Is Gold Money?… Don't Ask Ben Bernanke, Examine the Federal Reserve

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If you really care about your financial future, here's something you need to know.

It's about a story that received almost zero coverage from the mainstream press. I can't say that I am surprised.

It involves gold.

Thanks to requests by Bloomberg News under the Freedom of Information Act, the Federal Reserve has revealed unprecedented details concerning the personal holdings of its regional bank presidents.

What they found is nothing short of stunning …

Ben Bernanke on Gold

But let me back up a little.

There's an exchange between Fed Chairman Ben Bernanke and Congressmen Ron Paul you need to hear first.

During a monetary policy report delivered to Congress last summer, Congressman Ron Paul asked Bernanke if he thought gold is money.

After a clearly uncomfortable pause Ben said, "No. It's a precious metal." [By the way, if you haven't seen Ron Paul questioning Bernanke about gold, click here. It's already had over half a million views.]

Paul went on to ask Bernanke why it is then that central banks hold so much gold. Bernanke answered that it was simply a tradition.

Well, congrats Ben, you did get that one right, just for the wrong reasons. (Deep down, you surely know the true reasons).

The fact is gold has been a monetary tradition for millennia.

Nearly 2,000 years ago Aristotle laid out what characteristics make for good money. According to Aristotle:

  1. It must be durable.
  2. It must be portable.
  3. It must be divisible.
  4. It must be consistent.
  5. It must have intrinsic value.

So it's no accident that the most common basis for money – in all of human history – has been gold.

You might want to reread that: the most common basis for money – in all of human history – has been gold. It's no accident.

After all, only gold meets all five of those requirements for sound money.

It is only in the past century that fiat money has supplanted gold or gold-backed currencies on a worldwide basis.

What makes today's central bankers and their system of printing fiat currencies and setting interest rates so special? It is hubris and nothing more.

Fiat currencies are just a relatively recent, and failing, experiment in economics. So much so, it's become exceedingly dangerous to hold them of late.

Here's why.

It has to do with characteristic No. 5, that bit about having intrinsic value. That's the real thorn in today's U.S. currency.

What intrinsic value does a piece of paper, with some ink saying "Federal Reserve Note," truly have?

Not much, aside from being able to buy things with them.

Since 1913, the very year the Federal Reserve was created, the dollar has lost 95% of its value.

And it's getting worse…

Before the late 2008 financial fallout, the Fed's balance sheet had $800 billion in assets. Today, it has tripled to $3 trillion.

That's a lot more dollars sloshing around. How could things possibly not go up substantially in price when there is three times the number of dollars chasing nearly the same amount of goods and services?

And here's another question.

Why does a group of Fed Governors think they know what interest rates (the price of money, really) should be? Why not let the market determine the price of money, as it does with most everything else?

The cure for all of this is gold because it is real money. Always has been. Always will be.

Gold is De Facto Money

If you don't believe gold is already reasserting its traditional role as money, consider this.

Dr. Stephen Leeb, Chairman and CIO of Leeb Capital Management, recently said, "Gold is now the de facto reserve currency."

Purchasing Power of the Dollar

Last week, Reuters reported that Iran is looking to skirt U.S.-led financial sanctions by paying for wheat using gold as payment. American grains giant Cargill said sales could still be made to Iran, particularly if they paid with non-dollar currencies.

There are also reports that India is buying Iranian oil, and paying for it with gold.

All of this is happening at a time when as many as 13 U.S. states want to issue their own currencies in silver and gold.

In fact, North Carolina Republican Representative Glen Bradley introduced a currency bill last year.

Bradley said, "In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System … the State's governmental finances and private economy will be thrown into chaos."

What's more, Utah has already signed a bill into law recognizing U.S. mint-issued gold and silver coins as an acceptable form of payment.

The coins are treated like U.S. dollars for tax purposes and Utah State citizens can now contract to pay each other in gold if they so choose.

A Classic Case of "Do As I Do, Not As I Say"

But back to the breaking news about the Federal Reserve bank presidents.

