12 February 2012

There's No Such Thing as 'Honest Money'

Guys,

You know what really gets my goat?  These gold and silver bugs who think that using precious metals would solve all our money problems.  Using so-called 'honest money' wouldn't prevent debauching of the currency; all it would to is change the WAY this is done.  We can look to the Roman Empire for instruction here.

Back in Roman times, copper was a precious metal.  The Roman money, the As, was made of copper.  As you know, due to their international adventurism and gov't largess, they ran short of money and couldn't pay all their bills; they ran deficits.  So what did they do?  They halved the amount of copper in the As, thus doubling the money supply-wow!  The same could be done with gold and silver.

Today's politicians could and would do the same thing.  If you had X amount of gold backing the money, all they'd have to do is change the AMOUNT of gold backing the money, thus emulating what the Romans did.  Then, we'd be in the same situation that we're in now-duh!  So, using precious metals (so-called 'honest money') or using them to back your currency won't prevent debauching of the currency; all it'll do is change the METHOD in which this is done.

At the end of the day, it doesn't matter what FORM of money we use, because it can all be corrupted somehow.  No, what matters is the INTEGRITY with which the money supply is administered.  Since we don't have leaders who even know what that word means (let alone practice it), any form of money we use would be debauched-even the purported 'honest money', gold and silver.

MarkyMark

24 comments:

Anonymous said...

That is exactly what they did. The Us government collected all the gold when it was $20 an ounce. Made it illegal to own gold in the us.

THen they DECLARED that gold was now worth $32 an ounce. Nice trick if you can do it. They litterally increased their honest money by 60% with an accounting trick.

The problem isnt the money itself. Its putting a government in charge of it.

Strange how bartering between two people always seems to leave both parties happier, but when the government mediates the exchange with "money" both parties seem to be worse off while the government gets richer for the exchange

Carnivore said...

Well, yes and no. It's true the government can devalue gold and silver based money. For example, after FDR confiscated gold, he devalued the dollar - even though the dollar was still backed by gold in international trade. Also,recall the Kennedy "silver" half dollar. When first released, in 1964, it was made up of 90% silver and one year later it was only 40% silver.

So, yes, the government can debase coinage based on precious metals. However, when Nixon took us off the gold standard on August 15, 1971, government spending really took off. It's easier to print money.

In the end, though, you may be right. The sheeple are pretty stupid. Most don't understand why there's a problem with the government just printing up the money it needs. Back in 1964 & 1965, there were some people who did not pick through their change to pull out the silver coins. They said "money is money". They got a surprise later, when the price of silver kept on going up and there were no silver coins in circulation because they were all picked out.

Southern Man said...

I find that most people don't have any understanding of what money is (whether fiat or commodity or how they differ) or how it works or even why we use it.

MarkyMark said...

Carnivore,

Having gold and silver either: 1) be your money in the form of coins; or 2) back your money in the form of a gold/silver standard does NOT prevent debasement of the money supply. All that changes is the METHOD by which the money supply is inflated. If you use gold and silver coin, then simply emulate the Romans; reduce the amount of metal in the coin. If you use gold and silver to back the money, then reduce the amount backing each bill out there. As I pointed out, all that happens is the METHOD of inflating the money supply changes; gold and silver in no way PREVENT it from happening. THAT was my point.

Carnivore

phoenix said...

Marky you're missing something here. Yes the government can change the silver content in the coins, just as Rome did, but that's not what the gold/silver bugs are talking about.

They're talking about owning the actual bullion. Unless the government confiscates it all again, which they can, they can't actually change the content of something you already own. If it's .9999 then that's what it's going to stay at. The price of gold/silver will still affect it.

The confiscation is the key. Can that happen again? I don't know, I think people are a bit smarter about it and hide it better. A lot of people use international vaults, and I think a lot of people would just leave the country.

Nothing is certain in this world, except that people are pretty greedy and governments tend to be manipulative and controlling.

