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
money.

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
computers.

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.

Scarcity does play a role in prices of goods and services, but it is only one factor; there are many other factors in price.

What is provable is that the scarcity of gold provided an
opportunity for fraud that has become modern banking custom and
practice.

Exactly how the fraud started is not matters of facts, but that it started is not in question.

Legend with perhaps more than a little truth in it has been related many times, including testimony.(5)

In brief, goldsmiths built vaults to secure their gold which was
used in artifact manufacture and lending. The security of the vault
attracted others who deposited their gold with the goldsmith for safe
keeping. The goldsmith noticed that depositors never claimed all their
gold at once. This provided him the opportunity to lend their gold at interest for his profit.

The custom developed that depositors would write notes which could
be redeemed by the goldsmith to pay their bills. Eventually, the
security of the goldsmith’s vault and convenience of the notes induced
more and more people to leave gold with the goldsmith and pay their
bills with notes.

The common use of notes provided the goldsmith with the opportunity
to write notes for making loans. In fact, it enabled him to write notes
for more gold than there was gold in his vault. He created money!

Eventually, it was found that as much as ten times the value of gold in
the vault could be circulated as notes. He only needed enough gold in
“reserves” to redeem the few notes that were presented for redemption.

This fraudulent practice has become modern banking custom and practice. Today, it is called reserve banking.(6)
Of course, gold is not presently used as reserves; banks just create
money out of nothing without any pretense of gold reserves.

Gold advocates lament that money is no longer “redeemable.” This is
doublespeak that is tantamount to a lie. Since the initiation of the
goldsmith’s trick in banking, bank notes or “paper money” have never
been fully redeemable in gold money. It must also be remembered most
money created by banks by checks and deposit entry was never printed as
banknotes. While deposit money, Federal Reserve Bank Notes, and U. S.
coins cannot be exchanged for any form of gold money at the U. S.
Treasury or Federal Reserve Banks, anyone is free to spend as much
current money purchasing gold as they please; and the gold can be sold
for current money. Furthermore, current money is exchangeable, fully
redeemable, for all necessary and desirable goods and services which is
the only real purpose gold money could serve. Satisfaction of superstitious beliefs and greed of investors are not considered real purposes.

The growth of national and world economies has rendered even the
gold “backing” pretense of using gold as money absurd, but the greedy
wishful thinking is that gold will be re-monetized at some astronomical
price that will provide a windfall to gold investors. It is more likely
that gold will be confiscated, as happened in the United States in
1933, before central banks attempt to re-monetize gold.

Attempts to re-monetize gold in the early 20th Century were
accompanied by disaster in national economies and were quickly
abandoned.

The Gold (un)Standard

“… the disastrous inefficiency
which the international gold standard has worked since its restoration
five years ago (fulfilling the worst fears and gloomiest
prognostications of its opponents) and the economic losses, second only
to those of a great war, which it has brought upon the world…”–J. M. (7)

What is generally referred to as “the gold standard” is a set of
variable monetary and economic goals that involve manipulation of
currency, balance of trade, internal commerce, and prices by use of
variable gold policies. Different countries have tried different gold
policies depending upon the desired goal. Whether it was to achieve
balance of international trade, stable currency, stable internal
commerce, or stable prices determined the policy. Balancing
international trade may, and usually does, interfere with internal
commerce. Stable prices may require juggling currency. Different
countries with different goals pursuing different policies may
conflict. What is called “the” gold standard is not a unique and well
defined system.

There is a common conception of “the” gold standard that ties the
value of the currency unit to a legally determined amount of gold. It
is believed that such a policy would stabilize currency. It may be
possible to stabilize currency using gold in monetary policy decisions
but with disastrous other results.

