Fools’ Gold

January 25, 2012 § Leave a comment

by Robert Carroll

By monopolizing this commodity the moneyed classes have got
Nature by the throat and the community under their heels… Compared
with this process, usury is mere child’s play. -Alexander Del Mar in The Science of Money.

Advocacy of gold or gold “backed” money rests on dubious
foundations. The discussion that follows will reveal some of the
semantic deception, half-truths, doublespeak, self-interest pleading,
and historical errors employed in gold advocacy polemics.

The Pope admitted in 1992 that Galileo had been right. This has
nothing to do with gold money, but it is offered to show that neither
antiquity nor authority makes a phony idea anything but phony.

There is a strong belief among gold money advocates that little
bits of gold, especially if they are stamped with the image of some
authority and numbers make better price counters than numbered pieces
of paper or computer bytes. The belief involves a perception of what
money is. The person who holds that belief perceives money to be
something real and apparently needs to see and hold in his hand a
physical manifestation of it. Gold is heavy, and refined gold is bright
and shiny. It satisfies an emotional need however meaningless it is to
the function of money.
Money is a product of human mental fabrication. It always has been; it
always will be. It is a tool that facilitates exchange. Modern society
could not run without it or some equivalent accounting system.

A rational business decision would require that monetary symbols
cost the least possible to manufacture. Presently, (1998), it costs
around $280 to mine and refine an ounce of gold. Mining decades of tons
of ore per ounce of gold has left holes in the ground measured by cubic
miles. The ore is leached by toxic chemicals that have produced
environmental pollution. Banks create money in any amount with the
touching of computer buttons.

Abstract numbers, meaningless in and of themselves, that count
quantities of amperes, wheat, gasoline, volume, distance, area, force,
or any measurable, quantifiable thing, suffice in commerce, science,
and technics without the clumsy inconvenience of metal counters. Why
should it be different with money?

A pseudo-legal argument is sometimes advanced by advocates of gold
money that a debt cannot be paid with another debt. This is semantic
deception. A debt can be paid with anything that is acceptable to the
payee. In addition, as long as debt in the form of deposit entries in
bank accounts or Federal Reserve Notes can be exchanged for real goods
and services, the payee is just as well off as if he had received
little lumps of metal. Further, the multi-trillion dollar world economy
runs almost exclusively on exchange of debt-money which only consists
of numbers in deposit accounts at banks.

A common argument for gold money that accompanies the pseudo-legal
sophistry is that gold has “intrinsic value,” another semantic
deception. Gold has interesting intrinsic properties such as chemical
stability and excellent electrical conductivity, but “intrinsic value”
is a semantic if not outright doublespeak. Value(1)
is a subjective judgment and cannot be rationally thought of as
intrinsic. Subjectivity is exclusively a product of human minds.
“Intrinsic value” is a deceptive euphemism for price.

If people were stranded in some remote location without food, water,
and shelter, a mountain of gold would serve no more purpose than so
much sand. It would have no price. Gold has no intrinsic value. It
merely has a price which is the result of complex factors associated
with its subjective price value compared to other commodities.
Industrial usefulness of gold as well as human subjectivity that
desires gold for personal adornment, etc., does assure that gold will
fetch a price in a modern market. But what price?

Gold pricing in the United States, today, 1998, is denominated in Federal Accounting Unit Dollars.(2)
The commodity price of gold has fluctuated wildly in the last half of
the 20th Century, mostly remaining in the $300 to $400 per ounce range
in the last decade. Price fluctuation was not due to variations of the
Federal Reserve Dollar. The U. S. monetary price of gold is $42.22 per
ounce. Artifact (jewelry, etc.) and numismatic prices of gold are what
the market will pay. The value of gold as denominated by price is
highly variable.

Historically, the commodity price of gold has been subject to
fluctuation caused by normal supply and demand influences. Supply and
demand infuences are in turn affected by the vagaries of mining and
shipping, speculation, hoarding, political action, industrial demand,
wars, central bank manipulations, and fads.

When governments or private banks have attempted to use gold as
money, or for the last yea many centuries the fraud perpetrated as gold
“backing” or reserves, it has been necessary to establish a monetary
price of gold by fiat in an attempt to isolate money from inevitable
price fluctuations of commodity gold.

The U. S. Constitution writers anticipated the instability of commodity prices and included the phrase, regulate the value, in the coinage .(3)
In 1792 after the ratification of the Constitution, the Congress,
consistent with the Constitutional mandate, defined specific amounts of
gold, silver, and copper as representing dollars. They regulated the
value and established a price by fiat.(4)

Historically, monetary prices have been set higher than market
prices, the ludicrous present U. S. monetary price notwithstanding. It
would make no sense to issue money that had an equal or lower monetary
value than the price of acquiring the metal. This mark-up is known as
seignorage. It is profit that accrued to goldsmiths, kings, banks, and
governments that issued gold money. When the monetary price of gold was
too low, coins were melted and turned into artifacts that could be sold
for more money than the original coins. When the monetary price was too
high, artifacts were melted and turned into counterfeit coins. This was
another cause of monetary and price instability when gold was used as

The relative scarcity of gold and the demand for gold for other uses
than money should raise questions about the efficacy of trying to use
consumable and losable gold as money or as monetary reserves.

The inherent instability of a scarce commodity subject to all the
influences enumerated above have inevitably led to financial
instability which instigates human suffering, social unrest, political
instability, totalitarianism, fraud, counterfeiting, theft, war, and
abandonment of gold monetary policy.

A mantra of gold money advocates is that alternative money
systems, particularly “paper money,” always fail. Historically, it is
true; but it is also a case of selective historical facts, half-truth,
and errant semantics. There is archaeological evidence that accounting
systems existed before paper was invented. For example, clay tablets
written in cuneiform that show evidence of debt accounting. Paper, per se, merely represented another more economical way of accounting. What is never admitted is that all

money systems including gold money systems have failed. Today, “paper
money” as bank notes is substantially irrelevant. Overwhelmingly,
transactions are carried on via computer accounting where money is
nothing more than numbers transferred from account to account by

Arguments about the substance of money will never address the problem of why all monetary systems have failed

In fact, historically, not only has no money system survived
indefinitely; but also, no civilization, empire, or political system
has survived indefinitely. Systematic monetary manipulation has played
a part in their demise. It is not a question of gold or paper; it is a
question of human culture. Is it possible to maintain a political
system or nation that is founded in myth, intellectual error, and
financial fraud?

The Gold “Backing” Fraud

A sacrosanct dogma of modern economic superstition is that money
derives its value from scarcity. It is nowhere scientifically proven or
successfully argued. It is accepted dogma; and, once again, the
semantic trick of substituting value for price is used.

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