Thanks to the recent disclosure by regional Fed bank chiefs, we now know how some have chosen to invest.

To call it "revealing" would be an understatement.

Among others, New York Fed President Dudley owned shares of insurer American International Group (NYSE: AIG) and General Electric Co. (NYSE: GE) while the Fed negotiated massive emergency funding bailouts for the insurance and finance giants.

Even more stunning are the holdings of Dallas Fed President Fisher, one of the richest of the 12. He's an alumnus of the financial industry, having worked as a banker, broker, and hedge fund manager, accumulating at least $21 million in the process.

Fisher's inflation-hedging assets include over 7,000 acres of farmland, and $50,000 each in platinum and uranium.

He also owns some of that stuff Bernanke doesn't think is real money. Fisher is practically a gold bug with $1 million invested in the SPDR's Gold Trust (NYSE: GLD).

Can you say conflict of interest? I rest my case.

Keep in mind that Fed decisions are made at secret meetings. The transcripts of those meetings are destroyed; a procedure that began in 1970, ironically the same year the Freedom-of-Information Act was passed.

What information about the economy, interest rates, employment, and so on, is so "sensitive" that the American people can't know?

Fisher's own "access to information" is not only privileged, it probably includes a little reading on Aristotle, too.

Look, these guys are not idiots. They just happen to think that we are.

So let's learn from Aristotle, and prove them wrong by investing in gold.

[Editor's Note: If you or anyone you know is thinking about silver, please read this. We've just released a report that exposes a massive scheme behind the price of silver.

What we found after six months of research will raise the hairs on the back of your neck.

It stems from a massive scheme that appears to involve traders... investment banks... and, as some suggest, even the federal government itself.

Right now, these factors are converging to push silver to a historic high. The last time something like this happened, silver shot up 195%.

Please go here to access our just-released report.

And please, if you know of anyone who has a strong interest in silver, please forward this to them. They'll want to know the details.]

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About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

Read full bio

  1. Robert Stone | February 13, 2012

    very good article. so now since they know that we know, what will they do with silver and gold… outlaw it probably.. so they can own all true wealth and us only paper. Kill the fed.

  2. Golden Girl | February 13, 2012

    Gold is money. Always has been , always will be. Am I a gold bug…you betcha! Just observe the interest in purchasing silver and gold coins on ebay. They can't keep up with the demand for portable pre decimal silver content coins…being sold by the kilo! In my opinion, spot gold has the possibility of dropping back down to the high $1500.XX's, and is currently at around the October 2011 physical delivery months closing price. IF, it does drop down to Decembers phyiscal delivery months closing price, I'll be buying more, (and more, and more), and consider myself a very lucky lady.

  3. Brian Panes | February 13, 2012

    Banks are committing fraud through fractional reserve banking. They are receiving interest on money produced out of thin air (money that does not exist). This would be impossible if we were on a true gold standard.

  4. Brian Panes | February 13, 2012

    No need to modify it.

  5. Jonathan | February 13, 2012

    If Fisher's portfolio is 21 million and he only has 1 million of it in gold, that means only 5% is invested in precious metal. Typical advice says you should hedge your portfolio with 10% in precious metals. I hardly call someone who has invested 5% of his portfolio in gold a "gold bug." I rest my case.

  6. David | February 13, 2012

    We(THE COMMON SCHMUCKS) are told to buy Gold and Silver and other precious metals !We see the quoted prices !Yes,but,the prices quoted are unavailable to us !AND, when we sell these items back,we can't get what we paid !This is catch-22 at work!No matter what we do,WE ARE SCREWED !Besides,IF we could get those precious metals at todays HA HA ,fair prices,how can we SAFELY store them? For God's sake Ben;shut off those printing presses before we revert to Feudalism;because I can see that coming,even 'tho I'm just a COMMON SCHMUCK! And while we are at it,let's stop accepting being pushed around by these new minorities as we did to the Indigenous peoples we found here?Isn't it strange how history repeats itself !

