The Sixty-Four Foot Cube

As I write this, the United States of America today reached its statutory debt ceiling of 14.294 trillion dollars. Treasury has announced that, unless Congress grants the Obama administration an increase in the debt ceiling in the next few weeks, the United States will, from August, begin to default on its debt obligations, in all likelihood precipitating a global financial panic. It’s a sum which rolls off the tongue easily enough, but $14,294,000,000,000.00 gives a little more of an idea of the size of the debt we’re talking about. Many pocket calculators don’t have enough zeros to display this number; it’s that big.

And if there is a global financial panic, triggered by perceptions of financial instability within the United States itself, what then? The U.S. dollar has, for the better part of a century, been the world’s default currency. What if the global financial community loses faith in the U.S. Dollar? What, exactly, is a dollar?

Those of you with a background in economics can probably skip this thread altogether, because a) there’s nothing in it you haven’t already read elsewhere, and b) all my reading on this issue in the last fortnight has convinced me that most instructional texts on the subject are written from a polarized viewpoint that brooks no argument; to my untutored eyes, they verge on indoctrination.

Fort Knox, Kentucky, U.S.A. One-fortieth part of The Cube lives here.

In Medieval Europe, many villagers would entrust their gold to the local goldsmith, as he was typically the only one around who owned a strongbox. The goldsmith would weigh your gold in front of you, and issue a receipt with his signature on it. This receipt was redeemable, at any time, for the stated weight of gold. Gold was a common medium of trade at the time, though it was heavy for its size and was always in danger of theft; before long, therefore, villagers found it more convenient to exchange the goldsmiths’ receipts among themselves in payment of debts, rather than go to the trouble of travelling out to the goldsmith and redeeming the physical gold every time they wanted to buy something. As long as everyone trusted the goldsmith, his receipts were “as good as gold”. The first paper cash had arrived.

Of course, the goldsmith soon worked out that he could simply write out as many receipts for himself as he liked, and use them to either buy “stuff” for himself, or, more lucratively, to loan money out at interest (provided he was Jewish: usury, or the charging of interest on loans, was forbidden, under Vatican Canon Law until 1878, and by Islam—officially, at least—to this day). Goldsmiths thus became exceedingly wealthy, and morphed into Europe’s first commercial bankers; their (flagrantly dishonest) practice of issuing receipts for more gold than they actually held became institutionalized in the swindle known today as fractional-reserve banking.

Such a situation was inherently unsustainable, and without government-backed support at the point of a gun, it all unravelled eventually. The more observant villagers worked out that there were more receipts circulating about town than could possibly be accounted for by the all gold owned by all the villagers put together. Furthermore, the excess of gold receipts didn’t mean there was any more “stuff” in town than before to buy: grain, beer, livestock, and so on. Seeing as everyone had plenty of these receipts, in order to buy something useful—say, a horse—you needed to offer more of them than anyone else around you to secure a purchase. As the number of receipts in circulation increased, so too did the price of everything. Inflation had set in. Still, everyone had so many receipts, and therefore (so they thought) so much gold that, for a long time, they all felt rich, and no-one dared question the existing order.

The end came when those more observant villagers started to suspect wrongdoing, and went straight to the goldsmith with their receipts to claim their gold. The goldsmith was not pleased, but had no choice other than to relinquish their gold, albeit with dark warnings to keep the transaction to themselves. Before long, however, word began to spread that the goldsmith had been cooking the books, could not cover all the receipts in circulation with real gold, and only the few villagers who got in first would have any chance of seeing their gold again. A stampede ensued, replete with waving torches and pitchforks. By which time, of course, the goldsmith had either fled town—or been strung up by the now-ruined villagers. A “run” on the bank had been proximate cause of economic collapse, but the dishonesty and greed of the bankers was the ultimate cause.

Dante condemned usurers to burn; though the villagers generally got in first

That’s what a dollar was, once upon a time: a paper ticket, redeemable for a fixed mass of gold. Gold has been preferred throughout history as a medium of trade, for several reasons: it is scarce, it is durable, and it is fungible (one ounce of gold is as good as any other ounce of gold). It’s also a pain in the neck to carry around with you, which is why paper cash, backed by an absolute weight of gold, was such a good idea. In fact, in the digital age, physical, paper cash is becoming increasingly irrelevant, and dollar wealth can be represented digitally rather than physically. Now, however, a dollar is a paper ticket, backed by…

By what? A promise that the issuing authority will never default on its obligations? Obligations it owes, in terms of those very same dollars which it has forbidden anyone but itself alone to print? Hmmm…

I began my reading for this topic with an essay by Murray N. Rothbard of the Ludwig von Mises Institute, written in 1962 and updated in 1991; I strongly recommend it to all of you. For me, reading it was one of those rare and delightful experiences where you finally get around to reading the professional’s viewpoint on a topic you’ve always been interested in, only to discover it articulates and validates all the amateur notions you yourself have held privately for a long time. The last time this happened for me was about twenty years ago, when I needed to do some complex database design work and started studying the work of C.J. Date. I’ve always privately believed that currency should stand for something tangible, and gold has historically been the medium of choice. Rothbard’s essay not only demolishes, one by one, the traditional arguments put up against a return to the gold standard, but argues compellingly why a gold standard is the only form of money that can deliver long-term economic stability. I’ll be referring to it a number of times below.

Actually, there are two basic forms of gold standard. The first, gold specie, is based on gold and/or silver coins of a value stamped on them by the minting authority, as well as paper currency backed by such specie; both in day-to-day circulation. Such a standard operated in Victorian Britain up until the outbreak of the First World War; a virtual silver standard operated in the United States during most of this period, which equated to a gold standard of sorts, as the commercial silver/gold exchange rate (about 15 to 1) did not vary significantly—at that time (more on this in a moment). Any foreign currency whose exchange rate was pegged to one of the main currencies backed by gold, was itself considered to be gold-standard; although at several times removed, the process of actually redeeming such currencies for specie was beyond the reach of most who held them.

Gold specie: an English gold sovereign, minted in 1558

A gold specie standard suffers from the problem that the value stamped, which supposedly corresponds to a designated weight of metal, can become over-valued as the physical coin is worn from usage, or “trimmed” or “shaved” by fraud. Those who own such coins will tend to spend only the worn ones, hoarding the freshly-minted ones, and giving rise to Gresham’s Law: bad currency drives out good currency. The traditional authoritarian position on this is to restrict the minting of coins to government only, effectively reducing the face value of coins to one of government fiat. Rothbard deftly brushes this universally-accepted concept aside:

The first and most crucial act of government intervention in the market’s money was its assumption of the compulsory monopoly of minting—the process of transforming bullion into coin. The pretext for socialization of minting—one which has curiously been accepted by almost every economist—is that private minters would defraud the public on the weight and fineness of the coins. This argument rings peculiarly hollow when we consider the long record of governmental debasement of the coinage and of the monetary standard. But apart from this, we certainly know that private enterprise has been able to supply an almost infinite number of goods requiring high precision standards; yet nobody advocates nationalization of the machine-tool industry or the electronics industry in order to safeguard these standards. And no one wants to abolish all contracts because some people might commit fraud in making them. Surely the proper remedy for any fraud is the general law in defense of property rights.

A second, and opposite problem of specie occurs when the currency value, and not the weight, is stamped, and then the value of the metal contained may, in some circumstances, actually exceed the stamped face value, which then becomes under-valued and leads to the destruction of the coinage. Following the 1849 Californian gold rush and the subsequent rapid expansion of the amount of gold in circulation, the value of silver appreciated to the point where a U.S. silver half-dollar was worth 53 cents melted down. Treasury responded in 1853 by reducing the weight of silver coins by seven percent. This merely solved one problem by creating another.

1896: Ohio Governor William McKinley successfully runs for President, campaigning on a return to an absolute gold standard

The second, and more “pure” gold standard, is the bullion, or absolute weight standard of gold. Gold bullion is produced either in the form of bullion coins (such as the American Gold Eagle, the Australian Gold Nugget, or the South African Krugerrand), which are not used in circulation as currency, or as certified-weight ingots or bars. In each case, the value is not a currency value, but its mass on the scales, certified and physically stamped into it. A bullion standard backs its currency with a fixed weight of gold; for example, in 1900 the U.S. Congress under president McKinley passed the Gold Standard Act, which fixed the dollar at a freely exchangeable “twenty-five and eight-tenths grains of gold nine-tenths fine”, equivalent to $20.67 per ounce of 24-carat gold.

A typical bullion coin: the Australian Gold Nugget

What an absolute gold standard, coupled with full-reserve banking does, is to take arbitrary monetary policy out of the hands of government. It also effectively ends the government monopoly on money: provided that a currency is freely exchangeable for gold, it takes draconian laws for a government to compel the monopoly use of its own currency within its jurisdiction. Which (it will not surprise you) is precisely what the U.S. government eventually did; first, by its creation in 1913 of the U.S. Federal Reserve, then stipulating that the U.S. dollar, and no other currency, is legal tender for settlement of all debts within its jurisdiction. The legality of the insertion of gold clauses in private contracts has been tested in American courts as recently as 2008. With the seemingly inevitable financial instability of the United States and loss of faith in the dollar, these clauses are likely to increasingly become part of commercial contracts, particularly long-term ones, in future.

