Gold is not used as money today, and there seems to be no very strong movement to return it to that status. Ditto for silver. That isn't surprising. The power to create modern fiat money is awesome, and easily capable of influencing public opinion. Bankers hate gold, which they could not loan without first possessing, except for the short haul, until their dishonesty became apparent. Politicians hate gold, because to get it for their grandiose projects would require levels of taxation resulting in revolution. On the other hand, fiat enables them to tax "profits" which are, in real terms, losses, and to pay their bills, when they finally get around to it, in depreciated currency. This latter feature of fiat makes it attractive to private borrowers as well, and since fiat makes borrowers out of most of us, this masks the hurt of imaginary money.
Gold, we are told, possesses several shortcomings, which are invariably mentioned when the subject of a gold monetary system arises--which isn't often!
"What if we should run out of gold?" is the form given to the principal objection to the yellow metal as money. After all, the amount of gold is finite; sooner or later we might run out. True. Do we hear these same concerns about, say, molybdenum, or cobalt? Or even iron? What about concrete? Think of the millions of tons used every year just for highways! What if we ran out! Many decades ago there was a shortage of whale oil, which caused serious concerns in America. Most people depended upon it for lighting. What if we ran out? Well, we almost did. But then along came kerosene, which was superior, anyway. Saved in the nick of time! When, eventually, we exhaust our supplies of petroleum, we will have developed electric automobiles. Human ingenuity copes. Besides, there is nothing magical about gold, although its physical properties make it ideal as a medium of exchange. But should we need to, we could easily use platinum as money, or silver. But let's assume the worse: we are running out of gold, and there is, mysteriously, nothing we can substitute for it.
So what? Are the same people who are concerned about the possible shortage of gold, as money, concerned about the incessant growth of fiat money? Charts of the growth of the money supply are truly frightening: the line on the graph is going almost straight up! Isn't this worrisome? Those who seem willing to live with inflation of the fiat are worried unnecessarily about possible deflation of a gold-money.
If money became scarce, what would happen to the purchasing power of your savings? That gold, just sitting in your account, would acquire ever more exchange value. Retirement worries would ease, wouldn't they? Rather than seeing the value of your savings drop constantly through inflation, you would see it increase steadily through deflation! The money in your children's education account would become more and more valuable with time. Is this cause for alarm?
Yes, if money were gold, and no more gold were to be found, you might have to accept less gold (money) for your work. But the buying power of that gold would increase commensurately. With the present system, you can earn "more and more" for your labors (actually, just larger numbers on your paycheck; which numbers represent nothing. This, incidentally, makes high taxes endurable), but prices manage to go up faster than your income, so you find it hard to get ahead. The working man, paid according to a contract, would find that, at least during the term of his contract, he received the same amount of gold, while prices could drop during that time as gold became increasingly scarce. In other words, prices can change hourly; wages are fixed at least for the duration of a contract. This works against the wage-earner in a inflationary economy, but for him should deflation occur.
Ah, but why should we bother digging gold out of the ground when it's just going to sit in somebody's account? What a waste of time, and risk of life. As money, gold doesn't DO anything--it just sits there. Pieces of paper could do as well.
But if that were true, why aren't those pieces of paper doing as well? Why would we, even as a small minority, even consider using gold as money, if paper did the job as well? Ironically, a similar question is being entertained about paper money. Why bother making special, expensive, paper, and elaborately printing it with special inks and holograms, when blips in a computer can do as well? The answer lies in human nature. If you are giving your life, or at least forty hours of it weekly, for something, then it is satisfying, as well as just, that you get something. Some thing. Something you can hold and evaluate, weigh, and measure. If you had to perform certain tasks according to certain standards to get your money, isn't it reasonable that the money itself correspond to the standard for money, whatever that may be? Isn't it at least disconcerting that your life's work could be obliterated by a short circuit, or a bolt of lightening? Is this mere sentimentality, a refusal to accept progress? Then what of people who buy works of art for immense sums. They derive satisfaction from these artifacts, although they just sit--or hang--there. They don't "do anything." But their owners are pleased to have them, and no doubt part of their pleasure derives from knowing that their value will be maintained (if they chose well) regardless of what the currency does. Shouldn't the owners of money be entitled to the same satisfaction?
Consider the weights used by the pharmacist. If the prescription calls for 100 mgs of the drug, does he place on the balance a piece of paper marked "100 mgs?" Would that be the same size piece of paper he uses for 1000 mgs., except for the number written on it? Obviously, the weights and measures which keep our society operating efficiently are important, and necessarily precise. They don't do anything; or do they? So it should be with money. A certain job is worth a certain amount of gold.Your boss will check your work to see if it is satisfactory; you should be able to check your payment likewise. Of course, money needn't be gold. A complaint I frequently hear is "What's so special about gold?" Lots of things, actually, but whatever is used for money should be something: some thing. Otherwise, how do you know you've got it? Should you have to take the word of a stranger: "Yes, this check is good." Scary!
Finally, there is a political objection. "Lots of gold is found in Russia, or South Africa. Using gold as money would give these countries unwarranted power and influence over the rest of the world." Again, this question is never raised about fiat. Its creators most certainly have the whole world enmeshed in debt from which emergence is impossible, as they continue to collect the ever-growing interest. Moreover, they create the money they lend with the stroke of a pen. Russia and South Africa, however, cannot create gold, and if they want the good things of the more advanced societies, they will have to part with their gold to get them. What would be the point of living in primitive conditions, while sitting on tons of gold?
All in all, the defects of gold might well be considered its advantages!
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