Gold and Silver actually don't increase in value, it's that the dollar lowers, that's why the price in dollars go up. Greece is pretty smart and they're leaving the Euro because then they can default and print money like the US does, and how sovereign nations have constantly done throughout history. If you hold gold/silver you just wait for the new currency and then trade it in if you want, or directly barter it like many banks do even now.

Carnivore said...

@MarkyMark - yeah, you're right. I guess that's where some of the libertarians are coming from - they want to get the government out of the money business (which would require a change in the Constitution??) and let the free market decide what should be money or who/what bank or company mints it.

It's a problem as old as civilization and I don't think it's a problem that can be solved - in the long run. It seems to be a cycle through which every nation has gone, some sooner, some later.

MarkyMark said...

Carnivore,

As I stated in the OP, what matters is the INTEGRITY of those administering the money supply, whether they're gov't or non-gov't.

MarkyMark

MarkyMark said...

Phoenix,

I understand what you're saying about private parties using bullion, but how universal is that? Furthermore, how does one establish a standard of value, particularly when the parties are from different parts of the country? For example, $100K goes a lot farther in Memphis than it does in NYC or San Jose. What about carrying all that gold around? How practical is that? How safe is that?

MarkyMark

Anonymous said...

also did it with Pound Sterling which at one time was a Pound of Silver. Of course a Pound of Silver today will buy you much more than 1 British Pound.

phoenix said...

Marky: A troy ounce of gold is worth over $1700 now. A troy ounce is about the size of a silver dollar, maybe a bit bigger but essentially that's it. You can fit about 20 or so in a regular tube, and of course that's $34k right there. That is a tube you can stick in your pocket, a jacket pocket maybe.

Those gold bars you see at Fort Knox or on TV represent millions of dollars. $100k in gold wouldn't even fit a briefcase, at most it would be the size of a simple gift box.

I know a guy that held his gold from the 60s and just kept it under his bed. A year or so ago he cashed it out and it was worth millions. He had distrust for banks and such apparently.

A lot of people keep it in safes or they just keep it at home somewhere and just don't advertise that they have it. I have some silver that I keep under my bed or in a desk drawer. I don't have much, I just bought it for fun. An ounce is a really small amount. You can get them in official mints from several different nations or private mints with rounds, or in bar form. There are tests to check if they're actually pure.

As for setting prices, sure, if there wasn't a set spot price by another source people would determine prices. But that's the same for the USD, as you mentioned things cost more or less depending on where you are. But the USD still has value right? The same way these PMs would have value but it might go further in some areas than others, you'd still need it either way to get anywhere.

Now I'm not a gold/silver bug myself. As I mentioned I have a very tiny stash, I bought it for $200 years ago and I think it's worth about $500 now. I mostly collected some in coin form because I liked how they looked (especially the stuff out of the Perth mint).

But people that collect this stuff, and especially if they collected it years and years ago when it was really cheap comparatively, aren't really "wrong" for doing it. It's pretty safe and not a bad thing to do with some of your money.

Anonymous said...

Marky Mark has this exactly right. It ain't the system that matters, it's the people who run it. Martin Armstrong has made this point many times. He is one of the very few who has studied the history of money, banking and finance all the way back to the Assyrians thousands of years before Christ and his writing about it in some detail is extremely fascinating. You cannot help but sense that some things have never changed through thousands of years of history when it comes to financial mismanagement by those in charge. One of his favorite lines is something like "things don't change because the passions of man never change". In other words, follow the money as it really does not matter what the regime is, whether hard money or soft money, either can be mismanaged.

My take on this is that when the collapse happens, all trust in banking will be gone, absolutely gone and at that point, we may have the best chance ever to think about how to regulate money and banking in ways that do not allow governments and central banks to accrue power over and mismanage money. I believe first of all in the complete separation of bank and state. No more central banks and no more fractional reserve lending. How to implement that on a global scale, I don't know.

Anonymous said...

