An alternative to popular faith
I always am puzzled by the mystical faith in gold.
First, gold has minimal utility. Yes, some is used for jewelry and a bit for dentistry and electronics, but essentially gold is useless. At one time, its value was based on the same faith that supports the dollar bill. Today, its value is based on less faith than that, because the dollar at least, is supported by the U.S. government’s full faith and credit. Gold is backed by nothing.
Second, the Great Depression occurred while we were on a 100% gold standard. Some have argued that was one cause of the Depression. In any event, gold did not prevent that Depression, nor did it prevent any of the prior depressions.
Third, the current recession is being cured by the government’s unlimited ability to pump money into the economy, something that would be impossible if we were on a gold standard or on any other standard based on a physical product or “basket of products” as has been suggested.
Fourth, the U.S. government can control both the supply of, and the demand (interest rates) for, the dollar. That control over supply and demand gives the U.S. complete control over the value of the dollar. The U.S. would have little to no control over the value of gold, a serious problem when trying to control our economy.
In short, gold is one of those commodities, the value of which is based solely on faith. Just as there have been real estate bubbles, stock market bubbles, oil bubbles, tulip bulb bubbles, sugar bubbles, coffee bubbles and diamond bubbles, there have been gold bubbles, the biggest coming in 1980 and perhaps again, today.
Is this the picture of another gold bubble?
The fact that people traditionally have coveted gold is irrelevant to today’s world economy. It also is irrelevant to the future safety of gold, which could disappear with the discovery of, for instance, a massive undersea or antarctic gold vein.
Because gold is supported by no nation, it is less safe than the dollar. Worse yet, it is expensive to own. While saving a dollar will earn you interest, saving gold will cost you for storage, insurance and shipping. In essence it is a wasting asset, the value of which is based on the “greater fool” theory (“A fool buys it because he expects to sell it to a greater fool.”).
We finally went off the gold standard in 1971 for a good reason: A growing economy requires a growing supply of money, and basing money on gold prevents that money growth. Had we stayed on the gold standard, the U.S. today would be bankrupt – unable to pay its bills.
Those who yearn for the good, old, gold standard days, should be careful what they wish for.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
#Monetary Sovereignty - Mitchell 
1. Supported by the government’s full faith and credit? Are you serious? How does the government back that up? It either backs it up with more printed money or it backs it up with our labor. The government produces nothing, so it has nothing to back it up with.
2. During the Great Depression, we were on the gold standard, but the Fed was still setting interest rates. The Fed is the problem, which you disregard because there was a gold standard.
3. You can’t be serious that the current recession is being cured. It is be rolled down the hill to an even bigger disaster. The only thing that is helping is other governments are printing money as well. I think that is the real “greater fool” theory. We can print money as long as there are greater fools in the world printing more money.
4. We don’t want the damn government controlling our economy. If government control over the economy was so great, the Soviet Union would have been the envy of the world. We are only ahead because we have some free market aspect to our economy. Also, when you say the government can’t control gold, it’s because gold leaves when money is printed. If money is printed and reduces the interest rates, gold moves to where it can earn more. This is the real reason you had the GD, well plus some other gov’t lunacy. The Fed in order to entice gold to come back, had to increase the interest rate, which killed investment.
You believe in Gov’t control, so there is no one that convince you that the free market is the solution. The Fed, which is what Ron Paul was to shutdown, is the root of the Great Depression and the current recession. Whether gold backed the money or not, doesn’t matter. If you artificially set interest rates low, you create false expansions, which eventually bust. They bust because you have to eventually contract them in order to hold inflation at bay.
Gold is just another currency, but it’s one that cannot be easily printed, which is why people have faith in it. People like you always say, we could just as easily find gold at the bottom of the ocean or some other place, but that is must more difficult to do and to harvest than just cranking up the printing press. While the chances of finding an amount of gold that will cause serious inflation is almost nill, the chance of the printing press doing it is 100%.
Sincerely,
The Proud Profiteer
http://www.proudprofiteer.com
LikeLike
>>1. Supported by the government’s full faith and credit? Are you serious? How does the government back that up? It either backs it up with more printed money or it backs it up with our labor.