To the extent that a gold standard prevents governments, through the agency of their central banks, creating paper money “out of thin air”, it also ties their hands in dealing with economic slowdowns. This is one of the main arguments used by Keynesians in opposing a return to the gold standard. Keynesians, as far as I can make out from reading the man himself and his champions, are thinly-disguised control freaks who view monetary policy as their plaything, the livelihoods of others as their playground, and the supreme power to dictate to others as their right. Typically of totalitarians, they presuppose their own diktats don’t apply to themselves, of course, and are suffused with personal venality—but all that’s another thread.

I don’t propose to argue in detail against the entire body of Keynesian, big-government economics here (but you’re welcome to do so below, of course); for one thing, I’m not personally equipped to do so, and I’m fairly sure that any attempt I made at it would leave me looking about as silly as the cut-and-paste trolls at the DT who try to argue science over there. Suffice it to say that many authors I have read recently have argued that, far from the existence of the gold standard prolonging the Great Depression, it was the uncertainty of the markets that the U.S. Government would fail to adhere to the gold standard strictly enough that was the root cause.

Another device used over the years by governments was to persuade the public not to use gold in their daily transactions; to do so was scorned as an anachronism unsuited to the modern world. The yokel who didn’t trust banks became a common object of ridicule. In this way, gold was more and more confined to the banks and to use for very large transactions; this made it very much easier to go off the gold standard during the Great Depression, for then the public could be persuaded that the only ones to suffer were a few selfish, antisocial, and subtly unpatriotic gold hoarders. In fact, as early as the Panic of 1819 the idea had spread that someone trying to redeem his bank note in specie, that is, to redeem his own property, was a subversive citizen trying to wreck the banks and the entire economy; and by the 1930s it was thus easy to denounce gold hoarders as virtual traitors.

And so by imposing central banking, by suspending specie payments, and by encouraging a shift among the public from gold to paper or bank deposits in their everyday transactions, the governments organized inflation, and thus an ever larger proportion of money substitutes to gold (an increasing proportion of liabilities redeemable on demand in gold, to gold itself). By the 1930s, in short, the gold standard—a shaky gold base supporting an ever greater pyramid of monetary claims—was ready to collapse at the first severe depression or wave of bank runs.

The reductio ad absurdum of this kind of thinking was reached on April 5th, 1933, when U.S. President Franklin D. Roosevelt signed Executive Order 6102, confiscating all gold holdings of private citizens and effectively outlawing contract gold clauses. The pretext for this was the supposed threat posed by a claimed flight of gold from the United States during the Great Depression. I have come to form the view that the confiscation of gold and the related measures taken at the time (Such as the 1933 Emergency Banking Act, signed into law only a few weeks earlier), were themselves pretexts for long-term plans by big-government advocates to commandeer the private wealth of the nation (its citizens, and their descendents yet to be born) to act at the behest and caprice of these self-selected elites: to speed the economy up, or to slow it down, at their whim—or even, to go to war. For those of you who may feel my conclusion is going too far, follow the links above and read the text of these instruments for yourselves.

Totalitarianism at work, in the land of the Last Best Hope

As the Second World War progressed, these “elites” were looking beyond, to an era of peace (or at any rate, non-war) and economic growth, which they intended to control themselves. Seemingly oblivious of the irony, their vehicle of choice was the Bank for International Settlements, formed in the wake of the 1929 Young Plan and charged with the administration of German reparation payments from the First World War, and thus directly having a hand in the onset of the Great Depression and World War Two. Less than three weeks after the D-Day landings in Normandy in 1944, the BIS staged the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. Great Britain was represented at this conference by Keynes himself, while the United States was represented by one of his disciples, Harry Dexter White (who parenthetically, four years later, in the face of an avalanche of physical, documentary and testimonial evidence, denied under oath before the House Un-American Activities Committee to being a Soviet spy; two days afterwards, he took an overdose of medication and died).

The usual suspects: Harry Dexter White (left) and John Maynard Keynes merrily dividing up the world's wealth between them at the Bretton Woods Conference, 1944

This conference had far-reaching outcomes which directly affect all of us, right up until today. At this conference was established the General Agreement on Tariffs and Trade (GATT), the International Monetary Fund (IMF), and the World Bank. Also established was the so-called Bretton Woods Agreement on international currency exchange. Under it, the U.S. dollar was fixed to gold at $35/oz (the level to which Roosevelt had raised it, from the $20.67 it had been under McKinley); signatory nations’ currencies were then pegged to the dollar, within a narrow (1%) range of flexibility, which could be altered only by application (supplication?) to the IMF. It thus created a virtual absolute gold standard, but with several fatal flaws.

First, the Bretton Woods Agreement did not enforce gold convertibility, nor did it mandate the creation of national reserves, or an ultimate U.S. reserve. What happened in practice is that member nations would hold U.S. dollar reserves in lieu of gold, and wave the Agreement in the face of anyone presumptuous enough to demand gold for their peso, krona or franc, while pushing dollars into their hand. But that simply kicked the problem onwards, and upwards. An open market in gold still remained. By 1961, spot gold had reached $US40 on the commodities markets, and in the uncertainties of the Cold War, was forceast to rise further. While a boon for the “elites” and their friends (cronies of military dictatorships at the time, in particular, did exceedingly well) the situation was self-evidently unsustainable.

Furthermore, the U.S. was during the entire period of the Agreement spending (not to mention giving away) more than it was earning. Between Marshall Plan outlays (probably equivalent to half a trillion dollars in today’s terms), funding wars in Asia and the Cold War in Europe and at home, U.S. gold reserves were seriously depleted. Member states (France in particular) increasingly broke the “gentlemen’s agreement” not to demand gold redemption for dollars. And the open-market price of gold continued to rise. In March 1968, a run on gold on the London Gold Pool forced a 14% devaluation of the pound sterling, and U.S. president Lyndon Johnson pressured the British to close the London market permanently. Once again, government policy which flies in the face of a free market can only be made to work for a time, and then only at the expense of draconian legislation and the stifling of free capitalism. The framers of Bretton Woods, so confident in the beginning they could enforce from above a gold-standard-that-wasn’t, succumbed to the reality: the end was only a matter of time.

Finally, in 1971, the Bretton Woods Agreement collapsed. In that year, the United States under president Richard Nixon did two things simultaneously that set us on the path to the fully-fiat currency system we have today. First, he increased the supply of paper dollars by 10%, sending most of them overseas to pay for the Vietnam War and other Cold War-related commitments; and secondly, on August 15th, in a speech imposing a 90-day wages freeze and 10% tariff on all imports (the Nixon Shock) he “closed the gold window”; that is, he permanently suspended the convertibility of dollars to gold. Not that it was possible to maintain any longer; the open-market spot price of gold had by then surged well beyond the $35 stipulated by Bretton Woods.

World reaction was immediate. Australia, whose dollar was pegged to the pound sterling under Bretton Woods, immediately switched to pegging to a basket of international currencies, the Trade-Weighted Index, finally floating the dollar under the Hawke Labor government (!) in December 1983. One of the best decisions a “socialist” government, anywhere, has ever made. The 1973 OPEC oil embargo and subsequent quadrupling of oil prices (made under the pretext of opposition to American military aid to Israel during the Yom Kippur War, but fooling no-one) was a direct result of this devaluation of the dollar. Less than a year after the Nixon Shock, gold on world commodity markets hit $US70/oz, double the level set by Bretton Woods. In the forty years since, it has doubled again, and again, and again, and again: as I write this sentence, it is sitting just below $US1500 on the American commodities markets.

This brings us to the second major argument put up against a return to gold as an absolute standard of money: the argument that there isn’t enough of it. All the gold ever mined in history, a bit less than 150,000 tonnes by most estimates, would form a cube about sixty-four feet along one side (incidentally, the man standing for comparison at the base of this cube at the top of the page is the current U.S. president; see, he’s useful for something). There is somewhere between ten and twenty times this amount of money floating (literally) around the world today, so the argument runs. And that’s even before you start talking about the amount of money said to exist in the international derivatives market, a sum so staggeringly vast, and growing with every millisecond, that within a few years, the word quadrillion will start entering the daily lexicon of economics and financial writers.

I’d say this argument gets its thinking exactly upside-down; it’s not that there isn’t enough gold, it’s that there are too many dollars. As a result, all the dollars are worth less; worse, in order to keep up with its spiralling debt, the United States government (not just the current administration, but its next few successors at a minimum) will be forced to print more and more dollars, just to service the interest bill on all these debts. With the U.S. now only three months away from technical insolvency, facing an almost-certain loss of confidence in its own currency, matters appear to be coming, at long last, to a head.

The problem isn’t one of existing on an absolute gold standard itself, it’s the transition back to it. As Rothbard notes, it will involve one of two equivalent paths.