    • bill | February 13, 2012

      i realise your concern but dont let that deter you.if you buy gold at regular intervals you will create an average price paid. if you look ahead 1 or 2 years or so and look at the price you will need to pay you will soon realise that the current price levels are historically very cheap indeed.buy and keep your faith, for governments will not stop devaluating fiat currencies.

  7. Thomas G. Kroger | February 13, 2012

    This excellent, and timely piece clearly depicts what some of us have long suspected, and now know for a certainty. Fiat currencies are an intrinsic LIE, and every single one of them, without exception has failed. That is historic fact. Once republics become empires, the financial sector, which is analogous to a society's nervous system, copies the techniques adopted by goldsmiths, the world's first modern bankers, and begin issuing receipts exceeding the amounts of gold they hold in deposits. THAT was the historic origin of fractional reserve banking and fiat currencies, and the practice was protected by the King, because he understood his own need to have unlimited credit with which to wage war. It is that ugly, and simple, and the facts I've related here are simply economic history. So there you have it. If you want to be a victim, go ahead and believe what you are told about paper currencies being actual money. If, instead you want to take charge and have some say in your personal destiny in this life, own some life insurance in the form of gold and silver, that equally important secondary monetary metal. The choice is up to you. Best Wishes, TGK

  8. Ken Okko | February 13, 2012

    Keep in mind that Ron Paul equates to real money aka gold and silver. And ALLof his opponents
    are Establishment grade zealots who are pro the Federal Reserve and their counterfeit fiat fake funny money. Time to End The WarS, End The Foreign Aid, End the cheating on the money via The FED. Ron Paul 2012 Rand Paul 2016 We started out in 1776 honest and with small government and real money. Time to return to being honest and having a small government and real money aka Libertarianism IMO

  9. Ardbuckle2 | February 13, 2012

    To Dave go you to Bullion Vault and fill your boots !
    For a tiny monthly fee, they will look after it for you.
    There are others, Bullion Vault works for me !
    Now get going !
    Tom

  10. jrj90620 | February 13, 2012

    You can't have an honest govt that uses a dishonest, 100% fiat currency.Therefore,we have a dishonest govt.I believe dishonesty is rewarded with bad results and that's what is happening to this,once great country.Imagine if weights and measurements weren't fixed.What would happen if you bought a gallon of milk or gasoline and govt could change what a gallon was,at it's will?

  11. mark noeth | February 13, 2012

    To good men like Mr. Kroger, You are of course correct. However, there is more to the story other than the typical fear/greed cycle. The U.N.'s mission statement is to bring world peace. No surprise there. The U.N. has also stated that as long as wealthy nations have the financial means to conduct war they will continue to do so. As F.D. Roosevelt said, "In politics, nothing happens by accident, it is all planned." The goal of the financial system is to bring world peace. It is done gradually enough that it is imperceptible. Encouraging a "level playing field" does not mean raising the living standard of poor countries rather bringing down the wealthy nations to a level where people will be unable to defend themselves and thus conditions will have no alternative but to revert to this preplanned type of 'peace', albeit in the face of collapsed economies and all that that brings with it notwithstanding.

    So, all are tied together like mountain climbers. If one slips and falls the others can catch him and prevent his injury or death. So, Greece & Italy are tied to Germany. Can the slide be stopped? Heroics aside, it is mathematically impossible. It is only a matter of time. And the EU is tied to the IMF & World Bank. But those entities will not be doing any of the heavy lifting. So, just as Germany is expected to try to save the PIIGS so to the Federal Reserve will be expected to save the EU. They will 'try'. It will proceed, dare I say "according to plan". The proof of this is in front of us all. Bankers are buying farm land for themselves.

  12. Fred | February 13, 2012

    So are we all going to carry gold around in wheelbarrows to buy our groceries? Most people buying gold are just buying promises of gold on paper. When the sh!t hits the fan, do you think you will actually be able to collect your gold? This whole thing is stupid!

    • fallingman | February 13, 2012

      Not to be argumentative, but at $1,700 gold, you won't need a wheelbarrow. Only in a full blown currency meltdown will you need a wheelbarrow and that"ll be only if you want to buy using discredited paper.