And that last point is what our entire economy boils down to – the perpetual servitude of every citizen. Granted, some are working harder than others (to pay for those who are NOT working hard) and some just mooch off The System. It’s a house of cards that relies on mass stupidity and blind faith in the very people who perpetuate it.
BILL
LikeLike
Mr. Profiteer,
“Full faith and credit” is a series of federal government guarantees that may seem ephemeral, but are quite real and quite valuable. These guarantees include:
1. The government will accept U.S. currency in payment of taxes.
2. It will pay it’s debts (T-bills et al) and its bills with U.S. currency.
3. It will force all your domestic creditors to accept U.S. currency, if you offer it, to satisfy your debt.
4. It will not require domestic creditors to accept any other money.
5. It will maintain a market for U.S. currency.
6. It will continue to use U.S. currency and will not change to another currency.
7. All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa. A $1,000 T-bill is worth exactly 1,000 $1 bills.
What guarantees are offered for gold?
You said, “You believe in Gov’t control, so there is no one that convince you that the free market is the solution.”
When did I advocate government control, and specifically what is the problem you feel needs to be solved by the free market?
Rodger Malcolm Mitchell
LikeLike
Rodger,
It sure sounds like you are for government control.
“The U.S. would have little to no control over the value of gold, a serious problem when trying to control our economy.”
On point 7, are you saying that say 5 1oz pieces of gold won’t equal a 5ozs piece of gold?
Again, gold is just a form of currency. The only difference is gold cannot be printed like the dollar can. You could never double the gold supply in less than a year like the Fed did with the dollar. I am not advocating gold as the be all end all. The problem is not the form of currency. The problem is having a central planner fixing prices to manipulate the market. This is what causes the excess credit expansion and then the ultimate bust.
LikeLike
All governments need to control their economies. When a government has no control over its economy, that is anarchy. It’s fine to disagree with specific government actions, but wanting no government control is foolish. Be careful what you wish for.
The seven points describe the meaning of the U.S. government’s “full faith and credit.” Some people sneer at “full faith and credit,” but these are important guarantees.
No government makes such guarantees for gold. Yes, 5 one-ounce piece of gold equals one five-ounce piece. The same could be said of aluminum, lead and water.
Gold is not a form of currency. It is nothing more than an element, with very little intrinsic value, that is collected by some people who live in the past. Gold is the classic “greater fool” product. Some people collect postage stamps; some collect old coins; some collect gold. All think they have a hedge against inflation, but all they really have is a collection of useless items.
“Fixing prices to manipulate the market”?? Are you talking about interest rates?
LikeLike
what about pegging our money to an index of 100 or so commodities? The Chicago Plan?
LikeLike
Jeremy,
Why would we want to peg our money to anything? What’s the purpose?
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
LikeLike
The reason people want to peg the dollar to something is so that they will have some level of confidence in its future value. People who have saved dollars have seen their value waste away at rates far faster than the storage charges on gold. Yes, gold fluctuates in price like any other commodity, but it also has a history and tradition unlike any other. That’s why they want a gold standard.
LikeLike
I usually dont post in Blogs but your blog forced me to, amazing work.. beautiful
LikeLike
Yes, it has a history and tradition of violent price changes, partly because it has little function and no government backs it.
LikeLike
Without convertibility, gold is now free to change price, but I think the violent changes are not because it has little function, but are mainly the result of government policies wrt currencies. Big changes in gold’s price reflect big changes in people’s confidence about their government. And, from what I read, central banks around the world also make large purchases and sales of gold. Is that also because they feel it has “little function”?
LikeLike
Your question about “little function” comes at a good time. I am struggling through a post describing how words can be used misleadingly.
That gold has “little function” is a fact beyond debate. It is used in jewelry, dentistry and electronics, together accounting for but a tiny fraction of the gold in existence. You however imply that function = demand, a perversion of normal usage.
That perversion is the basis for anti-science, like misusing the word “theory,” as in “Evolution is just a theory.”
Rodger Malcolm Mitchell
LikeLike
I think it was you, not I , who implied that function related to demand, when you said the violent swings in price were “partly because” it has little function. In fact, I said the price changes are “not because” it has little function.
I didn’t and don’t dispute your “little function” statement. I stated what I believe are the reasons for the demand and the price, which have nothing to do with jewelry or dentistry or electronics.
LikeLike