Paper Beats Rock: The Gold Standard is Theft
February 20, 2012 § Leave a comment
Paper Money is Better than Gold Money
If you convert the $15T in US money supply to gold, the government would need to add $15T to the national debt to purchase gold. That means the national debt would be $30T, and we’d owe $1.5T/year at a 5% interest rate on that national debt. Even if spending was drastically cut, you would still need to increase taxes to pay interest on the national debt to convert to a gold standard.
During that process, it would be quite reasonable to expect gold to reach $5K/oz, if not much more. That means you would need to pay $5K/oz in dollars backed by gold. You would only need to pay $1.5K/oz in paper dollars.
You can buy more gold with paper than you can buy with dollars backed by gold. The simple reason for this is that the supply of gold is now being wasted to back the legal tender. If you love gold, you should not want the government to intervene in the free market for gold by declaring it legal tender.
How Gold Money Steals from your Real Assets
If you have 50 ounces of gold under your mattress and your home is worth 120 ounces, you home will lose more value than your gold will gain. If gold doubles in value, you will still have 50 ounces of gold under your mattress and your home will only be worth 60 ounces of gold. You went from a net worth of 170 ounces of gold to 110 ounces of gold. You lost 60 ounces of gold in net worth, more than you have under your mattress. With gold doubling in value, you gained 50 ounces of purchasing power with your gold and you lost 60 ounces of purchasing power with your home. Your purchasing power dropped from 170 ounces to 160 ounces, with a net loss of 10 ounces of gold.
If you own a home, you need to buy gold just to hedge your assets if we went onto a gold standard. If you love gold and your other assets, you should not want the government to intervene in the free market for gold by declaring it legal tender.
Why Commodity Basket is not an Option
As we saw above, if the government selected multiple commodities, the government would need to corrupt multiple commodity markets, making those commodities more expensive. In order to prevent inflation and deflation, the government would need to constantly adjust the basket and actively buy commodities to keep the economy growing. This means the government would need to collect taxes in order to allow the money supply to increase. If you do not trust government to deliver the mail, you should not trust the government as a commodity trader.
Furthermore, all commodities in the free market have unstable and volatile valuation. Even in gold markets, there is a constant change in supply, from mining and recycling operations, as well as a constant change in demand, from investment, jewelry, and technological applications. The government would need to constantly research trends in the different commodities and consider multiple factors with each commodity.
If you love commodities, you should not want the government to intervene in the free market and become commodity traders.
Why Free Market Currency is not an Option
We can’t trust the government nor the free market to provide currency with stable valuation. If the government selects any free market currency to be legal tender, the government has intervened in the free market for currencies. The government will be favoring one currency provider over another.
Furthermore, if you have multiple currencies, there will be extensive money market manipulation. Adam Smith warned us about this in his economic treatise, Wealth of Nations, published in 1776, after observing money markets in the American colonies, and his why colonial currencies were banned in the U.S. Constitution.
If the government selected commodities or free market currencies, everyone would need to become commodity and currency traders to stay ahead of the curve. Those with the most wealth and credit would still win since they would be able to borrow in the inflationary currency and accumulate the deflationary currency.
If you love free market currencies, you should not want the government to intervene in the free market by selecting free market currencies as the legal tender.
Why a Public Debt-Free Legal Tender is Best
Our best chance of a having a stable currency is with a public debt-free legal tender. We can’t trust the free market nor the government. However, the government would be our best choice since we would all have equal representation and there would be direct accountability and transparency.
It would be immune from credit expansion/contraction cycles because there would be no interest. Our only concern would be making sure the government prints enough to prevent deflation and allow economic growth with enough investment and job creation to meet growing populations, which would be easy to demand from the government. Since the wealthy would not profit on interest, our concern for inflation would be less since the wealthy would no longer lobby for deficit spending but would lobby against it. Inflation would eventually be corrected with investment and job creation, which the inflation would encourage. We would need to be concerned about hyper-inflation, which would be easy to demand from the government.
Inflation is easily avoided as a tax through savings and investment, but the tax rate is still nonetheless low, taxing only average daily cash balance. The advantage of inflation as a tax is that there are government forms and the tax encourages production.
We would be able to ban the government from borrowing. If the government needs to borrow money, it would simply print money rather than borrow it as interest-bearing debt. Usury would be eliminated from public finance.
We would be able to pay off the national debt and end income taxation when the interest on national debt is eliminated. If the government ends fractional reserve banking, it would need to print a lot of money to prevent deflation while private debts are paid off to bring reserves to full reserves. This printed money can be used to pay off the national debt.
A gold standard would require a doubling of the national debt and an increase in taxation. A public debt-free legal tender would eliminate the national debt and income taxation. Inflation would benefit the tax payer rather than the usurer and could be more easily managed. Furthermore, the total destruction and theft of deflation would be easy to prevent.
If you love the free market and low taxes, you should want the government to stay out of the free market for credit, commodities, and currencies, and provide it’s own legal tender, free of usury and economic rent.