      For gold, a pocket will do. In fact, you'll need to use one of those cute little 1/10 ounce coin that's about the size of the fingernail on your pinky unless you're buying one helluva lot of groceries. That'll get you roughly $170 worth. You'll have to careful not to lose it.

      Junk silver is great, because it gets around the divisibility issue. The chances of a (relatively short lived) currency crisis occurring where the Powerz declare a bank holiday and mete your savings out to you in little dribbles is very high. Junk silver coins will become a medium of exchange instantly in such a scenario. Gold coins will too, but gold will be more useful as a store of wealth than as a medium of exchange, because of the divisibility issue.

      You're right about the paper promises thing. People are crazy to trust the likes of HSBC, custodian of GLD, to make good on their promises.

      And what is the ultimate paper promise? The US Clownbuck.

      So, what's your plan Fred?

    • fallingman | February 13, 2012

      Not to be argumentative, but at $1,700 gold, you won't need a wheelbarrow, unless you're trying to buy using paper. For gold, a pocket will do. In fact, you'll need to use one of those cute little 1/10 ounce coin that's about the size of the fingernail on your pinky unless you're buying one helluva lot of groceries. That'll get you roughly $170 worth. You'll have to careful not to lose it.

      Junk silver is great, because it gets around the divisibility issue. The chances of their being a (relatively short lived) currency crisis where the Powerz declare a bank holiday and mete your money out to you in little dribbles is very high. Junk silver coins will become a medium of exchange instantly in such a scenario. Gold coins will too, but gold will be more useful as a store of wealth than as a medium of exchange, because of the divisibilty issue.

      You're right about the paper promises thing. People are crazy to trust the likes of HSBC, custodian of GLD, to make good on their promises.

  13. Anony Mole | February 13, 2012

    The Fed must go I agree. But the return to a gold standard seems to fall right into the trap bankers for ages have set for the likes of we the commoners. If anything is said of truth within the film "The Secret of Oz" http://www.youtube.com/watch?v=swkq2E8mswI then a gold back dollar is exactly what the bankers want.
    It has been my understanding that possession of gold and silver is a hedge against calamity. And in such times fiat currency would become worthless and the traditional currency would be required. Of course, if the collapse is deep enough, even gold and silver will be worthless, and only food, fuel and ammunition will be used for barter.
    So, which is it? Does Bill Still have a valid argument? It seem such. Or is the above article's argument more valid? That in lieu of the dollar we should trade with gold and silver?

  14. LeeRoy Spirit | February 13, 2012

    PORTABILITY is a major component of GOLD's value …
    Buying PHYSICAL GOLD and then letting somebody else "STORE" it for you
    is ABSOLUTELY INSANE !!

  15. Skeptical Debunker | February 13, 2012

    Aristotle WAS quite an "authority" on many things, quite a few of which have been sharply questioned if not proven wrong. Gold's "intrinsic value" is only "intrinsic" if there is something one wants to do with it primarily AS GOLD (manufacture, jewelry, etc.). That is what separates it from paper money. As money alone (a medium for exchange), it has no more intrinsic value than paper money. Indeed, its "intrinsic value" can (and has) fluctuated widely and even wildly. If it is food and water that one needs, and one has one, one has the other, and a third person has only gold, then see who trades what with whom!

    • IRA money | February 13, 2012

      Food decays and water evaporates, so the one with more food than he can eat before it spoils, trades some of it for enough water to satisfy his thirst and then both of them convert their extra (nondurable) food and water into gold (durable). So the guy with gold can buy as much food and water as he needs anytime he needs it.

    • fallingman | February 13, 2012

      You are correct about Aristotle being out to lunch on several things. Money ain't one of 'em, even if we can quibble about how he would define "intrinsic value" and I would probably mostly agree with you. Value is a subjective measure. He was an objectivist.

      That said, I would respectfully suggest you're missing the point in two major respects and one minor one.

