Hedging the Decline and Fall of a Currency
The comments below are an edited and abridged synopsis of an article by Michael Kosares
Jack Whyte skillfully addresses how inflation is a process rather than an event in his novel, The Burning Stone. Whyte provides an insightful commentary on Rome’s currency debasement as a symptom of, if not a catalyst for, the empire’s ultimate demise. The inflationary process extended over the reigns of several emperors and went on for more than two centuries. Romans who had the wisdom to hedge that process ended up preserving and building wealth; those who did not suffered the debilitating effects of inflation.
Fast forward 1,700 years and not much has changed. Since 1971, when the US detached the dollar from gold and ushered in a new era of fiat money, the dollar has lost 84.5% of its purchasing power. The 1971 dollar is now worth 15.5¢. Meanwhile, gold has risen from $35 per ounce to nearly $1,700 today (with a stop at $1, 900 in 2011.)
Over the long run, gold in the modern era has maintained its purchasing power as it did in Roman times, while the dollar, like the denarius, has been steadily debased. Whyte’s depiction of the Roman inflation in The Burning Stone reinforces the argument for gold ownership today.