Gold Standard

At the beginning of the presidential campaign, one plank in Texas Representative Ron Paul’s platform was a return to “hard money”, i.e. a gold based currency rather than the fiat money system presently in use. I agree completely with Rep. Paul’s idea, but unfortunately it’s not feasible in today’s world. There ain’t that much gold in existence! There’s somewhere in the neighborhood of 140,000 tons of gold available in the world today, and if it was formed into a single gold bar it would be a cube roughly 60 feet on a side (that includes all the privately held coins, bars and jewelry in the world, which is about 75% of the total supply). All that gold totals up to about $1.8 trillion, or about $250 for each person in today’s world (depending on whatever today’s gold price is). America's gold reserve is only about an eighth of that of that total, far less that our (arguable) national debt of $6.9 trillion! It would seem that Fort Knox is little more than a modest sized national piggy bank despite the mountains of “gold bars” that we sometimes see in the movies. There's not all that much gold left in the ground anymore either. Approximately 50,000 tonnes (about a third of what has already been dug out) remains un-mined according to the best guesses of the geologists, and will cost a large fortune to extract. Meanwhile - after more detailed worldwide surveys - the mining industry consensus is that large mineral deposit discoveries are now a thing of the past. Gold, as always, is extremely scarce.

No, despite the high hopes of some people, the idea of the public running around with a pocketful of gold coins isn’t going to happen. Silver and platinum coins would help of course, but there we run into the continuing problem of scarcity, and the very high industrial demand for those metals. Precious gems perhaps? England has their crown jewels of course, but the United States has never had anything similar to fall back on… well, except for Liz Taylor’s jewelry box perhaps.

The term “money” is generally used to indicate anything that is used as a medium of exchange in payment for goods and services, or the repayment of debts. The main uses of money are in exchange, accounting, and as a convenient store of value. Way back when, if the King had to travel anywhere, the national treasury usually went along in the form of gold bars or coins, carried in a chest of some sort and well guarded at that. Due to the inconvenience that brought on, some other form of “money” was required that could be easily carried. After all, it is rather inconvenient to travel with a mid-sized treasure chest full of gold coins, being guarded by a bunch of big, burley, intimidating looking guys carrying swords. Back about 1600 BC, the Chinese invented “paper money”, which was nothing more than a promissory note redeemable for a stated amount of gold or silver, and was much easier to carry around. Used on and off for centuries, paper was a handy medium of exchange when large amounts of money were involved, but most folks still preferred the jingle of gold and silver in their pocket or purse.

Hard pressed to finance the Revolution, the Continental Congress issued paper money called “Continentals”, that were nothing more than vague promises to “pay” sometime in the far and unspecified future. During the Civil War, and for the same reason, the U.S. government resumed printing paper currency. These "greenbacks" were once again nothing more than a promise to pay at some time in the future, because they were not backed by the gold or silver resources in the national treasury. Through the following century the demand for currency far outstripped the available supply of precious metals, leading to the American abandonment of silver coins and silver certificates in the 1960’s, in favor of what’s called “Fiat Money”. Today, no country in the world backs their money with gold or silver. When a government is unable to pay its debts in gold or silver, the temptation to remove the physical backing of the currency becomes irresistible, and a system wherein money is not backed by anything of physical value develops. With that system, the value of money is based only on scarcity and public confidence that it can be exchanged for something of value. If that confidence is damaged the money inevitably becomes worthless. Nor is there any limit on the amount of money that can be printed. This allows creation of unlimited credit along with government “control” of inflation, or so goes the theory. Initially, a rapid growth in the availability of credit is mistaken for economic growth as business profits grow, and thus the artificial wealth for a select few. In the long run however, the economy tends to suffer. Hyper-inflation is the terminal stage of any fiat currency where the currency looses most of its value seemingly overnight, and is often the result of increasing inflation to the point where all confidence in money is lost. Well, not long back I was severely castigated by a reader for opposing a general “redistribution” of wealth in this country, as proposed by the liberals. That reader shouldn’t worry, at the rate we’re going there soon won’t be any wealth left to redistribute!

The nation’s founding fathers were greatly concerned about government control of the money supply. One thing they all agreed on was limits to the issuance of money, and the belief that no “central bank” should have such control. Thomas Jefferson warned of handing that control of the money supply to the banking industry, "I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered. I hope we shall crush in its birth the aristocracy of the moneyed corporations which already dare to challenge our Government to a trial of strength and bid defiance to the laws of our country". In 1913 the US Congress created the Federal Reserve Banking System, a semi-autonomous “central bank” that controls our money supply and thus our economy, and that just happens to be run by the same banking elite that Jefferson warned us about.

The Crash of 2008 is wiping out our people's wealth. Seizing on the crisis, the left says we are witnessing the failure of market economics. Horsefeathers! What we are witnessing is the collapse of "Greed Is Good!" capitalism. We are witnessing what happens when a nation ignores history and abandons the principals that made it great. "Government must save us!" cries the left… yeah, that same government (both political parties I might mention), that got us into this mess with easy money policies, unbalanced budgets, and nearly limitless federal spending. Today government expects an unelected financial elite to get us out of an economic disaster that the same unelected financial elite got us into!

The spending party's over folks. Will the last person to leave please turn out the lights?