      Minor: The intrinsic value of gold isn't so much in its usefulness, even though it is a remarkable element and extremely useful. The thing that keeps it from being used more often for practical application is, ironically, its price. People value it more highly for another purpose. Protection. Survival.

      1) Is it rational to look at gold as a survival tool and value it as a store of wealth? Well, maybe, on the surface, but history suggests it's a pretty good idea actually. Maybe people were crazy to put their faith in a lump of shiny metal that they couldn't eat or drink, but don't tell that to people who survived past currency and political crises by owning gold.

      And besides, this isn't fundamentally about reason. It's about psychology. Gold is worth holding as a hedge against chaos, because people get fearful and they have long turned to gold when they get scared. You can discount that urge if you like, but the phenomenon is real and recurring.

      2) Your example assumes a world without surplus and a world that is completely dysfunctional where all that is valued is food and water. What if the man with water has more than he can use and the woman with food has more than she can use and they'd each like to buy some shoes for the baby and a generator and a have somebody cut their hair, and buy gas and have somebody fix the toilet? Could they carry around food and water to make all their trades? Yeah, assuming the counterparties in question needed food and water, I suppose.

      But to the extent society functions at all, you need money…and, while there's nothing magical about gold, it just happens to fill the role Aristotle outlined for money better than anything else. Other things can function as money. They just don't function as well. That's why gold people have always turned to the metals.

      The real issue here is what not what is money and what isn't. That's been decided by successive generations for millennia. The real question is when does confidence in the funny money go poof?

    • fallingman | February 13, 2012

      To Skeptical Debunker:

      You are correct about Aristotle being out to lunch on several things. Money ain't one of 'em, even if we can quibble about how he would define "intrinsic value" and I would probably mostly agree with you. Value is a subjective measure.

      That said, I would respectfully suggest you're missing the point in two major respects and one minor one.

      Minor: The intrinsic value of gold isn't so much in its usefulness, even though it is a remarkable element and extremely useful. The thing that keeps it from being used more often for practical application is, ironically, its price. People value it more highly for another purpose. Protection. Survival.

      1) Is it rational to look at gold as a survival tool and value it as a store of wealth? Well, history suggests it's a pretty good idea actually. Maybe people were crazy to put their faith in a lump of shiny metal that they couldn't eat or drink, but don't tell that to people who survived past currency and political crises by owning gold.

      And besides, this isn't fundamentally about reason. It's about psychology. Gold is worth holding as a hedge against chaos, because people get fearful and they have long turned to gold when they get scared. You can discount that urge if you like, but the phenomenon is real and recurring.

      2) Your example assumes a world without surplus and a world that is completely dysfunctional where all that is valued is food and water. What if the man with water has more than he can use and the woman with food has more than she can use and they'd each like to get some shoes for the baby and a generator and have somebody cut their hair, and buy gas and have somebody fix the toilet? Could they carry around food and water to make all their trades? Yeah, assuming the counterparties in question needed food and water, but that's damn inconvenient.

      To the extent society functions at all, you need money…and, while there's nothing magical about gold, it just happens to fill the role Aristotle outlined for money better than anything else. Other things can function as money. They just don't function as well. That's why gold people have always turned to the metals.

      The real issue here is what not what is money and what isn't. That's been decided by successive generations for millennia. The real question is when does confidence in the funny money go poof?

    • Piet Hattingh | February 14, 2012

      Spot on, i cannot agree more.

  16. Mike | February 13, 2012

    If you are sitting on a pile of cash you stand the chance to lose it all if the fiat money system goes away. If you are personally buying or holding bars or coins it costs you a premium to buy or sell. But you will not lose it all. Gold and Silver are far past the rock bottom prices so your losses will be minimal depending on the spot price you buy at. Then again, if we go to a full on digital monetary system, which is a real possibility, who knows what we will have if anything at all. Maybe we will all be driving to Canada to sell our gold and silver.

    Storing it? In my opinion, ye a damn fool if you store it outside of your own physical possession. Buy a safe! Just make sure it cannot be stolen easily. There are hundreds to choose from. Hide it in the basement. Bury it in the back yard. And most importantly, don't tell anyone you have it! If all you have is a piece of paper saying you own gold or silver held by someone esle, you are holding fiat money so you might as well keep your paper money.

