Does Gold Really Matter?

Harry Pollard

[Reprinted from a Land-Theory online discussion, 9 May 2000]

  • A -- A measure of value, which should be a commodity with certain characteristics trading normally in a price mechanism controlled market (hereafter - the free market). I call the measure of value "Money"
  • B -- A purchasing medium, used for all exchanges - other than barter - which in modern guise is authenticated pieces of paper, created and destroyed as needed to facilitate exchange, by people within the economy.
  • C -- A standard piece of paper, produced by governments, printed with a standard 'value'. We appear to spend most of our discussion time on these standard pieces of paper -- yet, they are least important.

The reason why C) continually invades the discussion is because they have usurped the function of A) above, the measure of value.

However, instead of their value being determined by the market, it is manipulated by the issuing government. The US dollar is held somewhat to a commodity value, but to the bunch of them that comprise the Consumer Price Index.

Greenspan watches the CPI, with an occasional look at the Gold Market. So the value of the dollar is determined by the CPI which is measured in dollars. This is a continuous balancing trick designed to allow the dollar to depreciate a little over time.

Overwhelmingly, B) the torrent of pieces of paper, carries out most of the exchanges in the economy. The Purchasing Media -- Fred calls them money substitutes - are created as needed by check -books, credit cards, debit cards, ATM cards, and the rest. The PM created is destroyed once it has been used.

What "backs" money? Well, it all depends on what you mean by money. In my economy when gold is "Money" (see above) nothing "backs" it. Gold is worth whatever the market says it is. Other things have a value in gold determined by the market. So, if a BMW is worth 100 ounces of gold, and my boat is worth 100 ounces -- we can say the BMW has the same value as my boat.

That's the function of a measure of value ("Money") -- to act as a reference point - just like the yardstick in DC. No matter how many yards you use up building your road, the yardstick is unaltered and uncaring. No matter how many hot dogs you sell during a day - the gold 'reference' remains unaltered and uncaring.

B) The Purchasing Media (PM) do need backing. It's the integrity of the issuer. You will take the piece of paper for your bicycle because you trust the person who signed it, and you trust the bank (or whatever) to pay off.

If you are dubious about either, you won't sell your bike.

C) The standard government issue doesn't need backing. It's what you use for small transactions. Whether its value goes up or down doesn't bother you much. The crucial characteristic of the GI is the law forcing you to take it. It has nothing to do with taxes, no matter what Dan says.

This is what he does say, often repeated:

DAN: "However, someone had talked the government into having a gold standard, which means that these people must pay their land rent in gold or in bank notes."

The Art of the Non-Sequitur -- Dan is so skillful. I've never paid my mortgage with gold, or dollar bills. I always write a check. Dan'l, you simply don't comprehend the use of something as a measure of value - something against which all other things are valued. The government is not concerned in this at all. If they wish to issue their pieces of paper and actually use them as a "promise to pay" with integrity. that's their business.

If they aren't to be trusted to fulfill their promise, that means they won't do much business. Unless, of course they force you to take their stuff - but I think we should have a free society, where coercion isn't allowed.

Dan seems to like the idea of paying in Latvian wheat. Perhaps because he hasn't heard of purchasing media.

That's fair enough, because I can't understand what his problem is with "gold hoarding". Can't imagine why people would hoard gold in a free society. People might like to keep a few gold sovereigns around - in case - but it is a costly thing to do.

Banks don't need to keep gold around the place - unless they have good customers who occasionally want some. I would think that if a customer wants some gold, they would ask him to wait a day or two while they got some from a source (someone in the gold business, supplying jewelers, or something).

Actually, Fred thinks having a bit of the yellow stuff is good public relations. I go along with that -- but it's up to the bank.