Posted Jan 10, 2017 by Martin Armstrong
QUESTION: Mr. Armstrong; What Modi has done here in India is far worse than what the press reports. I read your piece that this is part of a larger plan discussed at the G20 meetings. Is there any historical precedent for such actions that would provide some guidance for the future?
ANSWER: Since ancient times, many times those in power have cancelled their money supply to make a profit or collect taxes by force. It is rather absurd to think gold or silver coins could somehow exempt one from these types of actions by tyrants for they pulled off such maneuvers even in ancient times. Governments have recalled all coinage and demonetized silver and gold coins, declaring them not acceptable in payment for anything. Despite their metal content, the coins were still declared worthless. This is one of the simple truths that demonstrate not even a gold standard will save the day.
The first debasement or reduction in weight took place in Lydia, which was the first city-state to invent coinage stamped by the King. Then King Kroisos fought against the Persians and as expenses mounted, he reduced the weight of the gold stater from 10.75 grams to 8.08 grams – a reduction of nearly 25%. Cyrus the Great won the battle and then retained the invention of coins minting the same designs. Eventually, Darius I of Persia placed himself of the coinage and they then became known as a Daric denomination.
There is no evidence that Kroisos recalled the older coinage to reduce the weight and make a profit. However, others to follow did adopt that tactic which is effectively what Modi has done replacing the currency with electronic deposits. Over the centuries, governments have routinely replaced worn coins or worn paper currency with new issues. However, not all coin recalls were about reminting old and worn coins or paper notes with new ones. Three literary passages from antiquity identify the reminting of coinage in ancient Greece that had nothing to do with recycling of worn coinage. The government did what India did, but instead of moving to electronic money, they devalued outstanding coins and recalled them for restriking regardless of their condition, specifically as a means of raising revenue for the state.
The 6th century BC Athenian tyrant Hippias it is recorded, “[H]e also made the coinage existing among the Athenians legally invalid (adokimon), and, having fixed a price, ordered them to bring it to him; and after they had come together for the purpose of striking another type (character), he gave back the same silver money (argurion).” (Aristotelian Oeconomica 1347a8–11)
It is unlikely that Hippias the Tyrant (528-510 BC) simply returned the coins unchanged. He would not have carried out such a monumental task without making some profit by demonetizing and devaluing all of the coinage in the state, thereby requiring it be exchanged for the legally acceptable (dokimon) coinage that he issued at a higher value. This is similar to the actions of Modi in India.
We also find similar passages that are notable for their overvaluations of the new replacement coinage. During the 4th century BC, Dionysios I of Syracuse (405–367 BC) and Leukon I (389-348 BC) of the Cimmerian Bosphoros pulled off similar mass recalls of coinage. Dionysios, we are told ([Arist.] Oec. 1349b27–33), and Leukon (Polyaenus, Strat.6.9.1), recalled in the existing coinage and restruck/or countermarked it with a new type/character, thereby doubling its original value. This was an effort to cover the expenses of the state by increasing the money supply. Dionysios recalled the coinage and imposed the penalty of death for noncompliance. Leukon followed Hippias and simply demonetized all existing coinage. In present time, no doubt, in the future, anyone conducting a transaction in anything other than electronic money will be imprisoned as a criminal and they will call it money laundering to avoid taxes.
Various Japanese emperors engaged in similar tactics but did not recall the existing coinage. Each new emperor just devalued all outstanding coinage to 10% of its value and issued their own coinage for profit. This practice led the population to use Chinese coins and rice. Eventually, nobody would accept a Japanese coin because of this practice. Thus, the end result was that Japan lost the ability to issue coins at all for 600 years after 958 AD. Similar devaluations took place also in China. The USA devalued and cancelled the Continental Currency when creating the US dollar.
This is why, as we move forward, it will be best to hold assets out of banks and out of currency. They can even declare gold a criminal act to possess, which is why I suggest genuine old coins rather than bullion. Just another layer of protection. Whether that would be the case, as it was under Dionysios I of Syracuse, is not unthinkable. The safest asset may simply be blue chip stocks for they would never make it illegal to own corporations unless you had a full-fledged leftist revolution that seized all private assets as in a communist revolution. That risk would naturally alter everything once again.