  17. Martin | February 13, 2012

    Aristotle couldn't easily have said anything "nearly 2,000 years ago" because he died 2,322 years ago. I agree with Skeptikal Debunker, gold's value is as "intrinsic" as anything else and its price often twists again [doo doo], like it did last summer. I also believe that the US Dollar will retain its safe haven status for a few more years at least. Otherwise why did gold peak against the dollar 5 months ago? It must be because so very many huge outstanding debts and IOUs around the world need repaying…in Dollars. So people need to SELL their gold to pay up!

  18. Bob | February 13, 2012

    Gold is the most useless metal going. As King Midas found out. At least paper can be used to keep one's backside clean. So why do we value gold so highly? Because it is shiny, because it is scarce and therefore women like it to show to other women pwerful is their mate when he gives them gold. All to do with the repilication of DNA and nothing to do with Aristotle.

  19. fallingman | February 13, 2012

    You are correct about Aristotle being out to lunch on several things. Money ain't one of 'em, even if we can quibble about how he would define "intrinsic value," and I would probably mostly agree with you. Value is a subjective measure. Aristotle was an objectivist.

    That said, I would respectfully suggest you're missing the point in two major respects and one minor one.

    Minor: The intrinsic value of gold isn't so much in its usefulness, even though it is a remarkable element and extremely useful. ironically, the thing that keeps it from being used more often for practical application is its price. People value it more highly for another purpose. Protection. Survival.

    1) Is it rational to look at gold as a survival tool and value it as a store of wealth? Well, history suggests it's a pretty good idea actually. Maybe people were crazy to put their faith in a lump of shiny metal that they couldn't eat or drink, but don't tell that to people who survived past currency and political crises by owning gold.

    And besides, this isn't fundamentally about reason. It's about psychology. Gold is worth holding as a hedge against chaos, because people get fearful and they have long turned to gold when they get scared. You can discount that urge if you like, but the phenomenon is real and recurring.

    2) Your example assumes a world without surplus and a world that is completely dysfunctional where all that is valued is food and water. What if the man with water has more than he can use and the woman with food has more than she can use and they'd each like to buy some shoes for the baby and a generator and have somebody cut their hair, and buy gas and have somebody fix the toilet? Could they carry around food and water to make all their trades? Yeah, assuming the counterparties in question needed food and water. But it's damn inconvenient.

    To the extent society functions at all, you need money…and, while there's nothing magical about gold, it just happens to fill the role Aristotle outlined for money better than anything else. Other things can function as money. They just don't function as well. That's why gold people have always turned to the metals.

    The real issue here is what not what is money and what isn't. That's been decided by successive generations for millennia. The real question is when does confidence in the funny money go poof?

  20. John Mooradian | February 14, 2012

    This quote from the above article is incredibly false:

    "Fiat currencies are just a relatively recent, and failing, experiment in economics. So much so, it's become exceedingly dangerous to hold them of late."

    They are not recent and they did not all fail. Monetary historian Bill Still covers that in his two amazing documentaries, The Money masters and The Secret of Oz. He also dispels the myth that money needs to have intrinsic value and argues that the problem with our money system is that 1) it's based on our money coming into the system as a loan 2) it's based on commercial bank creation of 90% of our money with the interest of making profit 3) our money supply is controlled by an essentially private profit seeking group.

    Simply saying the Fed has eroded the value of our currency and therefore we need a currency that is of intrinsic value doesn't mean the economy will function greatly after such a change is made. It didn't do so in William Jennings Bryan's time and it wouldn't now as the major players controlling the central bank now would simply manipulate the supply of gold in the market in a downward fashion when gold was the currency and cause a severe depression as they did in Bryan's time.

    I can give you two examples right now of fiat currencies with no intrinsic value that worked well until they were super-ceded. Colonial Scrip in Ben Franklin's time and Tally sticks in England used for 726 years!