For example, five methods used to manage a gold standard by the Bank of England from 1925 to 1931 8)

i. The bank rate.
ii. Open market operations (that is purchase and sale of securities)
undertaken to influence the amount of reserves of the commercial banks,
and their power of creating bankers’ money.

iii. Open market operations, undertaken to influence the London Money Market.
iv. Gold exchange methods—dealings in foreign exchanges and in forward
exchange, and variations in the price of gold within the narrow limits
permitted.
v. Personal influence or advice—such as the so-called embargo on foreign loans.

Anyone familiar with Federal Reserve operations will note amazing
similarity. Just as the present Federal Reserve Open Market Committee
engages in a variety of open market transactions to control the dollar,
the Bank of England tried to manage the pound ostensibly based on gold.
The results also have an amazing similarity to the Federal Reserve’s
policies, particularly the “soft landing” announced by Alan Greenspan
that was the 1990 recession.

… the operations of currency management conferred upon the
Bank of England the power to restrict credit, to postpone new
enterprises, to lessen the demand for constructional materials, and
other capital goods, to create unemployment, to diminish the demand for
consumable goods, to cause difficulty in renewing loans, to confront
manufacturers with the prospect of falling prices, to force dealers to
press their goods on a weak market, and to cause a decline in general
prices on the home market. In brief, the stability of the international
exchanges was accomplished by a process which deliberately caused
universal depression in industry, created unemployment, and forced
manufacturers to produce, and merchants to sell, at a .(9)

The operations of the Bank of England under the administration of
Montagu Norman critiqued above is a classical example of what happens
when monetary policy is carried out in the abstract. Human needs and
human suffering be damned, trade will be balanced to control the
outflow of gold or silver or inflation will be controlled to maintain
prices regardless of how it affects employment, hunger, or any other
form of human stress.

The errant buzz-word of monetary policy administered by Federal
Reserve gurus personified by Alan Greenspan is inflation. Low
unemployment motivates the gurus to “slow down an overheating economy.”
In other words, needful humans must be made to suffer to accomplish
abstract monetary goals.

The above critique of Bank of England policies exposes, more than
anything else, the fallacious thinking that gold will automatically
regulate currency and prices. Not only the above critiqued policies,
but also, other history confirms the fallacies.

One extreme anecdote from Roman history is the case of a man who had
his own image placed on a gold nugget which he presented to a lover. So
extreme were Roman concerns with controlling money that it was a death
penalty offense under Roman law at that time to affix any image on gold
except for official purposes. The law-breaker was executed.

This Roman anecdote is an example of two things: 1. An absurd,
extreme policy used in an attempt to make an inherently unstable
commodity suitable for monetary use by legal means. 2. The arrogant
stupidity of legal absolutism.

Some factions of gold advocates argue that attempted regulation is
the problem and that “market forces” should be allowed to follow their
course with gold. Aside from the obvious superstitious belief in a
fiction in support of a belief, histories of fraud, manipulation,
monopolization, gambling, and speculation of (10)
left to market forces should overcome the tunnel-vision and doublethink
of such an argument as market forces should determine the value of
common currency while believing the implausible, self-defeating belief
that gold left to speculation and monopolization will, by magic, lend
stability to currency in the same market.

One of the sophistries used by gold money advocates is the non sequitur. Byzantium has been offered as an example of how a culture or empire was stabilized by a stable gold .(11)
In the first place, stable Byzantium can be dismissed with the
question: Where is Byzantium now? In the second place, the longevity of
Byzantium was not extraordinary for its day. Nor did Byzantium ever
achieve extraordinary wealth. The Italian city states built on bankers’
credit lasted longer and achieved more .(12)
Byzantium existed during the “dark ages” of Europe as a near
singularity in the Euro-Asian area. It was founded in autocratic
theocracy. The annual trade of Byzantium was less than a week of world
trade today, perhaps less than a day’s trade. Byzantium’s relatively
stable coinage was a function of its relatively stable society
maintained by a severe autocracy. Its relatively stable society was not a function of its coinage; its relatively stable coinage was a function of its relatively stable society.

