We are living through an unprecedented period in human financial history.
It is extremely rare to have a monetary system detached from any physical commodity, such as gold, for a long period of time.
It is even rarer for such a system to exist on a global scale.
This is a historical anomaly.
The monetary system in its current form has existed since 1971, when President Nixon “temporarily” suspended the conversion of US Dollars in to gold at $35/oz.
Removing the link to gold has allowed for the significant expansion of the currency supply over the last 50 years. This has the effect of devaluing each unit of currency and driving up prices.
If history is any guide, it will not be possible to maintain such a system indefinitely. Eventually we will have to move back to some form of hard money, where the supply of money is constrained.
This could be a return to some form of gold standard, or it might be an adoption of new technology such as Bitcoin or Monero. Nobody knows what will happen.
As an investor it would pay to do your best to understand this phenomenon. It is important to understand money, since money is what assets are priced in. It is one half of every transaction.
Money is not neutral and stable, rather it is unstable, changeable and highly political.
Changes in the monetary system will affect stocks, bonds, real estate, precious metals and cryptocurrencies.
You need to be able to protect your portfolio with a good defense and earn a real rate of return above the rate of inflation with a good offense.
And if you want to build generational wealth you also need to educate your children to protect them from the anti-capitalist, anti-wealth, anti-industry, anti-growth ideology that is so pervasive in modern society. They need to know how to make and manage money.
Macroeconomic, technical and company level analysis is still incredibly important. But to understand what confronts you today you also need to know your history.
You can’t invest with history alone. But understanding it can help you improve your performance in other levels of analysis and gives you the best chance to succeed in this challenging environment. If you want to have any chance of understanding and staying ahead of what is going to unfold ahead of us, you need to know the past and have an appreciation of monetary history
The way I see it, investment analysis has a number of different levels, each drawing on a different discipline.
History is a base layer of understanding that puts your macroeconomic and company level analysis into context.
History is about asking the question, “why is the world this way?”
Investing is about asking the question, “why are the markets priced this way?”
One of the best ways to predict the future is to study the past. An investor seeks to know the future, therefore understanding the past is incredibly valuable.
Ready to Improve Your Understanding of Monetary History?
- The History of Hard Money: For most of human history societies have used some form of hard money. That means, something where the money is not easily reproduced and has a degree of scarcity.
- The History of Paper Money: The history of paper money is a history of failure. Authorities have sought to utilise the flexibility it gives their finances, but have generally mismanaged it and brought catastrophe.
- Why Buy Gold: Gold has been sound money for thousands of years. It continues to play a role today and will almost certainly play a role in the future, despite the challenge from Bitcoin.
- Why Buy Cryptocurrency: Bitcoin is a fundamental shift in the nature of money. It is the best form of hard money and is objectively better than gold. Most altcoins are technology speculations.
- Value Investing: If you understand sound money then value investing should have an intuitive attraction. You appreciate value in your money, so you should appreciate value in your stocks.
About This Website
This website is an exploration of the history of money and considers the lessons that today’s investors can learn from the past.
It is a fusion of history, economics, money, precious metals, cryptocurrency and value investing.
The aim is to help you create and build generational wealth by building your understanding of monetary history.
For much of human history, society has operated with a system of hard money (also known as sound money). Hard money refers to a monetary system where the creation of new money is difficult and therefore its supply is limited. Often this has been gold and silver.
Not only is hard money hard to create, it is subjectively valued by large numbers of market participants regardless of government decree. For example gold is considered valuable by the market for its monetary properties regardless of whether we are on a gold standard or not.
However, there are numerous examples where societies have abandoned hard money and have used fiat money instead. This fiat money, historically paper money, but now also in digital form, is money that is divorced from any relationship to a scarce asset such as gold. Because a fiat currency’s supply is not restricted this monetary system relies on people having faith in the currency and in those who administer it.