    No, fiat currencies are neither recent nor are they all failing. However, the Federal Reserve System is a corrupt system whereby the Fed and the banks issue our money as a debt and then collect interest on the issued currency. The current banking system creates money out of nothing and then loans it out at interest, a totally crazy concept and evil scheme. Contrast that against Lincoln printing Greenbacks to win the Civil War and tell me those are equivalent systems. In the black and white world where money has to be gold or nothing, one would equate Greenbacks with the Federal Reserve Note, yet the former enslaves mankind while the creation of the currency by the government in order to spend into the economy debt-free is completely in the public interest.

    I think a major retraction is in order here.

  21. Noel Falconer | February 14, 2012

    Right. This is the reason governments, including America's, will confiscate gold and all its analogues – gold funds, silver, precious metals – much as US President F D Roosevelt did in 1933. You need to be a LOT smarter to beat the thieving scumbags who infest Washington, London and every capital.

  22. Skeptical Debunker | February 14, 2012

    The point is that gold as money is just another medium of exchange. One could pick other items that are just as shiny (diamonds) and maybe as rare or hard to find (platinum), and maybe some more useful in and of themselves (titanium). One could posit printed money made of carbon nanotubes – stronger than steel and just as or more durable than gold (and maybe when oragami woven just as pretty as jewelry … given the whims of fashion of course). Thus, the "value" of gold is merely due to the agreement among those using it as a medium of the exchange – their agreement that its has some value for use in exchange, that that value can stand as a proxy for the value of things one really needs (like food and water).

    As for the surplus of food and water, some large majority of the world lacks that already (and it is getting worse every day). Food is perishable and water contaminable to be sure; but you can't eat or drink gold. You will surely (and relatively quickly) die without food and water; but will unlikely lose a day off of your life without gold. This highlights the fact that gold's value is not "intrinsic" in the grand and most important scheme of things (health, life and death in fact). It just has whatever value we ascribe to it as a medium of exchange, which went from under $100 to almost $700 and then back to around $300 over a 15 year period starting around 1970 (intrinsic value NO; speculative value / relative value as a medium of exchange YES).

    And by the way, it was Richard Nixon who finally and completely took the USA off the gold standard (the USA was originally on a silver standard!); a "suspension" of metal bases for money was fairly world wide during the great wars and depression. And the "gold standard" is relatively new though gold was one of the metals sometimes used in coinage / exchange from antiquity (silver and other mixtures of metal were used more often because they were easier to replace when lost / worn and were actually more durable as coins than gold). From http://en.wikipedia.org/wiki/Gold_standard – "only in 1821, following the introduction of the gold sovereign coin by the new Royal Mint at Tower Hill in the year 1816, was the United Kingdom formally put on a gold specie standard, the first of the great industrial powers."

    That Wikipedia article from which that quote comes has a good review of the pros and cons of a gold standard. One of the cons is "The total amount of gold that has ever been mined has been estimated at around 142,000 metric tons and arguments have been made that this amount is too small to serve as a monetary base." Basically, this means that as the economy grows (more people working and producing more and better goods and services, and/or higher rates of productivity) and so the amount of wealth / value grows, the amount of gold for reserves would have to grow to reflect that / be a basis of the increased wealth and value. And if it can't due to availability / scarcity, then something "artificial" would have to occur – a la "printing money" or revaluing gold (diluting it with other metals say, or making ever smaller and smaller amounts of it mediums of exchange having the same "value" as previously large amounts of it did) … again highlighting gold's "value" as one merely based on an agreement for exchange and a proxy for the value of other goods and services rather than as something "intrinsic".

    • fallingman | February 15, 2012

      Just a couple of comments.

      You're right. Other things can be money, as I said above. Gold and silver just work better than other things for the reasons Aristotle detailed. Prisoners and soldiers have used cigarettes. Whatever works.

