Thursday, December 9, 2010

Why Use Gold As Money?

David Redick
Activist Post

History shows us that when countries use a valuable commodity for money they have zero or low inflation; zero or minor cycles of economic panic or depression; and more peace, liberty, and prosperity (smaller governments).

For example, the number of grams of gold needed to buy a barrel of oil has been very steady over the years. A key benefit of using gold as money is its value stability.  Even better, Econ 101 tells us that a commodity such as gold in limited supply, and with increasing demand for it (growth of the economy), will APPRECIATE in value. This has huge importance because it kills the "there is not enough gold" argument, and gives a positive incentive to save and avoid debt.

Thus, we would expect all countries to use sound money, except the politicians want more money than they can get by just taxing, especially for wars. They want a way to create money "out of thin air." Fiat money ("face value" decreed by the government, not redeemable for gold; we call ours Federal Reserve Notes) serves this purpose. Even when some level of redeemability (exchange for precious metal) exists, governments often suspend it before, during, and after wars, which the US did for the Revolutionary, 1812 and Civil wars, after which it must be pushed to restore it -- often with less value.

The two key reasons for using a commodity as money are to:  
A. Limit excess expansion of the money supply (inflation; loss of value) by the government (you can’t trust them).
B. Provide a market-based store of value. The commodity could be wheat, iron, diamonds, or pearls, but the market (users of money) usually chooses gold because it works best.

To achieve broad use, commodity coins must be made of, or contain, a material that is: 
1) Rare, with a low amount in existence now and limited new supply.
2) Malleable, so can be made into coins.
3) Stable physically and chemically; doesn't break, rust, or rot (can be stored; lasts through much handling).
4) Easy to identify (recognize), and determine purity and amount.
5) Difficult or impossible to counterfeit.
6) Homogeneous in content (a melted chunk is the same throughout).
7) Divisible into pieces (diamonds and pearls aren’t).
8) High value per ounce (not bulky to handle or store).
9) Acceptable to most sellers (familiar and recognizable).

This approach allows the use of representative paper notes ("claim checks" for gold), or base-metal tokens, so long as they are marked to show the amount of gold they can be redeemed for by any bearer, on demand.

The market of money users has decided that gold fits the above requirements best, but silver and copper can have a role in parallel, with no fixed ratios set between them as to value per gram (i.e., no bi-metallic standard). It is interesting to note that gold is not "consumed" as are other commodities, including silver and copper. Thus, except for wear, over 90% of all gold mined in history still exists (even if buried in a tomb). Silver and copper supplies and costs are more volatile than gold (more new production, are consumed for industrial use, etc.), so are less attractive, but usable. When gold is used as money, it has no "price" anymore -- weight is the unit of account. This will take some getting used to as we evolve to pricing in weight of gold.

From its origin until 1913, the US used a combination of foreign and domestic coins and local "bills of credit," had two failed central banks, Continental and Greenback paper dollars (both became worthless), and various runs and panics in a turbulent banking system. The unconstitutional Federal Reserve System was created in 1913 and had a monopoly on creation of "legal tender" money. It was secretly planned by bankers and politicians, for bankers and politicians. At first, anyone had the right to trade-in their Silver Certificate paper dollars for a silver dollar (this ended in 1968), and deal in gold for transactions. In March, 1933 (his first month in office) FDR took those rights from mere people, and only nations could redeem paper for gold. In 1971 Nixon ended this right for nations when he abrogated the 1944 Bretton Woods Agreement due to our serious financial problems ( a. We were running out of gold because France, England, and others were redeeming the US dollars accumulated in Europe due to our postwar spending and loans there, and b. The US was poor after spending on Vietnam and LBJ's 'Great Society', etc.). With no link to gold, the US could make dollars out of thin air as needed, and did we ever! Prices started their 'hockey stick' shaped rise a few years later as the effect of excess money creation and spending trickled to the world economy. Within in a few years, all nations worldwide ceased redeemability, even the prudent Swiss floated the Swiss franc (SF), but have been less abusive than others; hence while 1 US$ = about 4 SF in 1961, it is now about 1 US = 1 SF, so they only inflated by 2.5 while by 2008 the US inflated by 10; 4 times more!

Where We Are Today
The US has been the worst abuser among developed nations (older countries remembered their lessons from past monetary failures). The US has created so much new free, fake money since 1971 that the US dollar has lost about 80% of its purchasing power since then (this excess expansion of the money supply is called monetary inflation, like a balloon) with its consequent price increases (due to loss of the dollar's purchasing power) called price inflation. Check prices of common commodity items (that are not imported, subsidized, cheaper due to new technology, or under price control), such as a pizza, a restaurant meal, or even a car. Good examples are:

1. A room at a Motel 6 cost $6 in the 1950s, but is now in the $50 range in 2010 (same type of room and service)
2. A family car cost about $2,000 in the ’60s, but is now about $20,000 in 2010.

