If you consider yourself a precious metals aficionado, you are probably aware of John Exter, the central banker who became an icon in the sound money community for speaking out against the use of fiat currency. He was part of the elite, having done graduate work at Harvard, taught at MIT, and was a member of the Council of Foreign Relations. Exter even helped found the Central Bank of Sri Lanka, a sign of his dedication for centralized monetary authority.
But even though he favored centralized control of national economies, he was rather vocal in his disapproval for fiat currency, which he often described as “IOU nothings.” Exter knew that the history behind unbacked paper fiat currencies was disastrous, and thus, he attempted to educate us about it’s dangers, and endgame. The result was a series of articles he wrote for the American Institute for Economic Research in the 1970s, and in one of these he visualized an inverted liquidity pyramid, in which he contended that all paper financial instruments would eventually collapse in the end as people rushed toward the ultimate liquid and safe assets which are precious metals. Many iterations of this inverted pyramid have been created since, depicting the new financial derivatives complex concocted by Wall Street.
Nearly 100 years before Exter created his famous pyramid however, there was another expert who made a similar warning about unbacked fiat currencies. That is, Alexander Del Mar. It would not be a stretch to call Del Mar, the most knowledgable person on the subject of precious metals in America in the 19th century. He wrote many books on the subject back then, and even exposed the monetary mischief perpetrated by elite banking families and governments in his book Bankers & Other Rogues: A Brief History of Monetary Crimes. Del Mar, like Exter, tried to warn the people of his day of the dangers of unbacked paper fiat currencies. He lived through the Civil War Era, during which the Union and Confederate governments turned to fiat money in order to finance their war efforts. In his book, The Great Paper Bubble: Or the Coming Financial Explosion, Del Mar tried to explain that the money printing by government could only end badly.
Like Exter, he tried to create an illustration of what was coming, but instead of a pyramid, he used the metaphor of the bubble. In the image above (taken from The Great Paper Bubble), Alexander Del Mar depicts the distortions of the monetary system of his day as a bubble emanating out of a pipe being smoked by Salmon P. Chase, the Secretary of the Treasury during the Civil War Era. As the money bubble grows in size, different parts of the economy become hotter and cooler as demonstrated by the associated temperature gauge next to Chase. At the bottom of the bubble, are brain work, and unskilled labor, which are least valuable in times of unbacked fiat currency expansion. And at the top of the bubble, is Gold and Silver. It is important to note, that Del Mar differentiates between paper claims, mining stocks, and the actual physical precious metal. In this regard, Exter and Del Mar agreed about the importance of distinguishing between tertiary forms of wealth, and primary forms of wealth. Ultimately, understanding this distinction, is the most important key to financial survival, according to John Exter, and Alexander Del Mar.