Money - Then and Now

My interest in money as a child began at an early age. I happened to be 7 years old when the new 1965 "tokens" were first minted. I was not sure why, but I knew there was something going on here. Several adults grumbled and complained about the new coins (really tokens because the last real coins were minted in 1964). Several people I knew began collecting the 1964 and older coins, and kept telling me that I should too because some day they would be worth something. And so at the tender age of 7 I became a "coin collector" and a "silver commodities trader". At the time my Father was on the board of directors at one of the local banks, so I asked all the tellers at the main branch to "save the silver for me," and I would trade tokens for them. I did the same with the lady in the cafeteria at school. So once a day at school and twice a week at the bank I would collect a few silver coins. I didn't know it at the time but a powerful law of economics was at work. Gresham's law states that "bad money will drive good money out of circulation" which simply means that people will hoard good money and spend the bad. This is exactly what happened in the mid-1960's as I am sure most of you here remember. It didn't take long before my take was getting smaller and smaller every week and finally dried up. I packed my hoard away and forgot about it.

I graduated from college in 1979 as an engineer, and became a full-time taxpayer. Ronald Reagan was running for office and was saying that he could "fix inflation". I had just lived through the wild inflation years during the mid to late 1970's, but I was in high school and like most people I believed that Volker at the Federal Reserve was trying to "fight inflation". President Carter was blaming the inflation on "the Arab oil embargo". Nixon had blamed it on "the wage and price spiral," and even tried wage and price controls that were a total joke. I was immediately caught up in the condition know as "income tax bracket creep". I got a little upset about that and I began to wonder about a few things: why does everything have to cost more every year, what is money, why did they change the money in 1964, 1968 and 1972, what exactly was the Federal Reserve and what exactly did Paul Volker do there? I began researching these questions slowly and asking people who should have known about them. I got no where fast. Slowly through reading dozens of books on the subject from many different points of view a light started to glow. I will attempt to share what I have learned over the many years. History always makes more sense when studied along with the financial conditions of the times. It is a long tale of greed and ruin. But first like all good stories; let's back up and start at the beginning. (Well maybe not all the way back as I tend to skip up and down the time line.)

A brief history of the Knights of the Temple of King Solomon

In 476 AD Rome finally collapsed and the last of the market economy went with it. The "small market correction" that followed was called the Middle Ages. It was a long correction cycle but Rome was quite a blow off top. The feudal system was the financial order of the day where society was built around large manors or estates. In this type of society there was little need of money. Not much was traded between manors, illiteracy flourished and money fell out of general use in Western Europe. In Eastern Europe the Byzantine emperors continued to mint a standard gold coin but elsewhere any coins that were minted were suspect.

With the crusades to retake Jerusalem during the middle ages money again became important as travel and interaction with others became necessary. In 1,118 the order of Knights of the Temple of Solomon or the Knights Templar or simply, Templars was formed by Papal order for the express purpose of retaking the Holy Lands and protecting the routes to and from Europe. The Templars were a new kind of religious order that had never existed in the Church before. They were warrior-monks who took vows of chastity and poverty. They became some of the most feared warrior knights of their time. Much has been written and speculated concerning the Templars causing many legends and stories that include: the search for the ark of the covenant beneath the site of the Temple of Solomon, the secrets of Roslyn Chapel in Scotland and the lost treasury of the order. . Whole volumes of history on their order alone have been written and make for fascinating reading. As the order grew new recruits came from the noble classes, mostly from 2nd sons who were not to inherit. The order grew and acquired many monasteries throughout Europe that served as recruitment stations for more warier-monks. Through gifts and captured infidel treasure they grew quite wealthy. At their zenith the order owned over 800 castles in Europe and collected money for and financed the crusades. All of their land holdings funneled money to their headquarters in Palestine.

Since the Templars had all of these castles throughout Europe they became logical places for noblemen to deposit their wealth when they left on crusade to the Holy Land. After all, when a nobleman left his castle to fight in the Middle East he would take his ablest men and would have to leave his treasury at home only lightly guarded. The Templar monasteries became a natural place to leave money as they were populated by warrior monks who had sworn a vow of poverty. To make matters better the Templars even gave the noblemen a letter or draft (with a secret code only recognized by other Templars) that they could present to any Templar castle along the way and withdraw gold coins that were used in that particular area. This was quite attractive to a nobleman traveling with a large group to support but wary of carrying his entire treasury on the road into uncertain and sometimes hostile territory. Thus the Templars due to their unique position at the time became the defacto bankers of Europe. "Templar drafts, don't leave the castle without them." Carl Maulden would have been proud.

The Templars even had their own Navy to transport goods, money and men to the Holy Land. But even though the finance end of the order was growing by leaps and bounds, military side of the order was losing ground in the Holy Land and finally was forced to retreat to the Island of Cypress. Right up to the end of the order's official existence, the Templars were making plans to retake the Middle East mainland.

In the late 1200's King Phillip IV of France or Phillip the Fair was in dire need of money. He had been at war for a number of years and then like now - wars are expensive to wage. Like the Romans before he experimented with reducing the amount of silver in the coins, high taxes, confiscated the property of all Jews and then expelled them and even taxed the Church. All attempts to increase revenue failed miserably. The main Templar treasure house for the entire order at this time was in Paris and Phillip had borrowed heavily from the Templars. In a well thought out move, Philip moved the papacy to France and was instrumental in seating Pope Clement V in France. Phillip conspired with Clement and had the Templars rounded up on Friday the 13th in 1307, which is the reason to this day that Friday the 13th is bad luck. They were arrested on trumped up charges of heresy (the equivalent of being called a racist today). Somehow or another only the head of the order, J. DeMolay and several of the older Templars were rounded up. Somehow or another the Templars were tipped off and the entire Templar treasury along with the Templar navy sailed the night of the 12 th and was never heard from again. DeMolay had just arrived in town a few days before with a wagon train of silver to deposit in the treasury and battle plans to discuss with the Pope for the re-invasion of the Holy Lands. DeMolay was fairly certain that he was untouchable since not only was he the head of a monastic order but also Philip's banker. Much to DeMolay's regret Philip was not in a mood to respect either position. The captured Templars were tortured and questioned for several months in Philip's prison after Pope Clement (the Pope in Philip's pocket) issued a papal bull disbanding the order and declaring their lands forfeit. Finally Philip had all the captured Templars executed and DeMolay himself was slowly roasted to death over hot coals. (All bankers should take note.) Thus ended the first banking empire in Europe during the middle ages.

Much has been written about where the Templar treasure is today. Some claim that the surviving Templars went to Scotland and fought with Robert the Bruce for Scottish independence. Some claim other tales of travel to North American prior to Columbus. The surviving Templars no doubt were not happy with Philip or the Pope for their treachery concerning the order and their navy declared guerrilla war upon the French King's ships. The naval battle flag of the Templars is quite familiar to all even today. Who after all has not seen the "skull and crossed thigh bones" on a black background?

Always remember that, "history is written by the victors".