Since we have many times the number of dollars as we have gold dollars at the present fixed weight of the dollar, we have essentially two alternative, polar routes toward 100 percent gold: either to force a deflation of the supply of dollars down to the currently valued gold stock, or to “raise the price of gold” (to lower the definition of the dollar’s weight) to make the total stock of gold dollars 100 percent equal to the total supply of dollars in the society. Or we can choose some combination of the two routes.

As I’ve said repeatedly, I’m not an economist. But surely, the fairest way of achieving these outcomes is to announce a transition period, sufficiently long as to allow the price of gold to appreciate gradually, and to ensure savers are not unfairly disadvantaged, by giving them plenty of time to convert to gold, which will naturally appreciate in value many times, but will ultimately be convertible at the end of the transition period, back to dollars equivalent to the same initial value. Changes to contract law, particularly in respect of long-term contracts extending beyond the transition period, would need to be made allowing re-drafting of all contracts to reflect the new standard and allow gold clauses. That ring on my finger could mean a new car (Ow! …just kidding, honey)

Of course, some people would be unfairly advantaged at the outset, by virtue of their holding gold at the time. Shares in gold mining ventures would rise appreciably. Gold for non-monetary uses—electronics, dentistry and so on—would become more expensive. But compared to the inequities of the current system, which exists to enrich bankers and empower self-righteous social engineers in perpetuity, these one-off anomalies are surely the lesser of two evils, by a long way. And if someone eventually does find a way to devalue gold, by, say, extracting it cheaply from seawater, then… we will switch to another commodity with the same characteristics: silver, platinum, whatever.

The potential benefits are enormous. A permanent end to long-term inflation and devaluation of the currency; savers rewarded for their thrift, instead of having their currency’s purchasing power eroded away; power taken from the hands of the monetarists, socialists and crony capitalists and put squarely back into the hands of those in the private sector who actually produce wealth by creating real goods and services. A careful and persistent media campaign, stretching back nearly two centuries, has existed to marginalize and portray those advocating the gold standard as radical, backward or even deranged. The fact that, prior to my own recent reading on the subject, I have never seen a genuine debate on the issue in the mass media, tends to suggest that campaign is alive and well today. I don’t pretend for a moment to have the last word on the subject; but I hope that, on this forum, this first and tentative exploration of the issue will spark interest among those for whom Liberty, in the face of ever-increasing government control of our lives, is worth breaking a few conventions.

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88 Responses to The Sixty-Four Foot Cube

  1. Kitler says:

    Or you could actually peg it to the theoretical amount of Gold in the Earth itself although untouchable is still there most likely in the core, so you are talking cube what thirty to fifty times larger. This amount will never change.
    Yes it’s a crazy idea but you wait and see someone propose it.
    There will be no orderly transition they will seek a global world war to buy themselves another 40-50 years.

  2. farmerbraun says:

    What about a carbon standard.? There’s only so many carbon atoms in the universe.Oh! Al Gore already thought of that. Too bad!

  3. Kitler says:

    It should be noted that there is still a lot of gold to be mined both on the sea bed and this is being done in the Bismark Sea I think and on land to maybe double or triple that cube alone. what is uneconomic now could be economic in the future.

  4. Kitler says:

    farmerbraun don’t be silly we must go on the unicorn standard.

  5. Kitler says:

    The asteroid Ceres contains vast amounts of Gold apparently or is that Vesta I can never remember, mine-able all it will take is total greed.
    Actually Oz we are seeing the last gasp of the elites make sure you have lots of toilet paper it will be worth more than gold at some point.

  6. Luton Ian says:

    Oz,

    You’ve excelled yourself. That is the best coverage of gold that I’ve seen.

    I’m thinking more and more that gold and 100% reserve banking has to be our destination, but the journey to get there looks very uncomfortable.

    Perhaps more uncomfortable than kicking the can of inflated fiat currency down the road for another few cycles of inflation, boom and bust?

    I do not know, and we can’t until we start the journey.

    I think what we would be looking at is a more or less ordered run on the banks, as gold’s value in fiat currencies rises to match the level of overprinted paper. We have a slowish rise at present, to US $1.5k / oz. When the rush starts, we are looking at at the very least twice that, and possibly up to 20 or more times that price. I would expect that to be realised within a few hours (perhaps seconds!) of the rush starting as hedge funds, speculators and big institutions try to get in on the start of the rise and after a few days of oscillations, stabilise the new exchange value between paper and gold. They cannot after all hold a position which overvalues gold.

    Who owns gold in the ground in Oz and the US?

    Irish metalliferous minerals are nationalised, in the UK, the crown claims gold (Elizabeth I, had a Duke of Northumberland beheaded in a disagreement over a copper mine which she had stolen on the basis that there was a trace of gold in it (Goldscope mine, in the Newlands Valley, near Keswick – there’s a very nice hand picked level and water wheel chamber down there, dating from the German miners imported by Elizabeth for the “Mines Royal”).

    I would certainly expect to see grabs for likely gold bearing ground, crank schemes for sea water gold (same guys who today do cold fusion, carbon credits, perpetual motion and wind power, and in the past did dot coms and snake oil…) and the age old mining investment scams, like the Bre-X scandal which unwound in ’97, but the more I think about them, the more I think that at least they will mostly be voluntary, unlike the current compulsory ponzi schemes of “national insurance” and “social security”.

    Government grabs for gold bearing ground would also be self limiting – Tanzania’s bit of the greenstone belt up by Lake Victoria, stood idle for years following the collapse of the nationalised mining industry, it was only with liberalization of mining laws that they could attract miners to explore and start digging. I think that the small extension of the greenstone belt into Kenya is still idle, whether this is through lack of discovery of payable gold, or through Kenya’s unfavourable climate for mining investment, I don’t know, though the two may well overlap. No one will look for gold if the land owner is going to charge too much of a royalty!

    This brings a very interesting twist to gold, and why the elites hate us having it;

    I was thinking about a “mines royal” company, but it cannot exist if it costs more gold than it digs out!

    Losses can not be hidden by inflation, and wars cannot be funded by inflation. Sure, “monarchs” can resort to their age old practice of “confiscating the merchants gold from the goldsmiths” to which I think many citizens would now offer payment with lead (in specie weighing 150 grains!). I think we would be in for much more peaceful times.

    I had been thinking about the “gold loan”, in which a central bank lends out some of its gold reserve at a very low interest rate to gold mining companies, who then sell the gold to raise cash for developing their mine and mill, and then they pay back with interest in gold. This allowed the central banks to earn interest instead of just having their gold sitting there, and it was this practice which in part flooded the gold market in the late 90s, just in time for Tony B-Liar to announce an auction of British gold when it was at its lowest value compared to other investments for well over 100 years (thankyou for that, and for confiscating my .22 pistol as well – slime ball that I think you are Tony).

    I now realize that with the ability to change paper for gold – all loans would be effectively in gold, and at the market rate, not at a government set artificially low rate.

  7. Luton Ian says:

    Farmer Braun & Kitler,
    remember the leaf currency in Hitch Hiker’s Guide to the Galaxy?

    all that carbon to burn, or sequester to avoid inflation (doesn’t a tyre get warm when you inflate it? is that how carbon does it? can I have my [ig]Nobel prize now please – or in the words of Dick Dastardly’s Muttly; “g’me g’me g’me; PHD!”)

    Damn, PHD is only debased paper, ‘ should’ve asked for medal…

  8. Luton Ian says:

    There’s a thought!

    With a market rate of interest, 15 or more times higher than the current sub 1% base rates and at most around 3% annual inflation of the gold supply; calculations of net present value look a whole lot different!

    Interesting times for a lot of [mal]investment projects!

    It might have been fun for Keynes to give us a ride on a tiger, but there will be a lot of arses getting bitten when we jump off.

  9. Luton Ian says:

    One of my other concerns is how inflatable gold might be at a value of $33,000/oz.

    A while back, I did some looking around the satellite images of the Copiapo area of northern Chile. It is Atacama desert, so there is no vegetation, and the alteration around the iron oxide copper gold mineralization and porphyry mineralization is clearly visible on google earth. There is a lot of stuff over 3,000m altitude that doesn’t look like it has ever been touched. I’m betting that the same goes for some hot, fly and snake infested greenstone belts, and some frozen tundra and peat bog covered ones too.

    The actual inflation rate will be interesting to see. Stand by for inflationary booms in geology jobs in very unpleasant environments.

    The way I see it Ian, if I’ve understood correctly all I’ve read, is that under an absolute gold standard, the inflation rate (I) at any given time (or, if you will, the rate of depreciation of currency) will be a measure of the disparity between how fast (as proportions) the total amount of gold (G), or money, rises compared to how fast the total amount of “stuff”, or wealth (W), rises. I realise I’m about to break one of LibertyGibbert’s ground rules here, but

    I ∝ ((dG/dt)/(dW/dt))-1

    if you get what I mean. Not perfect, to be sure, but it has to be better than the caprice of socialists in charge of a printing press – Oz

  10. Luton Ian says:

    Thanks Oz

    I suspect dgold/dt could be quite big for a short period of time, as new gold projects come on stream in unpleasant parts of the world, but they would be self limiting, unlike socialists with printing presses.

    do you have a liberty gibbet email?
    I’ll send you a link to some scans of multi billion dollar denomination Zim bank notes.

