I am pleased to announce that the Kotok Report is now also available on Substack at https://dkotok.substack.com. Readers can choose to subscribe at Substack or at www.kotokreport.com.

Now let’s turn to today’s missive.

In his newly released second edition of Inflated: Money, Debt, and the American Dream (https://www.rcwhalen.com/inflated), my friend R. Christopher Whalen has provided an update to his important history of the US monetary system, covering the period from the Great Financial Crisis era through the COVID shock. He provides fascinating insights drawn from a careful study of history. 

On page 363 of the second edition, in his conclusion, Chris recalls a conversation between the two of us. (We have had many discussions over the years.) Chris remembers an observation I made, and phrases it this way: “The special role of a currency as a global means of exchange like the Roman aureus or the British pound sterling is something that finds you, usually as a result of war.” Chris continues later in the paragraph, “Great nations with enormous military might and powerful economies typically are the providers of the most frequently used means of exchange.” Chris’s discussion raises a profound question: Does world reserve currency status have a finite lifespan, or are the triggers for a change in status event-driven?

Today, I want to blend in findings from Chris Whalen’s new book with the research from our new book, The Fed and the Flu: Parsing Pandemic Economic Shocks (https://www.thefedandtheflu.com), which I mapped out and co-authored with Mike Englund, Tristan Erwin, and Elizabeth Sweet. I am looking for the intersections that add clarity to the lessons from history. I believe that there are some to be observed.

There is a theme in the money discussion in both of our books. It is about gold. To set the stage for today’s longer discussion about money and gold, I suggest a quick read — Chris Whalen’s report of a conversation with Henry Smyth about gold and its role as money. Here’s the link:

“Interview: Henry Smyth on the Return of Gold as Global Reserve Asset,”
https://www.theinstitutionalriskanalyst.com/post/interview-henry-smyth-on-the-return-of-gold-as-global-reserve-asset .

I know Henry and have worked with him in some planning matters for the Global Interdependence Center. The Whalen-Smyth discussion is thought-provoking. Reading it will take you only a few minutes.

Consider this history about gold that incorporates lessons from both Inflated and The Fed and the Flu. (Sources are listed in the notes and references in the Whalen book and the Kotok book.)

Gold bullets

History lesson part 1 is global. 

• Lydia. Lydia’s King Croesus defined the role of gold as money about 2600 years ago. Lydia, a kingdom once located in what is now present-day Turkey, was conquered by Cyrus the Great of Persia. Cyrus may have executed Croesus, or he may have kept him as an advisor. History reveals both stories depending on sources. For today’s commentary let’s just say gold became money in usable form (a coin at that time) in Lydia and became the Persian form of the world’s reserve currency.
• Greece. The Greeks had silver mines. When Athens defeated Persia after years of war and many battles including the famous one at Marathon, those mines enabled the silver drachma to replace Persian gold as the world’s reserve currency. Even after the plague in Athens and the Peloponnesian war with Sparta, Athens restored the value (the assayed weight) of the silver coin, which remained acceptable throughout the Mediterranean for centuries, according to research by the late Sydney Homer. Athens’ history demonstrates how a trusted form of money can be a useable store of value and medium of exchange and a world reserve currency for centuries. Our book, The Fed and the Flu, discusses this history in detail.
• Rome. Chris Whalen considers Rome when monetary value was respected. Our new book details the three pandemics that later decimated the Roman Empire and how each brought about inflation as emperors debased the monetary value of the Roman currency. We advise readers of antiquity to compare Greece with Rome and then fast forward to reflect upon present-day geopolitics and monetary economics.
• Europe following the Black Death. Following the Black Death (bubonic plague), there ensued a series of world reserve currencies. They were all tied to three factors: military power, global trade, and gold as a reserve or mechanism of storing value. The forms of the money varied because it is inconvenient to carry a lot of gold. It’s just too heavy. Thus, a proxy or form of a claim was needed. Those currencies and their approximate years of reserve dominance were as follows: Florentine florin (1250–1530), Venetian ducat (1300–1500), Portuguese real (1450–1530), Spanish real (1530–1640), Dutch Guilder (1640–1720), Spanish real again (1700–1800), French franc (1720–1815), British pound (1815–1920), and US dollar (1920–today). (Sources include Classical Numismatic Group, BTCM research, Barclays Research, [compilation by Barclays July 13, 2022].) Some scholars disagree on the dates. Others argue about the dominant role of any currency. Today, the US dollar is the dominant monetary unit for payment methods and the largest world reserve currency; the euro is in second place; and the G7 nations each have some world reserve currency role as does China (albeit small but slowly growing). Note that gold is considered a reserve by nearly every country. Also note that gold continues to be hoarded by central banks and institutions.

