it is amusing to see statists rant against gold.  it only goes to show they still don't "get it."

keep clutching at those federal reserve notes, they'll serve you well /sarcasm.

gold is the only money supply in the world that can not be inflated out of thin air.

if gold is such a useless commodity, why do central banks hoard it?  why don't they hoard other commodities?  methinks they know something that you do not.

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An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.  ~Alan Greenspan, 1966, "Gold and Economic Freedom

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Wiccan_Seeker said:
Its a barter item that isnt actually worth something itself but represents value. Its amazing we let them do that, take the gold and silver from our coin pouches and replaced it with paper and ink.

its downright AMAZING that the barter token no longer holds value of its own, like it used to for thousands of years.

Judas, a famous ancient snitch, betrayed Jesus for silver coins. The of the angels would sound like God installed a waterfall in Heaven if he had betrayed him for paper and ink.

A token of no inherent value that can be printed in near unlimited quantities, where will it lead?

Lets ask the people of Zimbabwe shall we?

<img src=http://files.shroomery.org/files/09-005/351729484-hyperinflation.jpg>

Lets say you have $10,000 in the bank and this goes down. Your 10,000 isnt worth a stick of gum. The paper of it is, you can light a fire with it to cook a meal. If you had it in cents, it still would be worth about $6,000 because of metal value. Nickles nowadays are worth even more at the smelter than at the checkout line!

Zimbabweans had their money taxed out of their hands by their central bank printing way too much of it and then spending it like it was real to buy up much of the country. They pay in tiny crumbs of gold now, but dont let the cops see it or they'll confiscate that too.

Money, fiat money, is one of the very worst kinds of currency you can think of. Its an irresistible invitation to the powers that be to rob us blind, and thats what they're doing right now.

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Gold only has value currently because all other needs are being met, in the doomsday world you goldbugs predict (with hyper-inflation and the US/World economies collapsing), gold will have no value to other trading partners, as it will serve no functional use.

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If I'm dying of thirst in the dessert, gold is of no use to me, unless someone else is foolish enough to trade me water for the gold.

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Ah but you don't have any gold. What service will you provide to get the water? Bear in mind your mouth is dry

Lets actually put you in the Serengeti, just because we can.  You are parched, dazed and dehydrated. A jolly group of Maasai cattle herds comes check out what you're doing there. You need milk from one of those cows. Now, you'd probably get it for free if you're nice because thats what tribal people all over the world are like if they have something to share, but lets assume they want something for it. You reach in your pockets and in one hand you have a gold krugerrand and in the other hand thirteen hundred dollar bills. Which do you think they will pick?

Its not going to be the dollars and thats not because the krugerrand is shiny or has a springbok on its reverse. They know what gold is. Almost anyone in the world knows, no matter how rural, and they know its precious. They may not know dollars, and they may not know krugerrands.  They may not even speak your language.  But they know what gold is, and you get your milk and taken to safety, rather than having to come up with a service that might otherwise persuade them.

You act like gold or silver are nothing, and they may not mean much to you personally, but they are far more widely accepted than dollars in the world.  There are many places in the world you'd get spat in the face if you try to pay with American money.. but they'll all take your gold, no problem, even if its in Africa, has Paul Kruger and a 1970s date on it.

They say that money talks, but the problem is that money is ALL TALK, a promise - gold speaks languages you didnt even know existed, its not a promise but actual delivery, right in the palm of your hand.

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Wiccan_Seeker said:

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Gold only has value currently because all other needs are being met, in the doomsday world you goldbugs predict (with hyper-inflation and the US/World economies collapsing), gold will have no value to other trading partners, as it will serve no functional use.

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It works for the people of Zimbabwe.

If there is hyperinflation will you be the wheelbarrow man with every week an additional zero on the stacks of paper in your wheelbarrow, or will you be the smart intelligent guy I think you are and accept silver and gold coins for your goods and services, be they old silver dollars, Gold eagles or the 1oz silver rounds your local militia will bring in circulation?

I really think you will, its the sane thing to do. You can't trade your goat for a hundred loafs of bread, because 99 will spoil while you eat the first. Trading the goat for a loaf of bread with the promise of 99 more puts your completely at the mercy of that promise and dependent on the one making the promise. If you trade your goat for 100 morgan silver dollars however, you can buy a hundred loafs of bread one at a time when you need them, and from whoever you choose to buy it from.

There will NEVER be a hyperinflation on gold and silver, just like there will never be a hyperinflation on houses so that a house is worth as much as a jar of mayonnaise.

In the Third World (Africa, Asia) people use their unstable currency for day to day affairs and if they are fortunate enough to have a buffer they do their savings in gold and silver, be they coins or jewelry. Foreign currencies are popular too but woefully illegal to own and trade in in most of those countries.

Those people aren't stupid. Survival mode is what keeps them alive every day.
The local currency canb't be trusted. The government bank cannot be trusted. Foreign banks may be fucked over by their own government and made to hand over the loot. Gold, silver - everyone respects.

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If I'm dying of thirst in the dessert, gold is of no use to me, unless someone else is foolish enough to trade me water for the gold.

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Ah but you don't have any gold. What service will you provide to get the water? Bear in mind your mouth is dry

Lets actually put you in the Serengeti, just because we can.  You are parched, dazed and dehydrated. A jolly group of Maasai cattle herds comes check out what you're doing there. You need milk from one of those cows. Now, you'd probably get it for free if you're nice because thats what tribal people all over the world are like if they have something to share, but lets assume they want something for it. You reach in your pockets and in one hand you have a gold krugerrand and in the other hand thirteen hundred dollar bills. Which do you think they will pick?

Its not going to be the dollars and thats not because the krugerrand is shiny or has a springbok on its reverse. They know what gold is. Almost anyone in the world knows, no matter how rural, and they know its precious. They may not know dollars, and they may not know krugerrands.  They may not even speak your language.  But they know what gold is, and you get your milk and taken to safety, rather than having to come up with a service that might otherwise persuade them.

You act like gold or silver are nothing, and they may not mean much to you personally, but they are far more widely accepted than dollars in the world.  There are many places in the world you'd get spat in the face if you try to pay with American money.. but they'll all take your gold, no problem, even if its in Africa, has Paul Kruger and a 1970s date on it.

They say that money talks, but the problem is that money is ALL TALK, a promise - gold speaks languages you didnt even know existed, its not a promise but actual delivery, right in the palm of your hand.

<img src=http://files.shroomery.org/files/07-18/823923203-bullionad.jpg>

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Wiccan_Seeker said:
If you're a hyperinflationist, you may want to pick up a bag of junk silver instead.

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