At the end of the day, it doesn't matter what FORM of money we use

Marky, when the US was on the gold standard the paper money wasn't backed 1:1 with gold, it was only backed by a % of gold. Gold coins were in circulation and had a par value that represented the price of gold when they were minted. If the price of gold were to increase then it would be wrth melting those coins rather than using then at par value but for some reason when gold is the standard this never seems to happen and the price of gold stays stable.The US also has large gold reserves and can sell some of it whenever the price of gold drifts upward to keep the coin values at par and prevent people from melting them.
Now it's true that using precious metals is not perfect but it's a lot better than a piece of paper with some ink on it. You ever see those pictures of Germany in the 20's where you'd need a cartload of paper money to buy some bread? Now, which would you rather have, the paper money or gold coins regardless of how debased the gold may be.Historically gold has always been better than paper.

Richard Ford said...

Actualy, the gold standard could increase governement control of the economy. Assume the dollar was backed by gold and so was the pound. The two governments could then set a steady exchange rate based upon gold parity. This would be good for trade but would mean that the government sets what the market sets now.

Anonymous said...

@12.41-you said they declared what the value of gold would be but this wasn't necessary. Since they had made gold illegal and had collected a mass of it all they had to do was hoard it to drive the price up to where they wanted it.

Anonymous said...

Marky @14.38-it's a lot easier to debase paper down to nothing than to do it to gold or any other valuable commodity. Nothing is perfect but I know that gold has always been worth something while paper and ink are unlimited.Gold actually has more value today due to its use in various industries while in ancient times it was just used for jewellery and decorations.In fact, I sometimes wonder what made it so valuable in the first place but know that every place on earth from the Egyptians to the Incas it was considered valuable.

Probably in demand by the aliens who visited earth who needed it for some scientific use and after they left the earth people always viewed it as valuable :o)

Anonymous said...

@10.32-a pound of silver today would be worth over $500. A pound note is $1.60. So the paper currency has been debased 99.9%. Even if you debased that pound of silver by 99% and filled it with lead it would still be worth $5. The same with gold.

Anonymous said...

Here's my own two cents: I'll first of all admit that I am something of gold and silver bug.

I think that 5000 years ago in ancient Egypt gold and silver were money, 2000 years ago gold and silver were money á la Judas and his 30 pieces of silver, 1000 years ago gold and silver were money in the dark ages of Europe and the golden age of Islam, 100 years ago gold and silver were money from NY to San Francisco, and if Uncle Sam ever gets knocked out, gold and silver will quickly become money again.

I would love to see any other commodity that has a 5000 year history of being accepted universally across all borders, languages and cultures for goods and services that can match the track record of gold and silver. Maybe after food and fresh water gold and silver come in a close second.

The main argument for going back to a gold/silver standard is that it would counter inflation.

For example: The Weimar Republic in 1923 took their currency off the gold standard, and let the printing presses run wild. For about a year things in Germany were cuckoo for cocoa puffs. It wasn't until a new currency was issued that was pegged to gold that things calmed back down.

I freely admit that governments can debase the money supply that is pegged to gold (ie: FDR), I would love to make it illegal for them to do that, sadly, that'll mean the government giving up some of its power, which they'll never do.

On a similar, kind of off-topic, note: There's also something of a psychological aspect of silver and gold. Take someone who has never seen a Morgan Dollar, or American Gold Eagle, or even a pre-1965 quarter, and put one in their hands. There's a change in them.

Holding something real in your hands has an affect on people. Its something you don't get with paper money.

Anonymous said...

@Anonymous 13:18

True enough about gold...my biggest concern though is that most people are so used to paper money that even if the currency did collapse, would they be willing to take gold instead of $?

I would be hard for most people to admit the country had fallen that far unless we literally have war in our streets.

Good write-up though, except one small historical nitpick - historians no longer consider there as having been a 'dark ages' in Europe.

