You may noticed that on this planet everything goes in cycle. Money is not exception.
Life cycle of money is not as striking and quick as that of a butterfly but worth all the attention.
In this report I use deductions made by Mike Maloney.
Mike can be viewed as a founder of the cycle. A self-taught financial historian and educator, he talks about these topics around the world. He wasn’t doing this all his life however. A trigger became his mother’s personal accountant that Mike wasn’t happy with. This led Mike to take his mother’s financial matters in his own hands. So, he “went back to school” (besides being dyslexic). Difficulties with reading forces him to acquire and analyze information differently. Yet, this also helps him see what others can’t see.
Mike noticed that there is a pattern in how humankind handles money.
First, people start with gold and silver-based money. Then devalue it. And then again come back to gold and silver. We can see this cycle of gold and silver-based money to worthless money and back again repeating over and over again.
In the video below, Mike talks about this cycle. Starting at 4:18, he talks about ancient Greece. Greece was the first civilization to undergo this cycle actually.
Many know that history repeats itself but only a few learn from the past. Rulers repeat the mistakes of the rulers before them.
There are two major mistakes. First, they want their countries to look superior. So, they build the “largest towers” and the “largest bridges”. Second, they want their country to actually be superior and control other countries. So, they start the wars. Public works and wars is what makes a country go from gold and silver to low-value metals (fiat currency). This sooner or later results in a country’s collapse.
No doubt, money plays a pivotal role in the history of any country. Let’s see how a money cycle integrates into economic history of a successful country.
Mike divides economic history of any successful country (which, too, goes in cycles) into 7 stages (jump to 9:15 in the video).
Money cycle of a successful country
Stage 1. A country introduces gold and silver or something that is backed by gold and silver
Stage 2. As a country grows economically, it spends more and more on public works – infrastructure, architecture, art (first mistake)
Stage 3. As a country’s economy grows further, its political power over other countries grows as well. At this point this country begins to focus its spendings on military (second mistake)
Stage 4. With time, the military is put to use. A country starts a war and its spendings increase exponentially (second mistake)
Stage 5. When run out of means to fund a war, the government of this country takes away wealth from its people. It does so by mixing gold and silver coinage with low-value metals (copper, nickel, zinc). Or it introduces currency backed up by nothing
Stage 7. Eventually, people turn to gold and silver (and other physical assets). Gold and silver worth against low-value coinage or currency goes up resulting in a collapse of a country’s economy. This transfers massive wealth to those who happened to have gold and silver at the time
According to above, the money cycle can be expressed in 4 stages (see above).
For the simplicity of the diagram, let’s make copper that low-value metal. So, to summarize, people go from gold and silver to low-value metals and back again. Or from currency backed up by gold and silver to currency backed up by nothing and back again.
Before wrapping up, a couple last words:
In the year of the video, 2013, Mike positioned US, a country with a main reserve currency, in Stage 6 and early Stage 7. I guess, today US stands firmly in Stage 7 as gold prices are elevated plus more and more people, especially since beginning of 2016, look in the direction of gold.