After the ascendancy of the Italian city states, it could just as
well be argued that Byzantium failed to achieve great wealth and
eventually succumbed because of the superiority of credit money or
Byzantium’s stupid, limiting, and inflexible reliance on gold coinage,
but that is not the argument presented here. The argument here is that
money is a function of culture, not culture is a function of money
although selective facts may make it appear so. Certainly, the
pathological kleptomania and greed of Capitalism make it seem U. S.
culture is a function of money.

The coup de grace of gold standard is that a gold standard
applied in recent centuries has not altered the custom and practice of
bank issued debt-money. Bankers, such as Alan Greenspan who has
advocated a return to a gold standard, are well aware that gold
standard is not only no threat to their power and ability to create
money out of nothing; but also, it enhances their confiscatory power
and control over both the public and private economy. It helps banks
realize their superstitious mantra that money derives its value from scarcity. The more scarce the more value, i.e., the more interest banks can charge for the money they create out of nothing.

Ordinary gold standard advocates are either ignorant or disingenuous
about bank created money. They usually blame government for the abuses
of credit money, but it is banks that create money nearly exclusively.
Paranoid, near hysterical arguments such as inflation is caused by
“governments printing too much money” are absurd when it is banks that
create money. What a silly argument it is to say governments print too
much money when, for example, the U. S. government has borrowed more
than $5 trillion from banks and other investors in government
securities! Every cent of it originally issued by banks! But just as
any paranoiac can have real enemies, there is plenty of blame to lay on
government. It is government that has given the power to create money
to (13)
then relies on borrowing money from banks and private investors at the
additional expense of interest when taxes are inadequate to meet
expenses.

A Federal Reserve bankers’ dogma is that monetary policy must be
separated from politics because politicians can’t be trusted with it.
This dogma has some truth in it; but like any half truth, it obscures a
lie. Monetary policy can never be separated from politics, and
bankers would loose their golden goose if the government excercised its
Constitutional power to issue its own money.

Ostensibly, the people have the power to control politicians with
the political process. People have no power to control bankers for whom
they cannot vote and do not know.

Criticism of bank created money and (14) it is done is left to other vehicles. This discussion is about the fallacies of gold money arguments.

Conclusion

What is usually referred to as “the” gold standard or gold backed
money is an intellectual and financial fraud. Under gold standard
policies, Central banks wrote checks creating money to buy gold to use
as reserves, just as Federal Reserve Banks create deposits to buy U. S.
Treasury securities, now. A gold standard does not prevent commercial banks from creating money on the basis of fictional reserves
and lending it at interest. What has passed as a gold standard in the
last few centuries is not theoretically or functionally different than
the present bank created credit/debt money system. In both cases, banks
create and issue money as debt. Both systems are often properly labeled
debt-money systems. Money is nearly exclusively issued by banks as debt
at interest in both systems.

A plausible argument can be made that if banks were required to
maintain an invariable level of gold reserves, it would limit how much
money they could create. It would, but it would also limit how an
economy functions as in the disastrous British case cited above.

The Federal Reserve Act
was passed in 1913 establishing the Federal Reserve System as the U. S.
Central bank. It required 40% gold reserves behind issuance of Federal
Reserve Notes. World War I soon followed. It would have been impossible
for the United States to finance it’s participation in that war with
Federal Reserve Banks and commercial banks required to maintain 40%
gold reserves. (The argument that it may have forced the U. S. to stay
out of the war had the reserve requirement been maintained is
irrelevant; the U. S. participated in the war.) Reserve requirements
were lowered, and the war was financed with debt-money created by banks.

The first central bank of the U. S. was charted in 1791, and the Coinage Act of 1792
which limited coinage to the haphazard appearance of gold and silver
owners at the mint forced seekers of money to use bank credit or debt
financing. It is a speculation whether the two cited acts were intended
to force money seekers into banks. The central bank has been attributed
to the efforts of Alexander Hamilton. There is no doubt of Hamilton’s
banking connections.