There is your 8 to 10X loss of USD value since the late 1940s (when the post-war big-spending started)!  This ties-in with the over 95% loss of the dollars value since the Fed started! The only reason we can get away with our worldwide spending and borrowing is because the USD is the world's reserve currency (any person or bank will take and keep it as if "good as gold") and we can create new money to pay our bills. The dollar is viewed as a share in USA, Inc., the world's strongest economy, which sadly is fading (faster since 2007), as we continue the long abuse of our economy (by spending, taxing, and harmful intervention by the Fed and government) and money (by excess expansion of the supply). The era of US world dominance is ending, as it does with all empires (Rome, Spain, England, France, etc.). When (not if) the dollar loses its reserve currency status, there will be a 50% or more loss in value in a few days, and prices at Wal-Mart will triple!

Politicians and bankers love an unending supply of cheap money, but such fiat systems always fail. It is part of the pattern for all failed empires in history, and the Empire-USA is now entering the failure phase. To avoid a chaotic crash, we must reduce spending (including our role as the world’s policemen and bully), and convert to a gold-money system! The gold we own could be used to back all existing US dollars, and allow redemption of paper for gold. This would amount to about 2/10,000 ounce per dollar (or less if the Fed is lying about how much we have), and imply a price of about $50,000 per ounce. Thereafter, prices would be in weight of gold (grams, milligrams). All nations would soon convert to gold money, or sellers would not accept their trash paper. Variable foreign exchange valuations would end between countries using gold. The IMF, World Bank, BIS, G-20, and all other meddling government groups would fade and die (good). Time is short (1 to 10 years) before the big crash starts.

Write, call and visit your Senate and Congress persons to urge support of this new system. Most now prefer hyperinflation (print money to pay bills), or default (ignore debts), but that causes more damage and has no future benefit. Despite the pain and losses the conversion to gold may cause, the damage is far less than an uncontrolled crash, and there is a bright future afterward. Let’s get started.

David Redick has authored two books Monetary Revolution USA, and Rebuild America Now.  Mr. Redick is a "Ron Paul Style" Republican running for Wisconsin State Assembly and supports establishing a state bank.

Related Article by David Redick:
The Impact of Fiat Money as The World's Reserve Currency

Other Related Articles:

This article may be re-posted in full with attribution.


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Daily Tea Party said...

We have posted your article at the for Freedom Movement's Tea Party consumption and education.


Anonymous said...

Why use gold and silver? Because it is the LAW! Article 1, sec 10, US Constitution.

Anonymous said...

Very good article, but the American people are to dumb and lazy to realize that they have been turned into slaves by the incompetent politicians they have sent to the District of Criminals. I look for the collapse to come much sooner than 10 years I think 1 or 2 years is about all we have left.

Anonymous said...

Hi I stumbled across a comment which I found interesting. Has anybody ever heard this comment below.
Not sure exactly how it would work but...
Just wondering.

" If our money could be created, distributed and managed in accordance
with natural laws, money would be equitable for all, rich or poor. No
revamping of our monetary system would be successful short of five
essential structural changes, which would allow us to take away the
ability to control the wealth of our nation from the few. First, we
obviously must end the ability of all government and their agencies to
borrow money. Secondly, laws need to be established that control all
forms of economic monopolies along with the elimination of the corporate
entity. Third, the power to create money must be taken away from banks
and given to those who create the value behind money, those my friend
are the laborers. This would have the effect of limiting the amount of
money that can be created by the number of hours that can be worked by
the aggregate of the nation�s laborers, effectively ending inflation
caused by the overabundance of money resulting from indiscriminate
printing and distribution. This would also allow the worker to be the
first to spend it into the economy and always at full value. Fourth,
money must be given a shelf life of twenty-five years (Money
depreciation has been done in the past and was called stamped money) in
order to eliminate hoarding and stockpiling of old money by the wealthy,
which would keep money flowing in a consistent manner through the
economy, ending long-term inflation caused by the constant buildup of
infinite money. Lastly, banks must be prevented from loaning the same
money out more than one time. (Commonly known as fractional reserve
lending) Loaned money could be marked tagged or punched in order to
identify it as previously loaned money, preventing it from being loaned
out a second time. The loaned money would spend the same as regular
money, but banks would be required to identify and keep track of loaned
money. As the loan is paid back, the banks would exchange the marked
money for fresh unmarked money.
Don�t believe the gold advocates. Gold was used as money for years and
was almost as easily manipulated as the money of today and its value is
still being manipulated by the descendants of those very same people.
Commodity money never works, because commodities have their own value,
which is determined by the laws of supply and demand and gold is no
exception. Money value is derived from labor only. The easiest way to
understand money is to look at it as tangible labor, which can be put
into your pocket, taken down the street and exchanged for someone else�s
goods without having to work for that person directly or having to barter.
Many knowledgeable people have willingly identified the problems with
our fraudulent money, even explaining how the wealthy have conspired to
saddle us with this repressive system. The funny thing is, after they�ve
honestly describe the problem, they will inevitably send you running
down a rabbit trail when it comes to offering a solution."

Anonymous said...