Heck, even the 1929 Encyclopedia Britannica states: “[T]he contrast, once so fashionable, between the ages of darkness and the ages of light have no more truth in it than have the idealistic fancies which underlie attempts at mediaeval revivalism.”

Anonymous said...

For example, $100K goes a lot farther in Memphis than it does in NYC or San Jose.

Marky, that's not relevant because you can say the same about paper money.

And $100k in gold is only 2 kilos. Besides, you don't have to carry it around. It can be left in a vault at the bank tied to your checking account. for any larger purchase you just write a cheque and the person you gave it to can cash it or just leave the gold itself on deposit at his bank. For smaller everyday things we just use the coins whether silver or gold. And of course for smaller things or change you'd use nickel or copper. Up until 1982 the pennies were copper and zinc and today are worth 2.5 their face value if melted.

Marky, have you ever had any civil war paper money? Can you buy anything with it?

MarkyMark said...

Guys,

My point wasn't to say that gold and silver cannot be used for PRIVATE transactions. I have some gold and silver, and I plan on getting more.

My point was to say that using gold & silver on a wide scale won't stop fun & games with the money supply; that's all. I said that because years ago, there were guys on the radio (particularly shortwave) who said that, if we only used gold and silver, all our money problems would be gone; after all, it's "honest money". I was trying to point out that using gold & silver for our money supply wouldn't stop the shenanigans of debasing the money; all it'd do is change the METHOD by which it's done.

MarkyMark

Anonymous said...

It would be healthy to switch exclusively to gold.

If everyone was forced to carry heavy gold bars instead paper money and credit cards, then people might get in shape.

Besides that, it takes time to whittle enough gold shavings from a gold bar in order to pay for a box of Twinkies at the checkout counter.

"Are these Twinkies and tabloid women's magazines really worth the effort?"

Anonymous said...

Marky, of course anything can be debased and corrupted but it's a lot harder to do with gold than paper and a printing press. You can't fake gold. You can't substitute a bar of lead and pass it off as gold.
Diamonds may even be good to keep. No, I don't mean gem quality diamonds that females like on rings and only cost $3k a caret based on its looks and demand, but bulk industrial diamonds used in manufacturing.

Ping Jockey said...

Actually, on a worldwide basis the supply of diamonds is quite plentiful. That's why non-gem quality diamonds (the majority of the supply) are cheap enough to be used in industry for various uses in cutting and grinding tools of all sorts.

But the price of gem-quality diamonds is kept artifically high by various means which results in keeping the supply of gem-quality diamonds artifically low.
Because of monopolistic manipulation which includes buying up new sources of diamonds, keeping new stocks off the market, keeping out/bankrupting new and smaller diamond sellers (by various means) by the big diamond cartels -- primarily the DeBeers Syndicate -- the high carat price that exists is kept that way instead of following the normal market forces of supply and demand.

Incidentally, it was the DeBeers Syndicate in the 1930's which originated the "custom" of a man spending a month's pay (later increased to two months) to buy a diamond engagement ring.

Mirco Romanato said...

The advantage to use gold and silver (eventually, copper) as money is they are not "honest money" but "free market money".
In free market people could be not honest, but they will be punished by the market to do so. This is true for the governments too. And fiat money is only a tool of the government to confiscate wealth from the common people and give it to themselves or their cronies.

Free market money is coin or bar issued by different, competing, mints. Large and small. The value of any and all these coins will be tied to their content in gold, silver and the quality and trust every coin and mint have gained from the public.

In a competing market, the government mints could debase their coins, not all coins, not already issued coins. People will adapt to evaluate this.

They will price substandard coins with substandard prices. And other mints could buy these coin at substandard price, melt them and mint new purest coins with their name on. This is impossible with fiat money.

Melting and re-minting some coin is not something odd. In the past it happened all the time, when some coins were damaged, deformed, etc.

Take away the power to issued fiat money from the government and you take away a large part of their power. Without violence. Just refuse to use fiat money as much as you are able to do and they start to lose power over you.