After reading This articles about some state representative wanting to abolish federal “paper money” in favor of a state wide gold and silver coinage. His reasoning is that gold and silver have real value, they are something you can “hold in your hand” and “barter with”. This is in no way similar to “paper with ink on it” as he calls bank notes. Bank notes can’t be held in the hand, and certainly can’t be used to barter.
As a university student, i remember this debate and how frustrating it was to get basic concepts across to people who just knew how to parrot the lines they have been fed. THis is true i guess for all controversies and conflicts, but this one raises my ire more than most. They argue that bank notes have no intrinsic value, that they only have value because people agree they have value, and that they are “based on nothing.” Its just paper with images printed on it. Gold, however, has intrinsic value, and a certain weight of gold is worth a certain amount. Objectively. Without referrence o anything else, gold has a value.
The problems with this concept are apparent immediately.
1) Gold has no intrinsic value. its just a lump of yellow metal, soft and heavy. Humans ascribe it value based partially on its visual attractiveness, partly on its utility as a non corrodible substance, and partly on its assumed rarity (gold ain’t so rare as people assume).
2) The value of gold is determined by what you can get in trade for it. For instance, 3 oxen for 1 gold coin. Or say, 160$ in bank notes for 1 gold coin. As a coin, its a medium of exchange, more valuable as a coin than as a metal for casting ornaments. Because as a coin, it has symbolic value. It symbolizes the ability to attain any goods you desire.
3) metal coins are surprisingly easy to counterfeit
4) Their value is not set, but rather, fluctuates like the values of all goods and currencies.
It should be apparent even to the most ardent supporter of a great leap backwards in currency to a fictional past where the use of gold as the basis for money meant that no one was ever poor, the economies of the world didn’t boom and collapse, and you knew that your money was REALLY worth something.
Consider this: A bank note is worth a specific weight in gold, and you can exchange your note for that gold. This is the concept of a gold based currency. Now consider this. Your bank note is worth a specific amount of chocolate, and you can exchange it for that amount of chocolate. I can take 1$ and get 49 grams of chocolate at any convenience store. what’s so special about gold? i can already spend 1$ and get a specific amount of gold. The fallacy is that by basing the value of the dollar on a certain weight of gold, you have a set value fo the dollar. Since the value of gold changes, however, based on its supply among other things, the value of the dollar is also fluctuating. Based on the cost of goods fluctuations, a certain amount of gold won’t have the same relative value to various goods, and so, in no way is currency based on gold any different than currency not based on gold. Ultimately, its only value is as a symbol we use to represent the conceptual value of goods and services.
Because what is money? Its a representation of labor. 1 unit of labor is worth 10 units of milk. 1 unit of labor is worth 2 units of bread. 1 unit of labor is worth 20 units of bottled water. We are exchanging our labor for goods and services, and rather than going into a store and saying “I worked 45 hours this week, i’d like to transfer my hours of work at 10/hr to your work storange facility, and gather food in your aisles in exchange,” we use money.
How does gold or silver currency differ? In no regard. Silver only has value in what it can buy, same as paper notes. Why was silver used as the basis for coinage? because it was rare enough that the market would not flood with counterfeit currency, its alloys were all easy to spot, and becusae people BELIEVED it was valuable.
That’s the real magic trick. In the past, people BELIEVED that only a currency based on a metal was a REAL currency. When Diocletian tried to move to a different system, making coins only a percentage silver, mixed with tin, people felt that the coins had decreased in value, and there was inflation. We know today that a nickle has no nickle in it, but we still believe its worth 1 wine gum, 1/5th of a gumball, etc. In the modern world when we moved from a currency based on gold to one not based on gold, we did not have massive inflation and economic ruin. We began a period of great economic prosperity. Why? Because people had been using bank notes for centuries, and were so far removed from actual metal coins that they no longer had to IMAGINE that gold or silver were part of the equation. The paper retained its symbolic value, which was abstracted from the symbolic value of the gold. One symbol replaced another.
1) Gold has no intrinsic value. God does not decree that one oz of gold will be worth 10 oxen for all history. There is no edict from heaven on the exact prices of all things in relation to one another. Money based on gold is subject to the vissisitudes of gold price fluctuations, and can’t be divorced from those massive fluctuations.
