history minus economics

Turban Head eagle gold coinWikipedia today features an article on the "Turban Head eagle" gold coin. You cannot coherently address the history of gold coins without also addressing price theory and the history of monetary intervention, and yet no such explanations are even hinted at in the article.

The short feature states, “increases in the price of gold made it profitable for the coins to be melted for their precious metal content, and in 1804, President Thomas Jefferson ended coinage of eagles.”

This implies that rising gold prices are enough to explain the melting down of any gold object, and yet I’m confident that people weren’t melting down their jewelry and other gold items, only gold coins. Why is that? Because a gold earring, for example, will approximately double in price as the price of gold doubles. There’s no advantage to melting it down. In fact, it will probably lose value if you do. Only price fixing can make a melted ounce of gold more valuable than the one-ounce coin being melted down. (While you’re on Wikipedia, have a look at their entry on Gresham’s law.)

In that same brief front-page summary, it says, “The piece … was the first in the eagle series, which continued until the Mint ceased striking gold coins for circulation in 1933.”

Why did the Mint stop producing gold coins? Because FDR made it illegal for private individuals to hold gold. It remained illegal until the 1970s.

In the few short words of today’s feature, we see two historical events that cannot make sense if you don’t understand the economics of intervention, and yet there is no mention of the role of the state in bringing about these distortions. Is it ignorance? Bias? My guess is that explaining the very simple theory behind these very straightforward facts is what comes across as bias. To appear neutral, you can’t really explain cause and effect in the world of political economy.


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