In Defense of Gold ...

In Defense of Gold ....
by Mark Anderson

April 19, 2002

Classical gold standard advocates, such as myself, are the victims of some of the greatest abuse. Time and time again we are regarded as neanderthals or goldbugs, as though certain economic laws are less applicable today than they were eighty years ago.

I am here to say that economic laws have not changed. A classical gold standard, if used today, would be just as beneficial as it was during the industrial revolution.

One of the foremost arguments employed against the gold standard is that if we went onto the gold standard, there would not be enough gold. This is false. First of all, that argument actually defeats itself. That argument can be translated into saying that, you don't want to use gold because there would be a gold shortage. That is an inherent contradiction. You see, in order to have a shortage of something, there must be a demand for it. A shortage is, precisely, supply not meeting demand. If one doesn't want gold, then it is impossible for them to have a shortage of it. If we used that same argument against food, the argument would read like this, "I don't want to eat food, because there is not enough of it." If there is not enough food, choosing to reject it all together is hardly the recommended way of dealing with the shortage.

Having more gold, when used for its transaction or monetary purposes, confers no social benefit. The same applies to more dollars. When people say that they want more money, they are really saying that they want a greater command over goods and services. If everybody's bank account was magically increased by the same exact percentage, nobody would gain anything. There is no optimum amount of gold for transaction purposes. Gold would simply be a yard stick, used to measure prices of other goods. If there is not much gold being used, then prices would be measured in ounces, as opposed to, say, pounds. The price of gold stands at around $300 per ounce. Gold being so costly just means that a tiny fraction of a single ounce (1/60 of an ounce) equals $5 (roughly minimum wage). This means that you don't need a lot of gold to have the same things that it would take a lot of dollars to get.

Another argument that is used to combat us gold standard advocates is that having to use all of this gold for transactions would be an inconvenience. This is false as well. How much does a vehicle or a house cost? Would it not be an inconvenience to carry, say, $20,000 or $150,000 in cash around with you to make these purchases? Certainly it would. And how many people do so? Close to none. The same can work with gold. Gold becoming the commodity used for every day transactions does not necessitate that we always have to use the gold itself. Paper money is supposed to be a money substitute, redeemable in a fixed amount of species. A check is redeemable in a fixed amount dollars. The only problem is with the dollars themselves, which are inconvertible into any real asset that is subject to the free market law of supply and demand. Checks could become the paper substitute for a fixed amount of gold. Instead of transferring fiat dollars around with checks, one would be transferring gold deposits around. When you sign a check, you are signing over a real asset.

I believe that the real reason why people don't demand a return to the classical gold standard is simply because they don't understand the consequences of our current system, and how the gold standard would, at the very least, mitigate those consequences. Dollars have become known as instruments of capitalism to many people. Thus, many people actually accuse me of being anti free market for advocating the abolishment of our monetary system. In short, what we have now, is a system where dollars are created out of thin air, and the dollar supply is determined by a select few. The issuance of dollars is also controlled by that select few. This means that a select few can arbitrarily inflate at will. Inflation, by itself, is a tax. There is no substantive difference between the government taking money from us, or duplicating our money, devaluing the money that we have. Both equally confiscate wealth by taking away your purchasing power. One way takes away your purchasing power by taking your dollars, and the other way devalues the dollars that you have. As I mentioned previously in this article, if everybody's bank account was magically increased by the same exact percentage, nobody would gain anything. Conversely, if inflation happens disproportionately, which it always does, one person's gain is always another's loss. Inflation never happens proportionately. If it did, there would be no incentive to inflate.

A return to the gold standard would sever these political ties to money and it would subject money to the same free market law of supply and demand that every other commodity is subject to. The production of gold would be a market transaction. The supply of gold would be determined by the demand for it. There would be no greater check on the overproduction of gold than realizing that nobody wants it. ***