2) Paper notes have no intrisic value either. In this they are the same as gold.
3) While the world used gold and silver coinage, massive economic upheavals were commonplace, as in the modern age. Economics is not based on the medium of exchange, but the nature of those exchanges. The medium is irrelevant, as it is merely a symbol. We dont’ even use currency half the time. We use bank cards. We don’t have actual money, we have electronic records of phantom values which, if we chose, we could exchange for paper currency, much as when paper currency began, you could exchange paper currency for gold. One symbol abstracts its value from the symboilc value of the previous symbol on which it’s based.
4) Basing money on gold is the same general concept as saying that in order to accept the universe as is, it has to be based on a creator’s efforts. Why do we need to regress one step? Why do we need to say “this arbitrary symbol has no meaning, unless it is attached to another inherently meaningless symbol”. If money has no value, gold has no value, but money based on gold has value? its irrational and a fallacious argument.
5) Why gold and not emeralds? Why gold and not 200 year old sections of redwoods? Why gold and not moondust? What does gold have to do with value? Nothing. Any of these alternatives would work. You could buy 1 trillionth of a gram of moon dust for 1$, say. Since you can’t get 1 trillionth of a gram, though, you’d accept the dollar as a symbol of the dust. The nyou’d just accept the dollar as a symbol of what it can buy (a chocolate bar, a can of pop, 10 wine gums, half a container of milk, a newspaper, etc…) and what it took to earn it (6 minutes of work in a call center, .5 minutes of work in a factory) Gold is as arbitrary a symbol as paper. (emeralds are rarer than gold, and rarer than diamonds. They would seem to make a great currency, of course, since emeralds are useless, they can’t be considered something to be bartered for intrinsic value. They would have to remain symbolic, like most currencies)
6) The only currency i know that was based on intrinsic value was salt. Salt was a) hard to mine, and b) necessary for the survival of human life in warm climates. The roman soldiers were paid in salt, becasue of its rarity, and utility. Salt has intrinsic value to humans. We can not live iwthout it. IN the dystopian post apocalyptic future, no doubt water will be a currency. The fremen used tokens to represent the volume of water that belonged to them, kept communally in vast tanks of water. Those tokens were money, but they represented a valuable object, water, necessary for human life.
This leads to the quest, why not base currency on something with intrinsic value?
The title of this article is gold double standard, because gold backers decry paper money as meaningless and having only symbolic value, value because we say it has value, fiat currency, but then don’t criticize gold for the same reasons. Even worse, immagine a currency sytem based on a truly finite resource? Imagine we had found all the gold there is on the earth, so all gold in circulation today was ALL THERE EVER WOULD BE. the population would continue to increase, but the arbitrary medium for all value on earth, gold, would never increase. Every person’s slice of the pie would shrink. Wealth would remain constant, while the percentage of people benefitting from it would decline. Black market currencies would inevitably surface (as has happened in recorded history when government coinage failed to service th eneeds of the economy), and yet another symbolic system of currency would arise to replace one where dogmatic religious conviction was allowed to ruin the world economy.
In the end, that’s what it is. Its dogma. No one is willing to consider these issues in the gold backers camp. They beg the question of whether gold has value or not. They ignore it. The assumption in the premise of the debate is that gold has value, objectively, so why not use it as the basis of currency? That’s the definition of begging the question. The debate is is not why we don’t use gold, but whether gold possesses the inherent value its ascribed. If it doesn’t, what difference would it make moving to gold? In this case, the only difference, if any, would be negative. The world’s wealth would decline by a factor of 10 or more. We’d all be broke overnight. In one swoop. Or, conversely, gold’s value would be artificially inflated so that 1 oz would be worth 70000 dollars, that way the small gold supplies held by each nation would represent the GNP the countrry had before the change. Then posessors of gold would be rich overnight, while possessors of money would be broke, unable to buy the tiniest fragment of gold. Only survivalists and catastrophists would benefit, while people who actually spend their money and support the economy would be screwed outright.
So yes, let’s switch to a gold coinage. I can think of no finer way to ruin the entire planet in one swoop.
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