    Contact menu at the top of the page – Oz

  11. Dr. Dave says:

    I find it amusing how the eyes of geologists sparkle at the very thought of a gold standard.

    I’m going to have to think about this for a while before I submit a more lengthy response…that and I have to perform some useful work. The implications are sweeping. You have to consider changes to pension plans (bot private and public), privately owned retirement income accounts, and programs like social security. Almost certainly new currency would have to be minted.

    Perhaps it would be wiser to use a “basket” of metals upon which to base a standard (e.g. gold, silver, platinum, copper, nickle and neodymium). If we included neodymium we would have a fortune in reserve wealth sitting in all those stupid whirligigs. Countries with large reserves of physical gold or the potential to mine gold would definitely be advantaged whereas other countries would not. Imagine how this would piss off the UN! Think of the environmentalists going nuts at the prospect of more gold mining (and all the mercury used for refining gold).

    What would be the implications for international trade if all countries traded solely in gold? I would imagine most countries would be very keen on not having any trade deficits which would deplete their gold reserves.

    Gold is (mostly) finite. More gold can be mined and refined but this is a slow, gradual process. Wealth, on the other hand, can be created far more quickly.

    Finally, consider who would opposed to a return to the gold standard and why:
    – The current US administration would hate it because they’re all socialists with a lust for top down control of the economy. It would deprive them of the ability to print money and manipulate markets.
    – The UK and the EU would hate it for the same reasons as the current US administration.
    – Most 3rd world countries would scream bloody murder as it would almost certainly spell the end to profligate foreign aid from the west.
    – The UN would hate it for reasons too numerous to mention.
    – Folks like George Soros and Maurice Strong would fight it tooth and nail.
    – Environmentalists would have a hissy fit.
    – China would probably be opposed to it for it would threaten their sweet trade imbalances.

    I’ll think about this a while and return to play devil’s advocate.

    Re your last point, I decided against going into it, lest I sounded a bit paranoid. But I’m not the only one thinking it – Oz

  12. Kitler says:

    Dr Dave China has considered using copper as a basis for it’s currency it too is a finite commodity.
    As for us geology types the thought of going into some hell hole boiling or frozen is what makes it fun, just a word of warning don’t ever get between me and the Trilobite of my dreams.
    The UK has gold in places like Dolgellau in Wales so I expect mining to crank up and environmental concerns become less important.

  13. Kitler says:

    Dr Dave don’t try to pronounce Dolgellau as it involves phlegm.

  14. Dr. Dave says:

    Kitler,

    Using a combination of metals in some established ratio has advantages over using only gold. Silver, platinum, copper, nickel and neodymium all have more industrial utility than gold, in fact all of these metals have applications for which no substitute exists. Further, some geographically large countries such as the US, Canada, Russia and China have far more potential for gold mining than smaller countries or countries with no known gold deposits. The inherent “unfairness” of using a single metal might be a deal breaker.

    I’m a little bummed that I can’t think of many suitable arguments with which to play devil’s advocate. Central banks and fiat currency are simply too dangerous to liberty and free markets. We could go off the gold standard overnight, returning to it could easily take years. Eventually the dust would settle, but the transition would be rough and rocky.

    What happens in a few decades when China and Saudi Arabia are sitting on most of the world’s gold?

    A gold standard ties currency to a fixed value of gold and by extension ties wealth to the value of currency. Wealth creation is not a zero sum game. I’m simply not convinced that gold production could keep up with wealth creation. I need to think about this for a while longer. How would a gold standard effect the commodities market? How would it affect international trade?

    Re the issue of wealth creation vs gold production, see my comment to Ian above. Yes, we would have inflation, or deflation, depending on which one grows faster. But while human desires and ingenuity drive the former, surely market forces will have a lot to do with the latter (remember gold is difficult and expensive to extract, and mining it will remain a business venture like any other) and will tend to keep them in sync.

    Anyone who believes these two factors, human wants and market forces are and should be the primary drivers of our economy, will conclude a gold standard will trump the whim of authoritarians and their central banks and printing presses as a guard against inflation.

    Re the issue of some countries and not others owning gold resources, in my country at least all mineral deposits are vested in the crown, but while a per tonne royalty is payable, it encourages private mining ventures (it’s right there in our national anthem: “Our land abounds in nature’s gifts / Of beauty rich and rare”). There’s nothing to stop countries with no known gold reserves investing in foreign ventures; or looking a little harder in their own back yard – Oz

  15. Kitler says:

    Dr Dave….I’m simply not convinced that gold production could keep up with wealth creation.
    That last point is what destroys a gold standard as it ends up you have more stuff than there is money available to actually buy. Personally it would be easier to just try and shoot all the elitist idiots/bankers in the world and sterilize their entire families to be on the safe side. It may not actually fix the gold standard problem but a lot of volatility would leave the market place.

  16. Amanda says:

    Dr Dave: I’ve never heard of neodymium.

    Just think: A kiss on the hand may be quite continental… but neodymium is a girl’s best friend

  17. Dr. Dave says:

    Amanda,

    My dear, please Google neodymium. This metal is vital in the production of super-powerful permanent magnets necessary in the construction of generators (i.e. every single wind turbine). It’s not all that abundant and it’s not readily substituted.

    Keep an eye out for the neodymium bracelet I’m sending you. It will be the package stuck to the inside of your mailbox.

  18. Amanda says:

    Dr Dave: Brilliant! : )

    Much better in a bracelet than in another of those sodding turbines!

  19. Luton Ian says:

    The interesting thing with an un inflatable currency, like gold, is that incomes tend to stay pretty stable – so long as people value what you do – but, as we become more productive, through better efficiency, improved technology, new inventions, the variety of stuff increases and its price tends to fall. as in the American Dream, over time our wages buy more.

    Part of the fall in prices is currently masked by our ever increasing supply of fiat currency, but it is still observable in products like computers, cameras, cars, TVs.

    Savings for old age are even better, with inflating fiat currencies, we have to swim against the tide, using crony capitalist investments and ponzy schemes. Each over printing of currency devalues our savings by the percentage of over printing, and hits people living off fixed incomes, like pensioners, the hardest.

    That is actually intentional in the keynesian system. Keynes regarded private savings as unstable and something to be punished for. as I wrote on the last threads comments, Keynes was a really nasty piece of work.

    Under a less inflatable currency, savings are eroded less, there is less encouragement to submit your future to the overgrown financial services sector. They’ll be taking pay cuts and lots will need to find new careers, that provide goods and services which people have more need and desire for.

    The mercantilist side, of where gold goes in international trade and are there advantages to having your own gold mines in your country, is very interesting.

    Gold goes to the efficeint producers of goods and services which people want.

    As with any money, some gets re-invested in new capital plant, some is spent on raw materials, wages, dividends to investors, and some unfortunately goes to the leviathan in taxes.

    Apart from the taxes, it all ends up going to other people who have done useful things, and gets circulated around. A person who accumulates lots of gold will likely spend it on other goods and services – stuff. If they sit on it, so much the better, it then makes the remaining gold in circulation, that much more valuable.

    We have an example of what happens to a country with a huge source of gold of its own; 16th century Spain was the entry point for a doubling of europe’s gold during one century. Nice Mr Rothbard’s “history of economic thought” has some really interesting chapters on the Spanish Scholastics, who observed the approximate halving of the purchasing power of gold, but with the worst inflation and distortions occuring in Spain.

    Spanish agriculture and industry was starved of funds as the country sucked in luxury imports, and the gold flowed out. The Spanish economy never recovered, it was set up to join the PIIGS five centuries later.

    Don’t think that this curses individual Spaniards though, Check out the Spanish Austrian School Economists, De Soto and Bagus. They really are good.

    A modern analogue to the distortion of the Spanish economy by importing massive ammounts of gold from its new colonies, would be the dysfunctional petroleum economies.

    Just pumping money out of a hole in the ground to fund social security is not enough. people must do things and make things, grow things, which other people are willing to pay for.

    Japan, south Korea, Singapore and Hong Kong are examples of extremely resource poor dramatic success stories. They made themselves useful, and the shekels flowed to them.

  20. Luton Ian says:

    A quick note on the extraction of gold;

    Mercury would only be used in very very primative settings.

    Much gold actually comes from processing the sludge in the bottom of the cells used for electrolytic refining of copper. Copper is usually the primary metal extracted, gold is a bonus.

    In mines where gold is the primary metal worked, the gold is usually sub microscopic, possibly in the lattices of sulphide minerals or as tiny grains in quartz or calcite. If there are sulphides present, you’d normally have to convert them to oxides, and if the host is impermeable you’d need to crush it to expose the gold particles to leeching.

    After that you’d leech it with cyanide solution which dissolves the gold. Cyanide sounds bad, but the alternatives of hypochlorite, hyposulphite or aqua regia are worse!