That’s not necessarily a problem. History has shown that almost anything can be money if society accepts it and if the confidence in the system remains intact. And a state has a legitimate sovereign right to issue money, so it’s their prerogative if they want to choose fiat currency over hard money.
In theory, a state could use fiat money but pledge to limit its total supply or pledge to maintain a certain fixed level of supply increase. If it did this and kept its promises, this system would work.
However in reality, fiat money becomes a problem because authorities mismanage the currency. Human beings are fallible and history shows that the temptation to increase the money supply for short term gain is very seductive. The people eventually lose confidence in both the money and the monetary authorities. They then clamour for the government to “do something” to fix the problem and this only makes it worse.
While fiat money systems can last for a long time if managed well or a short time if managed poorly, history has shown that eventually they will fail.
We currently live in a world with a fiat monetary system. The world’s currencies have no tie to gold or any other hard asset, with the system relying entirely on confidence. So far that confidence has remained intact but it is gradually diminishing.
Central banks around the world have been inflating the supply of money gradually for decades, slowly eroding the purchasing powers of the world’s currencies. They stepped this up after the 2008 Financial Crisis and have continued to inflate at a rapid rate in the wake of the Covid 19 pandemic.
This inflationary environment benefits those who already own a significant amount of assets, especially those who purchased them with debt.
When asset valuations are very high and interest rates are lower than the inflation rate it is much more difficult to either grow or protect your wealth. Safe investments that generate solid returns are rare and savers are punished because holding cash guarantees a loss of purchasing power through inflation.
Even with the recent rise in interest rates, given that the inflation rate is higher, real interest rates are still negative. If you are a saver, your wealth is still being eroded by inflation.
When you cannot generate a real return in a traditional savings account, you either accept the low returns or you are forced to invest in higher risk assets.
Whether you are a retiree trying to live off your income, a young person trying to save for a house or a family trying to get ahead, this environment is tough for you.
Understanding monetary history can help you bridge the gap. The more you understand about how our monetary system works, the better the investing decisions you will be able to make in this environment. You will have a greater chance of successfully growing and protecting your wealth. You will also be less likely to fall prey to ideological arguments that blame our economic predicament on capitalism or greed instead of unsound money.
It will help to know that societies have been in these situations before and that people not only got through, but those making the right investing decisions were able to thrive. The insight to realise that we have been here before will help you navigate the difficult financial circumstances we find ourselves in today.
The lesson of the past is clear. The best way to protect yourself in a inflationary situation is to hold much of your wealth in hard money and hard assets.
Hard Money History’s purpose is to provide educational information based on a sound understanding of monetary and investing history and the growth and preservation strategies that have stood the test of time.
Investors who understand history are better educated and more likely to be more successful because they understand:
- That not losing money is just as important as making money
- That technology and accessibility do not change the basics of money and investing
- That crashes do happen and “this time isn’t different”
- That markets are cyclical and conditions often repeat
- That psychology and emotions are natural parts of investing
- That patience is necessary to generate returns and investing is a long game
- That money can be made in a bubble as long as you recognise it is a bubble
- That value is more important than hype
- That risk needs to be appropriately balanced against reward
My investment philosophy is conservative, contrarian and based on value and market fundamentals. I buy and hold for the long term. I also believe that you can grow your wealth over time by patiently allocating the vast majority of your funds into traditional conservative investments, while generating good returns with a small portion of your funds allocated to speculative investments.
My name is Thomas Maurer. I am a high school History teacher and a student of monetary history who has been investing since 2011. My economic philosophy is predominantly Austrian.
This website was created to help you understand the economic and monetary paradigm we are living in, how we got to this point and how to both protect yourself and prosper in these challenging times.
Hard Money History does not provide financial or investment advice. This website is a journalistic resource providing financial and historical information of a generalised nature, not specific to any reader. Where an economic case is considered for an asset this is not a recommendation to buy. Do your own due diligence and consult your financial advisor before making any investments. Hard Money History accepts no liability for any decision made based on information on this website.