The United States has become the most powerful nation ever in
history. It did so mostly on bank credit; nearly exclusively so in the
20th Century.

Winning two world wars, once having the highest now reputed third or
fourth average standard of living in the world, and development of
spectacular technology including space exploration were all
accomplished under bankers’ debt-money schemes, but this is not a
defense of bankers’ debt-money. It must be repeated that criticism of
bankers’ debt-money is found elsewhere. This is to suggest that the U.
S. could not have developed as it did under the restrictions that a
gold money system would have imposed.

A credit money system operated for the purpose of serving human
needs instead of serving the profit interests of bankers could educate
everyone to any desired level, provide medical care for all, end
poverty, and finance any socially acceptable and physically possible activity.

The substance of money used for counters whether lumps of yellow metal or computer bytes is unimportant, per se. What is important is monetary policy.
Good or bad policy can be made with credit money that makes good or bad
results. It is hardly possible to have a good policy under the
restrictions and inflexibility that a one hundred percent gold money
system would impose. Gold “backing” known as fractional reserves has
already been revealed as a banking fraud that differs from the present
bankers’ debt-money system in cosmetics only.

If there is anything that can be classified as a public utility, it
is money. Yet, the supposedly democratic U. S. Government has seen fit
to endow a select group of greedy bankers with all the power of issuing
and regulating the money supply for their own profit. The banking
system that issues money as debt holds the government and people
hostage to the system. Until the power to issue money is taken from the
hands of greedy corporate profiteers, megalomaniac kings, and
plundering politicians, there is little hope for a socially kind and
peaceful society or a safe and sustainable environment.

The science of how to do it is well known.

They [bankers] viewed national interests from
the windows of the bank parlour. From their point of view, industry,
commerce, agriculture, wages, employment, were but counters in the
skilled game of international finance. They must be regulated to fit in
with the monetary scheme. The monetary scheme must not be regulated to
fit in with the needs and necessities of the (15)

Whose interests are served by “the monetary scheme”?

Until the “cart before the horse” philosophy of financiers revealed
in the above quote is righted, no monetary system will serve public
interests. A gold monetary system will be just

FOOLS’ GOLD!

---

Notes:

. See Theoretical Essay on the Nature of Money for a fuller explication of value.return

. Contrary to popular opinion, the
“U.S.” dollar in the form of bank notes and commercial bank credit is
not issued by the United States Government. It is issued by Federal
Reserve Banks and commercial banks mostly in the form of deposits or
numbers in deposit accounts. return

. Article I, Section 8, clause 5. return

. An Act establishing a Mint and regulating the Coins of the United States, April 2, 1792, specified 24.75 grains of pure gold and 27 grains of standard alloy per dollar. return

. Robert Hemphill, credit manager in
the Federal Reserve Bank of Atlanta, before the Committee on Banking
and Currency, House of Representatives, March 22, 1935, re Banking Act
of 1935. return

. See Modern Money Mechanics,
published by the Federal Reserve Bank of Chicago for a detailed
explanation of how the central bank creates reserves and regulates the
money supply and commercial banks create money by fractional reserve
lending. return

. Quoted by Sir Charles Morgan-Webb in The Money Revolution. return

. Ibid. return

. Ibid. return

. See “The Tulipomania” chapter of Extraordinary Popular Delusions and the Madness of Crowds
for a charming example of kleptomania, gambling, and greed in an
unregulated market. Of course, a free market in tulips is one thing; a
free market in common currency is another. The whole book is an
entertaining read of collective “delusions” and “madnesses.” return

. See The War on Gold by Antony C. Sutton. return

. See An Inquiry into the Permanent Causes of the Decline and Fall of Powerful and Wealthy Nations by William Playfair. return

. See The Federal Reserve Act in the United States Statutes at Large and Title 12 USC for complete texts of current banking law. return

. For how, see Modern Money Mechanics published by Federal Reserve Bank of Chicago. return

. The Money Revolution by Sir Charles Morgan-Webb.
return