    Cyanide in waste water can be broken down with peroxide, or allowed to biodegrade, so is one of the more enviro friendly chemicals in use. It is also incredibly effective. 3ppm gold is a very interesting grade!

    Improvements in leeching and muck shifting mean that the tailings dams from lots of old gold mines are very attractive targets for reworking.

    Last time I was at college, one of the guys on the course was from Ashanti gold mine. He said there is one area preserved to show visiting VIPs, you can bend the lode!

  21. Luton Ian says:

    Multiple metal standards run into problems if the exchange value is fixed, and the supply or demand for one diverges. That was the problem which Oz was pointing to with silver coins being melted.

    go for one as the standard, and let the others find their own positions on the market

  22. Amanda says:

    Given that Islam has that attitude to ‘usury’ — one of the foundations of Western commerce — it goes to show how dependent its believers are to the black liquid ‘gold’ spurting from its sands. Because otherwise — well, what then would they do to create wealth?

  23. Amanda says:

    dependent on

  24. Amanda says:

    dependent *on*

  25. Amanda says:

    Sorry: WordPress being annoying.

  26. Kitler says:

    Amanda the A-Rabs have done some fancy footwork to avoid the whole interest and usury accusation so you can buy a house for example I can not remember the exact details. However everyone is happy the bank and you and somehow a profit is made without upsetting Allah, to be honest it’s far more fair than the system we have. So now to look sharia compliant mortgages then off to a stoning.

  27. Kitler says:

    Here you go….
    Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury). Common terms used in Islamic banking include profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijar).

    In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the bank’s profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabahah. Another approach is EIjara wa EIqtina, which is similar to real estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).

    http://en.wikipedia.org/wiki/Islamic_banking

  28. Amanda says:

    Kitler: I congratulate you on your knowledge: it’s more than 99.9% of Westerners have on this subject!

    I don’t mind the work-arounds so much as the hypocrisy. There is nothing inherently wrong with lending someone money at a profit: if there were no possibility of profit, no one would lend except Mum and Dad. Otherwise it’s known as charity. The world does not run on charity, as Adam Smith so astutely noted. It runs on self-interest and love of one’s own. Enlightened self-interest means that we can agree to a mutually beneficial arrangement, within laws that we both trust and which are understood up front. I would not be without that for all the world.

    Incidentally, Mister A and I were just saying tonight that the West deserves a pat on the back — on the whole — I know there are still abuses; there are still callous people, and we still hunt and eat meat (us included, but as Mr A says: ‘There has never been a vegetarian civilization’), BUT: Ours is the time and the society that is most responsible, mature, and sensitive to the highness of animals, the true nature of animals, and the needs of animals. We do, by and large, see animals and especially the higher ones (i.e. those above gnats etc.) as fellow creatures that want to live and thrive on their own terms. (Mister A even puts the insects outside rather than squash them, and is very protective of our house spiders!)

    Some people might take this too far (that is, depreciating humans), but most don’t: most are just decent to animals they encounter, whenever and however they can be.

    In my neighbourhood in Houston, by the way, about half the dogs I knew had been rescued or adopted. (There were loads of dogs and cats, etc.: Americans love animals, don’t they?) I think that’s significant only because most people, given the choice, would like to have puppies of a certain known disposition, whom they can raise and train in a particular manner; but my neighbours were more interested in rescuing some poor little guy or lass who desperately needed a good home.

  29. Dr. Dave says:

    Ozboy,

    I can’t legitimately argue with any of the many benefits of a currency fixed to a standard. I just have my doubts about gold. Have you ever played Roulette at a casino? It’s one of my favorite games because it usually takes longer to lose all of one’s “gamblin’ money”. A time or two I’ve walked away from the table a richer man fortified with free drinks but just as often I’ve demonstrated how quickly one can piss away money on a stupid game of chance. Roulette is fun when played with friends at a 50 cent per chip table. It kinda sucks when playing alone at a $10 per chip table.

    The “Nixon Shock” happened in ’71 I believe. Let’s just examine a few industries that sprang up since then – the home personal computer (and associated gadgets), the internet, the cell phone industry and drugs to treat hypertension. In 1971 there was no such thing as a home personal computer. There was no such thing as a personal calculator, either. The “internet” wasn’t even a concept in Al Gore’s pants back in ’71. There certainly were no cell phones in ’71. One of my favorite stories is about LBJ back when he was a power player in the Senate in the early 60s. In those days a mobile phone was a radiotelephone and these were extremely hard to come by. One had to call in special favors for the license and the equipment was incredibly expensive, but LBJ had one. This drove one his Senate rivals nuts. This guy called in every favor and finally got one. The first call he made was to LBJ’s car phone. When LBJ answered this guy said. “Lyndon, this is so-and-so and I’m calling you from my car phone.” Without missing a beat LBJ said, “can you hold on a minute, my other line is ringing.” Today, of course, virtually every teenager is equipped with their own cell phone. Just a few years ago I had two private office lines, a central department line, a toll free central department line, a central office line, a toll free central office line, a department fax number, a home fax number, a home office number, a home VoIP number, a business and personal cell number as well as a personal and business email account. Just 10 years earlier a home phone, cell phone, office fax, office phone and email address would have meant you were well connected. Ten years before that few had anything other than their home phone and office line.

    In 1971 we were using very crude and often ineffective drugs to treat hypertension. There were very few options, yet today we have at least a half dozen entirely new classes of drugs represented by MANY drugs in each class that are much safer and more effective.

    So…let’s look at all the “wealth” created by these industries and developments and compare them to the total mass of all the gold mined and refined all over the world since 1971. Even at today’s market value of about $1,500/oz. I’m willing to bet that the total wealth created by the industries I noted utterly eclipses the value of the gold produced since 1971.

    What scares me about a gold standard is that it really is an archaic concept. There are excellent reasons for tying the value of currency (i.e. money) to something tangible and fungible. I balk a little at the concept of tying all wealth to the value of money. The supply of gold could NEVER have kept pace with the digital revolution. Wealth is more a concept than a tangible thing. We want it to be a tangible thing, but is this realistic? A single really good idea could outpace a decade’s worth of global gold production. What would a cure for cancer be worth in gold?

    The gold standard is the single best idea I can imagine to prevent central banks and central governments from debasing our currencies. At the same time I fear it for the unintended consequences it might visit upon us.

    OK Dave, I get where you’re coming from. At the same time, the fact that a concept is ancient (as opposed to the pejorative term “archaic”) and has stood the test of time, should hardly count against it. The supply of gold keeping pace with the digital revolution? I’m afraid I don’t follow you there at all.

    I’ve given a basis above for predicting inflation (or deflation) under a gold standard (call it Ozboy’s Law if you like, though I’m sure a more convoluted version exists in a textbook somewhere). Ian and Kitler (both geologists) will agree with me that maintaining the supply of gold will be determined by market forces, not by scientific or technical constraints: certainly not at $33,000/oz, they won’t! So I would say your fears of the lack of availability of new gold are fairly needless.

    One other general question for everyone: can anyone, without quoting Keynesian ideologues, cite any adverse historical consequences of applying the gold standard that a) I haven’t dealt with already at the top, and b) are worse than the debt-inflation apocalypse the U.S. is careering towards at this moment? Oz

  30. Amanda says:

    P. S. Mister A does not need to protect the spiders from *me*. When I say he’s protective, I mean he tells me when he’s spotted one so that I don’t Hoover it up by accident, and so we don’t disturb it. He had to learn this tolerance: years ago they gave him the creeps, and then he realized that this was irrational (some of course are dangerous, but none that we’ve seen). Mind you, I did see a spider in Florida about half the size of my palm (sans fingers) and I think I’d keep a safe distance, just to be sure. (It was on the outside of a screen at the time, so no worries.)

  31. Amanda says:

    Dave: It’s interesting, isn’t it, that sometimes the more advanced thing is simplicity. For instance, I don’t have multiples of this and that, or lots of phones: mister and I have a cell phone each, and that’s it. No landline. We’re an efficient operation. One e-mail each, web-based, good for any place on the planet. One financial center, a brokerage ‘bank’, for all our transactions in the US (we have a bank with a few quid in it just to keep it going in England). One laptop, one PC, that’s it. No watches, and most of our clocks are just for decoration: the time is everywhere. Why keep replicating it?

  32. Kitler says:

    New blog… https://knottedprop.wordpress.com/2011/05/18/race-and-beauty/
    Images of Victoria’s Secret model’s provided.

  33. Amanda says:

    Speaking of clocks, I have one that’s still on Eastern Time, one that’s on Daylight Savings, and one that’s stuck on a quarter to six. I could fix them, but I’m never put out: I just check the time on my phone or the computer or the microwave!

  34. Kitler says:

    Amanda the big spider is harmless the brown recluse is what you need to worry about or the black widow the hour glass on it’s back is the give away. They can make an adult ill but won’t kill you.

  35. Amanda says:

    Kitler, good to know. I’ll e-mail you next time I meet one I’m unsure of!

  36. Kitler says:

    Amanda a spider bit me once during the first years in the South my hand swelled to three times normal size and it was painful so any other experiments were out of the question.
    It was probably a brown recluse, spiders die in my house as do bugs. I live in the country for a while and refused to kill mice I would trap them them and release them.
    More than four legs gives me the heeby jeeby’s.