      You misunderstood my point re: surplus. I was strictly talking about one person's surplus available in trade for another's surplus. Was not a comment on the general scarcity of food or water. Without money, a person with a surplus…beyond their own needs…of some good isn't able to trade very conveniently with others who have surpluses that don't match up with those of the first person. Person A has water and food. Person B has water and food, but one needs shoes and the other gasoline, what do they do? Barter is a pain. That's why any descent into a barter economy, while almost sure to happen, won't last long.

      You can too eat gold, but it has a metallic taste and at roughly $27,000 a pound, it's pretty expensive and not all that satisfying. I'd recommend trading it for something of "instrinsic" value, like, say, food. Money is useful that way.

      I don't favor a state sponsored gold standard or a state sponsored money…period. I believe people should be free to use whatever money they like, but the idea that there isn't enough gold to back the paper currency is just laughable propaganda. As Jim Rickards likes to say, it's 8th grad math…simple division. You have a certain amount of paper currency outstanding. Divide that by the number of ounces outstanding and you arrive at a price per oz…or a weight of gold per dollar…however you want to look at it.

      The first number will be very large and the second very small. It's what makes the metals such good investments/hedges, as well as good choices to hold as money, as they will be revalued much much higher. It's good when they revalue your money higher.

  23. TrueWealthSociety | February 15, 2012

    Good article. It's very apparent one should hedge against the falling dollar and what better way that gold and lets not forget silver which has just as attractive gains. The thing we see quite a bit is there is more talk about buying PM's than people are actually doing.

    I don't believe however there will be a gold confiscation re-enacted but who knows. I wouldn't NOT buy just because of this belief.

  24. John Mooradian | February 15, 2012

    Good response Skeptical Debunker.

    I think gold could theoretically work for a few reasons but practically it would be a disaster because the biggest players could contract the supply and cause turbulence in the economy.

    Theoretically, if we had true free market enterprise and gold as money, we could use very small denominations – perhaps the smallest with a small melt down value of gold within a composite ranging upward to the large bars for wealth storage. In free markets, with a relatively constant supply of gold money prices will fall over time due to technological innovation, competition and the pricing mechanism which allows for greater overall profits as prices fall so that more participants can afford the products or services. In this schematic, large increases in the quantity of money are unnecessary because the money simply buys more so that a smaller quantity is needed to facilitate trade.

    People who push the gold standard as I once did and have good intentions do so because of their fear of manipulation of the currency on the side of increasing its supply because they know of the destructive nature of inflation. What they fail to recognize is that manipulation on the contraction side is just as problematic and real. That's where the problem with gold lies – it will be prone to manipulation by contraction of its supply and cause recessions and depressions whereby the big boys can then gobble up assets for cheap.

    That's why William Jennings Bryan fought to have silver money restored to the people and said "If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold."

    Do the authors of these articles respond to questions on their writing?

    Mr. Krauth states that: "Fiat currencies are just a relatively recent, and failing, experiment in economics. So much so, it's become exceedingly dangerous to hold them of late."

    This is totally false as I pointed out in an earlier response. Also, silver has been used much more as money than gold and it meets Aristotle's 5 prerequisites so why does he not tout silver as well…if he wants a metal standard why not gold and silver – why just gold? Any accountability on these questions Mr. Krauth?

    In case he doesn't answer, William Jennings Bryan already answered for him – Gold historically favors the elites and silver favored the common man. The problem we now have is that silver supplies are in a major contraction…so Bill Still probably has it right – government issued debt free paper currency with no fractional reserve lending capacity in the banking system. Issuance controlled directly by the congress who are in turn answerable to the people every two years. Abolish the government's ability to borrow. It's the American people's responsibility to hold the elected representatives accountable for moderate growth in the money supply or face the consequences of inflation. Simple as that – no dishing the money issuance responsibility off to a third party and pretending it's not their fault – direct responsibility for the money issuance and if they go overboard, fire them at each election cycle. And even if the do go overboard, we'll only be fighting against inflation rather than fighting against debt principal, debt interest and inflation.

  25. Eileen | February 20, 2014

    Aristotle taught in the 4th century BC, so this is MORE than 2,000 years ago, not "nearly" 2,000 years ago.

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