History lesson part 2 is American.

• McKinley period. The American experience I suggest be studied in both books. What I will call the McKinley tariff period really starts with the Depression of 1882–1885, which lasted from March 1882 to May 1885. It was one of the longest recessions in US history as of the time, lasting 38 months, and was marked in 1882 and 1883 by a gradual economic contraction rather than a sudden financial panic, according to an 1886 report from Commissioner of Labor Carroll D. Wright. The reversal of vigorous railroad expansion in 1882 and a credit event and panic in 1884 put one million folks out of work. That set of events triggered changes in gold flows. In those days, international trade was settled with physical gold transfers. The Russian flu pandemic followed and triggered another round of recession. That pandemic, which started in 1889 and lasted until 1895, killed a million people or more globally. The McKinley tariffs were implemented as a motivation to counter the gold flows. Details are in the books. The period ended with the banking panic of 1907.
• The Hoover period. After 1907, JP Morgan and others commenced the project that led to the Federal Reserve’s creation in 1913. Both books discuss this in detail. What followed is a global War (WW1), the Spanish flu pandemic of 1917–22, the Roaring ’20s, and then the Hoover tariff period (including the infamous Smoot-Hawley tariff levels, which Trump is prospectively repeating again in 2025). Please take a moment to read about the Warren Harding corruption on the way to Hoover. Gold again was important, and the flows in the Great Depression era drove policy. Roosevelt revalued gold from $20 to $35. Reading this history is now a timely exercise.
• Nixon period. While Richard Nixon is thought of as the Watergate-and-18½-minute-tape president, he was also a protectionist who used tariffs. And on his watch gold flows and currency disruption intensified until he unilaterally closed the gold window and revalued (on paper) America’s gold from $35 to $42. It has remained officially at that price ever since. The gold certificates price can change by act of Congress.
• Trump-Biden-Trump period. We are watching this period unfold. And the real-world gold price is reflecting the turmoil. Note that gold has now exceeded the inflation-adjusted price established at gold’s former peak price in 1980. (Hat tip to the Leuthold Group.) The outcome of the Trump-Biden-Trump period is unknown. But volatility has already risen (more coming on that in a separate piece).

Let’s return to the question Chris raised on page 363. We do not yet have any certain answers as to where America’s long journey along the path of debt and inflation will lead us or the global monetary system in the years ahead — too much remains to be decided, though impactful decisions continue to unfold. But we can see what the past teaches about how economies and monetary systems change or remain stable and why. The fates of reserve currencies and empires and their economies tend to converge.

I hope you enjoy our book, The Fed and the Flu, and Chris Whalen’s second edition of Inflated: Money, Debt, and the American Dream.

Let me thank Chris for inviting me to write the introduction to this second edition of his original effort 15 years ago. For his first edition, I joined Paul Tudor Jones, II; Bob Reynolds (Putnam); the late Ed Kane (Boston College); and Douglas French (Ludwig von Mises Institute) in words of praise for the first edition. Nouriel Roubini wrote that introduction. 

For the first edition I wrote,

This book captures another dimension. [Chris Whalen] uses his family history, which starts in the Nixon administration. He embellishes on his personal interviews with prominent persons like Paul Volcker and Josh Rosner. His book documents the ‘too big to fail’ syndrome. Finally, he presents a view of the future and articulates what the confluence of central banking, government fiscal policy, and market vigilantes must confront ahead.

Regarding the second edition, I wouldn’t change a word, except to add that the second edition has only gotten better and is vitally relevant today and worthy of a read even if the first edition is already sitting on your shelf. I recommend Inflated: Money, Debt, and the American Dream for your summer reading list. In parts of Chris’s book, you will find insights that resonate with our coverage of historical periods in The Fed and the Flu. So maybe both books can make your summer reading list. Here, for convenience, are links for those books at Amazon, but both titles are available through a wide array of booksellers.

Inflated: Money, Debt, and the American Dream

The Fed and the Flu: Parsing Pandemic Economic Shocks

My co-authors and I wish to thank the University of Maryland for putting our book on their summer reading list for business leaders. Special hat tip to now retired Professor Elinda Kiss, who read it and recommended it for the list. 

Happy summer reading and please enjoy both books.

David R. Kotok, June 8, 2025

(The above was first published on The Kotok Report website and via LISTSERV. For details, and to subscribe to The Kotok Report, visit https://kotokreport.com/.)