There are many who insist that we must use gold backed currency as set forth in the Constitution. However, this is just a popular myth.

Section 8 - Powers of Congress: “The Congress shall have Power ... To coin Money, regulate the Value thereof, and of foreign Coin”

The only reference to gold in the Constitution concerns States and not Congress (i.e., the government).

Section 10 - Powers prohibited of States: “No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;”

But there are many who want you to think otherwise. Why? Because “Whoever controls the value of money in our country is absolute master of all industry and commerce” - President James A. Garfield. This is why “We the People” should “coin Money, regulate the Value thereof, and of foreign Coin”.
Congress now creates all the money it wants. It just creates money as bonds (or debt) which we the people have to pay interest on. This makes no sense. Instead of creating debt the government should create money interest free. The government does it now in a form of coins that are in circulation. "It is absurd to say our country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the people." - Thomas Edison

“We believe that the right to coin and issue money is a function of government. We believe it. We believe that it is a part of sovereignty, and can no more with safety be delegated to private individuals than we could afford to delegate to private individuals the power to make penal statutes or levy taxes.” … “Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank, and that the Government ought to go out of the banking business. I stand with Jefferson rather than with them, and tell them, as he did, that the issue of money is a function of government, and that the banks ought to go out of the governing business.” - William Jennings Bryan 1896

Brian Tate said...

Very interesting, the last two posts. Contrary to the last sentence, I believe we need to not simply clamor that governments ought to do the printing instead of the banks; they have already gave away this right, through the criminal Fed Reserve Act of 1913. I agree with the above statement that "we the people" need to create the money, as all value does flow from our labors.

The previous post I believe is suggesting we use TimeBanks (the way to value time as money), which have already been set up in many places, and allow the currency to be based on Actual Work. This guards against inflation, etc., but it also deprives the opportunity of getting excessively rich! People will only earn what work they contribute (so long as we don't allow the same slavery through "employment" and thereby so make others rich off our work). These TimeBank/Work Exchange programs are very simple and have had a lot of success and don't require a big bank, but simple community co-ops.

This might mean those with nicer jobs have to accept getting paid the same work-hour as the janitor, yet this is not only better than the alternative (of rich-poor divide), but the doctor would have to ask if they'd rather be the janitor? If not, one can hardly complain. There are few arguments to be made against equality, that all of our time is of equal value.

The other solution I propose is as the article says - switching to gold. And I wish to offer a unique idea (that others may be already onto), which is to create Gold Banks. First, it is easy to see that we do not need to print any money to do this (which wouldn't last long since this is against the current law). We simply would use gold itself, the use of which can in no way be outlawed.

However, since it is unwieldy and problematic to carry around gold for ordinary use, what these Gold Banks can do is (a) store your gold, (b) give you a Gold Card (literally a gold debit card, usable on today's infrastructure) for convenient use. When used, the bank simply deducts the amount of gold in your account according to the current exchange rate (of whatever currency you are using), and pays the payee in that currency.

Wala. We've had to print no currency, broke no laws, used the existing method (people won't popularly abandon debit cards to carrying gold & silver), and we've avoided any fraudulation issues since the bank will ascertain real gold. The one critical thing however for this to not fail like the current currency, is the banks MUST hold actual gold for all accounts, even if it is cumbersome. Having learned our lesson, we should make the mistake never again of printing money not backed by real currency, whether gold or else by work.

I hope to see more people take up these solutions as it is imperative to getting off the debt system financially strangling us with such ferocity today, and to avoid a chaotic crash-transition to an unknown new system. We need to make the transition now while we have the chance.
Invest in gold, start trading in it, and/or set-up/join TimeBanks and start getting paid and paying others in your work-hours.

Anonymous said...

The learning is in the doing, quite often. Using gold as money adds to liquidity without adding to debt. Now that gold weight can be digitized by transferring the title ownership, gold backed digital currency (title) that operates in real-time allows us to buy a stick of gum anywhere in the world, pay the exact amount in gold weight (title), close out the transaction with no lingering debt created and do so in the twinkling of an eye. Debt free store of value has married with instant global liquidity ... in real-time. The economy is a real-time event.

Here's the kicker ! All this was made possible by the advent of the free-floating debt based USD. It was the intro to the real-time paradigm. The dollar's utlimate role in all this is NOT as a currency but as a real-time measure for gold payments on the basis that we price goods and services in fiat. The real-time gold price is the bridge from the fiat paradigm to the gold payment(by weight) paradigm.

The Quadfather said...

I assure you that all of our time is not of equal value. Some people's time is worth far more than that of others. If we were to all be paid the same for our time as with this silly time bank idea, who then would strive for the more challenging positions? While it is true that a doctor could do a janitor's job if he had to, but a janitor could never do a doctor's job, unless he went through the rigorous training and possessed the necessary intelligence to begin with. The doctor should be paid more. We are not all equal and we never will be. We just need a stable currency.

Anonymous said...

Why not use silicon to back up money?

It is the most abundant element on Earth's crust!

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