  37. Kitler says:

    Wolf spiders are fun because when cornered will fight back but while large are harmless to people.

    You like spiders that fight back, eh? Then let me introduce you to my childhood friend Atrax Robustus – Oz :twisted:

  38. Amanda says:

    Kitler, you are obviously an expert on spiders. Tell me, do you ever have a strange inexplicable urge to get into a spandex suit of red and blue and swing from tall buildings?

  39. Kitler says:

    Ozboy yes they looked like that but a lot smaller same posture and very fast runners, I assume you kill those with flame throwers.

  40. Kitler says:

    Amanda not even the urge to dress in costumes and jump off wardrobes.

  41. Amanda says:

    Gosh, only 41 comments and we’ve managed to get entirely off-topic. Still, it IS past 1 am my time, and I’ve got to go in. Got The Great American Novel to write in the morning!

  42. Amanda says:

    Kitler: *I* have the urge to dress in costumes. What does it mean?

  43. Amanda says:

    Not men’s ones, though.

  44. Amanda says:

    I wonder why WordPress has just told me that I’m ‘posting too quickly’. Does it get indigestion?

  45. Amanda says:

    Ozboy: Re Atrax: I bet he’s a darling when you get him on his own : )

  46. Kitler says:

    amanda do these costumes involve Victoria’s secret or something more historical?

  47. Dr. Dave says:

    Kitler & Amanda,

    We have all manner of spiders here. For the most part we leave them alone (inside and out). We even feed the wolf spiders outside and in my bathroom window. We feed them moths and flies too slow to escape our wrath. They’re like little 8 legged pets. We had Brown Recluse in Texas and we have Black Widows here. I kill the Black Widows on sight, but even with the centipedes and scorpions (too high up for ‘em where I live now), these critters are NOTHING like the SOBs they have in Australia. The fangs of a funnel web spider can penetrate a toenail! Hell, even our venomous snakes are veritable sissies compared to the backyard variety in Oz.

    As far as I know our deadliest venomous snake is the eastern diamondback rattler. This is a large snake that packs a powerful load of venom. However the most dangerous snake is the western diamondback rattler because it is far more aggressive and will bite just because it can. The coral snake is a deadly cousin of the cobra but is very shy and has to be extremely provoked before it will bite. The cottonmouth and the copperhead are poisonous but rarely deadly. Other than these few we have relatively few poisonous snakes in the US. Oz is replete with deadly SOBs. I’ve lived in the Southwest for 26 years and I’ve never encountered a venomous snake anywhere near my home. From what I’ve read the damn things are like rats in Oz.

  48. Kitler says:

    Dr Dave ask him why Australians suffered from serious constipation when they had outside privy’s.

    We had. And I had – Oz :mad:

  49. Kitler says:

    Ozboy all we had were mozzies or gnats to deal with nothing poisonous at all, except cold so bad a trip to the netty was an adventure sometimes with guide ropes in the blizzard.

    Redbacks were another sometimes deadly spider we had to deal with in Sydney.

    I don’t think this song would have been a #1 hit anywhere but down here – Oz

    (re)

  50. aurelian says:

    After completing yesterday an enjoyable rereading of Neal Stephenson’s wonderful fiction trilogy “The Baroque Cycle”, in which gold, money, commerce and coining feature prominently, I chanced today upon your most informative essay here.

    After reading it with keen appreciation, I followed your link to the excellent piece by Murray N Rothbard.

    I’ve learned a lot. Many thanks and warmest good wishes.

    Many thanks Aurelian; your name has the very ring of gold about it – Oz

  51. aurelian says:

    … the aura, but not the Aurum, alas. :-)

  52. Luton Ian says:

    That’s the thing about getting older Oz, it gets to the point where we start meeting new friends every day.

    Aurelian,
    Murray was some character, poor guy died back about ’95, but his work is still great. Check out some of his lectures that are available as download audio files from the mises site. He had an odd kermit the frog voice that got all high pitched when he got excited and a habit of chuckling at his own thoughts. The stuff is good, he covers a lot of ground very very quickly. all of his work is available free on Mises, he didn’t believe in copyright!

  53. Luton Ian says:

    Kitty Babes,
    Got too pull you up on Usury

    You are of course welcome to practice your own beliefs as far as you want to take them as long as you don’t commit violence to another (except in self defence).

    The cannon law prohibition on usuary is based on one of the psalms and an obtuse reference in St John’s Revelations. these were reinforced by the fallacious idea that money is barren, and cannot multiply – very much a red herring.

    Money has a time value, we’d all rather have stuff NOW! than wait until we’d saved enough to afford the stuff. Every last one of us.

    But

    As in most things, (like comitting the deadly sin of looking at the cute black girl on the next table when you’ve taken the missus out for a meal) not all are created equal!

    So some people are more desperate for the stuff NOW! than others.

    On that basis, a deal can be reached, in which those who value the stuff NOW! more can borrow funds from those whose want for stuff NOW! is less painful, but with an agreed compensation for putting off getting the stuff they want NOW! until later.

    The stuff might be capital equipment for a business which will make money, it might be savings for a house or a pension, or just some fun!

    That a deal is reached, and is entered into voluntarily is good enough.

    Of course, there are risks, perhaps the borrower might default, perhaps the borrower is biting off more than they can manage.

    A shrewd lender will take that into account, which is why a Capital 1 card charges a higher rate of interest than a Visa Platinum.

    Trouble arises when the state interferes,

    A free and competitive market, where any one can borrow with interest from any one willing to lend, becomes a state sponsored oligopoly.

    Add into that, artificially cheap credit due to state counterfeiting, and the probability of having 1,000 ACORN thugs showing up on your drive accusing you of being racist for not giving a loan because (there was eff all chance of ever having it honoured) and, you have the present situation.

    Two cultures have shown the ability to advance to “modern”, one was the 15th century Chinese, who turned away from it choosing isolationism and stagnation, the other is the Geco-Roman-Judeo- Christian west, who went the whole way to classical liberalism and industrialization (which required lots of capital NOW!), which some others have aped.

    At no stage did the muzzies show such potential

    Their inability is based on the whole, but the usury question is part of that whole.

    The Wikipedia article on usury is unusually good, but leaves aside the changes to the definition of usury made at the First Vatican Council. A really good summary of these is recounted here by an American church historian.

    Of course, the real reason behind it was the church wanting to get a slice of the action involved in funding European wars and capitalizing the United States, a racket hitherto enjoyed solely by (predominantly Jewish) European bankers. I was tempted to caption the medieval burning scene (actually a woodcut of a witch burning), “The First Pogrom?” but didn’t want to open that Pandora’s Box on this website – Oz :eek:

  54. Luton Ian says:

    Oz,
    One of the guys I worked with in South Africa’s teenage son had a “pet” puff adder.

    These are big, fat, lazy and foul tempered snakes. So arrogant, that you see them dead on the road, they won’t move for anything, they’ll just bite it.

    The venom is a huge cytotoxic molecule, it doesn’t travel far after a bite, but results in massive tissue death around the bite.

    This kid used to put his bare hand into the tank to get the water and food bowls in and out!

    eventually he got sick of threats to introduce his snake to another colleague’s secretary birds, and he let the brute go.

    If it had bitten him, there’s a good chance he’d have lost fingers, if not a hand.

    Never had much experience of spiders, but there were some evil wolf spiders and centipedes in Angola, south Africa and Borneo. Borneo even had bird and bat catching pit vipers living in the caves, catching with their ability to image in the thermal IR.

    I’ve some photos somewhere of a python with a big bulge, and then cut open showing a full grown man’s body. The pictures claim it is in the DRC, I still want to show them to the local reptile freak, I suspect it is an Asian Reticulated python, which allong with anacondas are the only known man eaters. Th ones the local guy has are really evil. the missus knows him and his staff, so we got to watch him feeding the buggers, and they were trying to bite him at any opportunity.

  55. Luton Ian says:

    In areas where they occur, puff adders account for about 50% of snake bite fatalities.

    I’ve once or twice seen black mambas. They’re creepy.

    Warm blooded, travelling with the head and neck erect and able to jump about 3 metres vertically, allong with some of the most potent venom.

    The guy with the secretary birds nesting in his tree said that as a teenager he gt into catching pythons in the cane fields. one time he came face to face with a big mamba, head at his eye level. he soon* lost interest in looking for snakes.

    *measured in miliseconds

  56. Dr. Dave says:

    Ian,

    Last I checked ALL reptiles are cold blooded.

  57. Luton Ian says:

    Getting back on topic

    Impersonating gold.

    Uranium, tungsten and most of the platinum metals have a simillar density to gold (18g/cm^3, lead is 33% less dense at 12g/cm^3). Archimedes discovered this in his eureka moment in the bath and went for a quick streak through the streets, before getting the royal goldsmith into two parts…).

    Pure gold is very soft, and the traditional ways of checking that a gold coin wasn’t brass, included looking for tarnish (gold doesn’t) and tasting it (gold doesn’t) and biting it (pure gold is soft).

