fairness. By learning from history and adopting sound monetary practices, we can build a more resilient and equitable economic future.

Sure of their qualities and demanding praise, more go to ruined fortunes than are raised.
Alexander Pope 1688-1744, British Poet, Critic, Translator