    More advanced individuals would also check coins or bullion with a “touch stone” to check the colour of the streak (as opposed to Archimedes’ streak) to check how well the gold had been parted from the silver which it usually occurs alloyed with.

    Fortunately, sonic velocity is proportional to both density and stiffness. gold is dense, but not stiff, so a weighing balance, a measuring cylinder and some sort of calliper measuring sonic velocity between its anvils should defeat most counterfeiting with W or dU cores and a gold skin.

  58. Luton Ian says:

    an active black mamba maintains a temperature pretty close to ours, and if ambient is below that, then an active mamba will be well above ambient. They also have a very good cardio-vascular system, possibly the best for reptiles.

    Ireland doesn’t have any native snakes (only released pets), but growing up in England, I was surprised that adders (their only poisonous snake) that I caught were surprisingly warm to the touch, although half an hour in my mum’s fridge slowed them down to a safer pace.

    Active mambas are certainly capable of a high degree of thermal regulation (as are “cold blooded” insects, which fly at body temperatures of 39 or 40 C, on nights of 3C or less.

    Can we borrow Saint Paddy for a few weeks? – Oz

  59. Amanda says:

    Luton Ian: *I* was surprised, yesterday, by the fact that in Anglo-Saxon (Old English) the word was ‘a naeddre’, not ‘an adder’. The N of ‘an’ can migrate both ways (I know this because my father-in-law is an expert on the English language, who in the 1960s was the world expert in Essex dialects, fwiw). As I understand it, usually the N migrates to the noun and attaches it there (sorry, can’t think of any examples, but they are numerous enough. Will have to ask dad-in-law next time). But in this case it went the other way: people hearing ‘a nadder’ *thought* they were hearing ‘an adder’. Hence the modern word.

  60. Amanda says:

    P. S. He was the world expert probably because no one else was interested! : )

  61. Kitler says:

    Amanda since Luton Ian and I speak Aulde English the North East being the last bastion of it as well as the dialect known as Scots the N tends to be subdued with an over emphasis on the A after it so it would sound like nAdder. As I have mentioned before it has been known for Geordies and Norwegians to be mutually intelligible while speaking entirely different languages as enough root words have not changed nor has the pronunciation.

  62. fenbeagle says:

    Oz……. Open Pandora’s box.

    I don’t think so, Fen… perhaps you could try at your place if you’re keen.

    The fact is, Jews fell into banking in Europe by happenstance: they were the only ones around whose religious beliefs didn’t forbid it. It also suited everyone else at the time to have a money-lending class, whom they could despise while still taking advantage of their services. The wiki article on usury wraps it up quite well. It was only following the industrial revolution and the rapid expansion of America that banking became so profitable that the church found themselves under pressure from their own to let them have a slice of the pie too.

    Unfortunately, the sequence of events led to the charge that Jews got into banking because they were somehow of their nature greedy and underhanded. While it was a convenient fiction for politicians and demagogues (including the biggest demagogue of them all), we all know where that sort of thinking ultimately led. So no, the box stays firmly shut – Oz

  63. Stop Global Dumbing Now says:

    G’Day Oz,

    Good post.

    We have a couple of billionaires here in North America trying to control politics and monetary policy to suit their own totalitarian ends.

    Here in The US we have good ol’ George Soros (picture at the link), scary man, way too much power.

    Canada has their own version in Maurice Strong. (Pay no attention to the blog, just the image.)

    Just a few more miseries for Pandora’s box.

    Fen, I’m bookmarking your site. Fun stuff!

    T.

  64. Kitler says:

    Ozboy just a quick aside the reason why places like Hollywood are dominated by Jewish people is simply the fact it was a new industry and there were no prohibitions to stop them becoming a part of it. Like banking they are funneled into it as a career.

  65. Dr. Dave says:

    Ozboy,

    Over the last couple of days I’ve tossed and turned and probably lost a good 15 minutes of sleep thinking about this issue. A gold standard (or any other fungible asset) serves only to confine the total money supply of any nation…not necessarily wealth. There are some detrimental consequences of such a policy of confining money supply as it does establish a zero-sum game. With a fixed supply of money, some things will become more valuable, but only at the expense of other things becoming less valuable. This is one of the classic liberal left economic fallacies. That is, for the rich to become richer, the poor must become poorer. In reality it doesn’t quite work this way. The only thing that changes is the monetary valuation of goods and services, not the actual intrinsic value of same. So a $750,000 home under the current system might become a 20,000 US Gold-Dollar home under a new standard, but the intrinsic wealth has not changed, only the valuation.

    My concerns remain on the physical constraints of the money supply imposed by a gold standard. I will, at this point, concede to the LG tribunal of geologists and take it on faith that you can perform enough hard rock mining for gold to keep up with global demand for “currency”. How much does it actually cost to produce an ounce of refined gold?

    My question is…how do we make the transition? Do the US, the UK, OZ, Canada, the EU, Russia, South Africa, Brazil, Japan and China all agree to go onto a gold standard all at once? Or is this something the US goes to first as the world’s de facto reserve currency and suffer the currency imbalances until the smoke clears?

    It was actually FDR who took the US off a “true” gold standard. Nixon took us off the false gold standard that took its place. Let’s talk about the mechanisms required for a return.

  66. Kitler says:

    Dr Dave….How much does it actually cost to produce an ounce of refined gold?
    That depends on where and what type of rock you are mining and by what method. So no easy answer on that one, but they will not mine if the price of gold collapses.

  67. Kitler says:

    Also China has just purchased 91 tonnes more of Gold I think the new standard is coming in by the back door.

  68. Ozboy says:

    As a matter of fact, at the likely levels gold will rise to, you wouldn’t even need to do any exploration; existing and previous workings have lode sections which are marginal and sub-economic at current prices. That’s why I suspect transitioning to a new gold standard won’t lead to quite as much new exploration as you’d imagine. Either way, the supply of new gold is pretty much assured.

  69. Ozboy says:

    Also Dave, by the time of FDR, the Fed had long since printed far more dollars than there was gold; the “true” gold standard ended back in 1913.

  70. Dr. Dave says:

    Ozboy,

    Ahhh yes…1913…the start of the Wilson administration. In the 20th century the biggest SOBs in American politics were Woodrow Wilson, FDR and LBJ. They were all Progressive socialists. OK, Ozboy, I’ll accept your professional opinion about the potential for gold production in the future.

    My question is…how do we make the transition?

    Well, as I said at the top, IMHO (and it really is humble), it would involve a transition period, sufficiently long as not to unfairly disadvantage savers and allow legislative changes to mandate re-drafting of long-term contracts. Rothbard elaborates on this in his essay far more eloquently and authoritatively than I ever could. And to answer your earlier point, it would have to be reasonably global, so as to obviate the issue of a parallel commodities market in gold that helped torpedo the Bretton Woods system. Kitler’s point bears some thought also, that gold would be snapped up in the first few seconds (nanoseconds, more likely) by the big hedge funds and such. But surely these are second-order issues, not good reasons to avoid moving to gold – Oz

  71. Kitler says:

    Ozboy it would be possible to force the hedge funds to relinquish the gold at a discount to the governments of the World ala FDR. although since they are all buddies unlikely. We would have to have sweeping political change the world over before it could happen.

  72. Ozboy says:

    Here’s another U.S. president who argued in favour of the gold standard. Mining engineer, one-time Australian resident. Gotta love him. Even spoke fluent Chinese.

  73. izen says:

    My tupence for what its worth… -g-

    Money is a resource distribution management tool. It also enables all the benefits that derive from the optimal exploitation of resources by competitive markets in commodities and services.

    While competitive markets in resources are largely beneficial, money markets create problems. As a symbolic token of access to resources a contradiction arises if money is traded as if it was a ‘real’ resource. Religious/social rules against usury are one example of an attempt to regulate and effectively prevent any market in money emerging with the problems of inflation that ensue.

    The Gold Standard is another way of imposing regulation and constraints on any possible trade in money, a free money market, from arising.

    Any justification for using Gold as the constraint is purely arbitrary apart from the historical precedent. If a stronger link between money and the resource access it represents is required it might make more sense to have a ‘standard’ based on a energy production.

    I hesitate to suggest an Oil standard….

    G’day Izen,

    I was wondering when you’d weigh in to this topic…

    The first thing I have to tell you is, the phrase “resource distribution” always sticks in my craw. It’s a Marxist shibboleth: the idea that resources are just “out there”, and that society’s problems will all be solved by an ever-more powerful central authority to make sure these “resources” are snatched out of the hands of those into which they may have unfairly and temporarily fallen, and “re-distributed” more equitably to all who should rightly share in them.

    I’m assuming you’ve read The Lord of the Rings, Book VI Chapter 8, “the Scouring of the Shire”; Tolkien deals summarily with the “gatherers and sharers” whom you would see out there in force, “gathering” from those of us who actually produce wealth, and “sharing” with those who don’t.

    Wealth isn’t just “out there”: it is created. The gold in the ground is simply a raw material, useless until it is dug up and refined. Same with the soil and the sea. It’s the value added to those raw materials that the “wealth” of them represents; otherwise the table I’m sitting at right now is just a bit of Gaia’s forests, wrongly hewn by evil capitalists. No: it’s the skill and labour of the forester and carpenter, furniture retailer and delivery man, and – more importantly – the value customers see in that hard work – that forms the wealth of the table.

    That said, the concept of energy as a monetary standard actually isn’t necessarily a bad one; I’ve heard it mentioned often recently. Probably the biggest obstacle to it is interchangeability; you can’t run (most) cars on electricity, or your refrigerator on petroleum (sans generator). It is worth a look though, and I may get around to it one day – Oz

  74. fenbeagle says:

    How about a ‘time’ standard.

  75. Amanda says:

    Well said, Oz (replying to Izen). Here’s another comment I like — sums up Communism and/or big-time ‘socialism’ so well:

    They’re about as redistributionalist as Chairman Mao was. There was one property owner in Maoist China, and he owned everything.
    –Eric Worrall, our fellow poster at the Telegraph

  76. Amanda says:

    And the context of Eric’s comment was this quotation:

    “The goal now is a socialist, redistributionist society,
    which is nature’s proper steward and society’s only hope.”
    –David Brower, founder of Friends of the Earth

  77. izen says:

    Hi Ozboy

    I wondered if the “resource distribution management” phrase would trigger a the ‘evil of socialism’ response. It is one reason I used it -g-.
    But I was dragging a concept from biology into this context. There are examples from cell metabolism to oceanic ecologies that show systems emerging that ‘manage’ the distribution of resources required to sustain life.

    Of course there is no intentional use of symbolic tokens, but a leafcutter ants-nest is a resource made by the abilities of ants to transform an approapriate volume of earth. The foraging for leaves is again an example of resources requiring processing and added value from systems within the nest that convert the leaf into food.

    I lack the interest in the arcania of monitary standards, which I still think are regulatory frameworks and so are embedded within the social context, to have much of a response to this issue. But I would agree that a ‘resource’ is ambiguous, the method of defining an absolute added value or created wealth to any object, service or process is still unfound I think.
    Previously Dr Dave suggested that the state could never create wealth. Which makes me wonder what the Roman roads and water management systems are if not part of the wealth of that society.
    Converting trees into tables (is the sawdust jealous?) does require the skills of carpenters, and the delivery and retail systems as well as the ability of the marketing department to persuade you that the ‘half price sale’ such furntiture stores seem to run continuously reaaly does mean you are getting value for money…
    And it all relies on a vast interconnected societal infrastructure spanning many levels of organisation.

    A favourite writer had a story in which plutonium was used as the sole currency.
    To discourage hoarding, get too rich and you suffer a ‘criticality event’. -g-

  78. Dr. Dave says:

    izen,

    Your example of ancient Rome would be equally applicable to the US Interstate road system or the various and sundry subway systems throughout the country, even perhaps to military equipment. Except that the “state” didn’t build or create any of these things. People did. Private contractors did. The “state” only decided that these things must be done and set about confiscating wealth from taxpayers to pay others to make it happen. A civilized society requires a small cadre of the parasite class (military, police, fire fighters, a few bureaucrats, etc.) but in reality the productive class can get by quite nicely with VERY few members of the Parasite class. The converse is not true. The parasite class is wholly dependent upon the labor and taxes paid by the productive class in order to survive. Government does not produce wealth. At best it can, on rare occasion, cause others to produce wealth but more often than not it does little else other than consume tax money.

    BTW…I love the plutonium idea.

  79. Luton Ian says:

    Hi Izen,

    “Value” is what an individual will pay (in one way or another) for a good, in a freely entered into exchange.

    Value is subjective; people pay lots of money for things which I wouldn’t turn my head to look at, their choice and they’re welcome to it.

    There is an element of utility in the valuation. Money to buy things with is always finite for individuals and private institutions, only the state can legally demand whatever it wants, So, we generally buy according to how useful or how desirable something is to us at that time.

    If I’m invited to a very important function, I might buy a fancy new pair of shoes, and hire a driver to drop me off and bring me home. The do is special and I need to make a good impression, and the nicest shoes which fit are expensive Italian ones, so I spend quite a lot on them, same for a new suit. These things were scarce and I valued them highly at that time, I don’t give a second thought to the air I am breathing, although it is far more important to the continuation of my life, it is not in limited supply.

    If, on the way to the Dinner, the driver does a Teddy Kennedy, and I’m in the car in the river, then I will happily kick those expensive shoes and that Italian suit off, and discard anything heavy, gold diamonds or whatever, to get that next breath of air in the couple of minutes before I drown!

    Subjective marginal utility. how quickly the subjective valuations changed according to time, utility and availability.

    Of course, if the shoemaker had made some pig ugly shoes, it wouldn’t matter how scarce they were, or how much skill he had brought to them. I wouldn’t have bought them.

    The ultimate arbiter of quality or value is the customer, If the customers don’t value the goods over the competing calls on their money, they won’t buy, and there is no need for a Pu limit on ones richness – Unless someone is using force, they won’t get money without providing something that others value enough to choose to pay for in sufficient numbers.

    So, unless we are dealing with crimminals, the only ones who get “Too rich” legally, are doing so with the help of that body which aspires to a monopoly of force – the government.

    For the rest, If you think Sam Walton’s heirs are getting “too much income”, you have a vote on it, you can spend your money with the competitor’s businesses.

  80. Luton Ian says:

    On petroleum as a possible base standard for currency,

    It suffers from the problem of low value per unit bulk. I can carry several ounces of gold, or paper redeemable in gold to even higher values, and collect and store that gold with some ease. My domestic heating oil tank does cost an alarming amount to fill, but, it is a bit bulky to carry and messy to exchange.

    The recent rises in oil prices have shown the difficulty in quickly increasing pumping and refining capacity to make up for the reduced Libyan output of light sweet crude (refineries are optimised to a particular crude feedstock, and some, like Bantry in Ireland are set up for Libyan light sweet crude, and would be unable to handle heavier or more sour feedstock without major work or problems).

    In that respect, Oil is somewhat like gold, inflating the supply is difficult and that shows up the comparative ease with which the supply of fiat currency is being over printed.

    There is also the effect of speculators suspecting that there may be a shortage ahead, and therefore stocking up on supplies now, which they will store, to be able to provide supplies if there is a shortage.

    Although this causes a price rise now, this gives us all a signal to be more cautious in our use of fuel, thus allowing more to be set aside against shortage.

    As storage costs money for the facilities and ties up money in the form of all that oil in the big tanks, there is an incentive to release that oil to the market pretty quickly as soon as the shortage materialises (if it ever does materialize), this serves to damp out the spike in prices.

    If the shortage doesn’t materialise, then the forecasters who were wrong will take a financial hit as they release the oil to the market at normal or below normal prices – correct forecasting is rewarded, incorrect forecasting is punished -unless force (government) is involved.

    Then setting aside stocks for a forecast shortage becomes evil speculation, and releasing that stock if the shortage appears is market manipulation and price gouging.

  81. Luton Ian says:

    I think there is probably a whole thread or ten in the debate on government involvement in infrastructure.

    Interstates allow the big retailers to socialize the costs of the diseconomies of scale in their distribution networks, allowing them to grow bigger at tax payer expense.

    The US rail network was a pretty foul piece of crony capitalism, granting massive tracts of land, including Indian occupied lands to the rail companies.

    I was riding a metro train in a provincial city a few days back, and looking at how empty it was. I often hear the excuse that only the state can take that longer term view, to which my reply is, if a project can’t show a positive NPV, then the resources are better put to one which can.

    putting taxpayer funds (taken by force from projects which people were willing to buy the products of) and putting them into a state project with a negative NPV is destroying wealth.

    It may well be that a clever entrepreneur can come up with a business which can make such a project pay, and in that case, he’ll get the funds together to do it privately.

  82. Luton Ian says:

    Here is a provocative one on state involvement in infrastructure.

    The UK auctioned a small number of 3G and then 4g licences (apparently we gain from this, though how I don’t know).

    This limits the number of providers who can operate in the market, and provides no incentive for fast roll out of service.

    What if the state had simply said; “this is the wavelength range to stay within, there is a tax of £0.x per tower, may the competition begin!”

    There would then be a veritable rush to put up towers in an area before the competitors used the available wavebands in that area. The companies providing the best coverage and fastest roll out would stand the best chance of getting customers, while those with less coverage would have to offer far lower prices to attract customers, but somehow we are supposed to see this as being bad.

    Why?

  83. Ozboy says:

    G’day folks,

    I may be a little tied up again for a few days; here’s something I wrote some time ago but have been keeping in the bottom drawer.

    Cheers,

    Oz

  84. aurelian says:

    @Luton Ian, May 20, 2011 at 9:11 am
    Many thanks for the briefing on Murray N Rothbard.
    http://mises.org/ is now in my browser’s favourites list.
    Best regards.

    May I recommend their daily mailing list as well; always an interesting read – Oz

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