Civilization must involve more than one person. Indeed, the greater number of people and the diversity of what they each do and produce determines of the “level” of civilization by virtually anybody’s standards. Money is what enables people to cooperate by doing and making many things for each other. Practically all civilizations over human history have gradually and spontaneously agreed upon gold to be money.
A Short History of Money
If an enormous chest of money washed up on his desert island, it is obvious that it would have been useless to Robinson Crusoe, even after he had met Friday. Those two eventually decided to exchange goods and services with each other; the alternative being that they each would have had to do everything for themselves. Both parties engaging in voluntary exchange do so because they both expect to benefit from it. This is because each party values the goods or services differently, a point lost on many people, notably Adam Smith and Karl Marx. Value is subjective and depends on each person’s unique tastes and circumstances; a person dying of thirst in the desert might trade all his possessions for water, but would only pay a dollar for a bottle of French spring water in New York. As a result of their exchange, Friday and Crusoe are better off than they were before, but they didn’t need money to do it; they bartered.
But barter or direct exchange doesn’t allow people to cooperate above a very primitive level. This is largely because of “indivisibility” and a “lack of coincidence of wants”(1). If a furniture maker wants to exchange a table for milk and a shirt, how does he divide the table to pay the farmer and the tailor? What if a music teacher wanted eggs, but couldn’t find a chicken farmer interested in music? The music teacher would have to find out what the chicken farmer did want and then find somebody with this good who wanted music lessons, and through exchange obtain it to trade for eggs. This is called indirect trade, a quite cumbersome affair. Gradually some goods, as a result of their higher utility or beauty, are valued by enough people that they become mediums of exchange, or money. These more marketable items have ranged from feathers in pre-Columbian Mexico, cigarettes in prisons, seashells and fishhooks in fishermen’s villages and even, horrifically, potato peelings in Nazi concentration camps. Eventually the rarest, most desired, storable and divisible goods displace all others as mediums of exchange. Over history, gold has been elected spontaneously by humankind as the most universally valued good in the world. This is because gold is unique and highly sought after. Gold can be stored for future exchange, is indestructible, doesn’t tarnish, conducts better than most other metals, is the only naturally occurring yellow-colored metal, highly malleable and divisible, extremely rare (out of 92 naturally occurring elements, gold is the 73rd most common), resistant to bacteria, and is non-allergenic to the human skin against which it can be breathtaking. No wonder humankind values it so much.
The Money Monopoly
Throughout history, governments have often tried to monopolize money by making all forms of money, except what the state mints, illegal. For those who represent the government, controlling money means that you have the power to make as much as you want for your own purposes. Consequently, at all times, people possessing that power have abused it. The rulers of the Roman Empire made more gold coins by clipping bits off the edges and adding copper. The nation state of today insists that the bits of paper it prints are legal tender, all the while frantically printing more of them. Lyndon B. Johnson printed money to fight a war in Vietnam and a war on poverty, creating yet another welfare-warfare state not unlike that of the Romans, which doled out free bread and bloodthirsty entertainment while simultaneously engaging in expensive military actions. As we know, their empire collapsed under the weight of this monetary decadence and the raiding peoples who took advantage of it.
But making more money comes with a heavy cost: with more money, the proverbial pie is bigger and the slice in your bank account is smaller. This means that prices go up which is called inflation. People aren’t stupid, they gauge very quickly that there is more money in the same world with the same amount of people and the goods and services. The people who get the new money first obviously profit the most as everyone else hasn’t yet recognized the change. These people are inevitably the closest to those printing the new money. In this way, state monetary policy finances deficits, fixes elections, wages war, rewards special interests, and enslaves us by destroying our savings and forcing us to invest aggressively in order to save what we do have left. By injecting artificial money into the economy it also results in less scrupulous investments, which together with the inevitable resulting collapse in their value, is a process better known as the business cycle. The worst part is that the average person thinks they are getting something out of the deal. But the question is would they, for example, really want government funded daycare paid for with created money if they knew that the cost was that their savings would lose practically all value in twenty years? Despite these outcomes, no politician, regardless of politics, wants to end this system of political money because they want the machine for their purposes, goals, schemes and friends. Inflation also affects the way we consume.
Inflation also affects the way we consume. Some people have the mistaken belief that prosperity correlates directly and positively with consumption. The truth is that consumption is possible only from real prosperity resulting from saving and investment, rather than the creation of fictional paper wealth. People today may be forced into consumption because inflation has made it very difficult to save.
Gold for the Poor and the Working Person
Money is only useful if we want the goods and services of other people. If we didn’t want the goods and services of other people, we could try and survive by living off the land on our own. Obviously, that is an existence few of us want to lead; we enjoy the prosperity and even the non-essential goods and services that we provide for each other. Over history, as people exchanged with each other to a greater degree, the survival rate rose, people prospered and had more children. With a greater population came more goods and services for everyone. But what if we don’t want these goods or services immediately but some time in the future for retirement, our children’s education, or for a larger item we can’t afford today? In this case we need to save. In fact saving is what has elevated countless people out of poverty over human history. As population expanded with the same amount of gold in the world, the amount of money decreased. Known as deflation, it resulted in the decrease of prices. But these new people and newly prosperous people want to store or save as well.(2,3)This ongoing process has led to an increased demand for money, which over the centuries has stimulated the mining of gold in order to meet it. Unlike printing little bits of paper at the arbitrary whims of politicians, mining gold is directed by the returns of mining, which are in turn directed by people’s demand for new money. Being a substance of real value, gold stimulates real and prudent saving and investment. Of course, a component of the demand for gold is the demand for its use as a commodity. Gold’s unique qualities mean that its uses are constantly expanding as new entrepreneurship seeks better, cheaper and more efficient ways to serve mankind. Industrial uses make up about 300 tonnes of the roughly 2,500 tonnes that are produced annually.(4) These uses vary from plating on Buddhist temples to electronics. The average push button telephone has 33 gold-plated electric points, for example.(5) There is another important factor, however. Over history, gold has been owned by monarchs and more recently, the central banks of the nation state. Most people in the world today are permitted by their governments to own gold, and gradually this gold is moving from state vaults to their pockets. All the gold produced in the world through history totals 140,000 tonnes.(6) Divided by today’s world population, this equates to less than one ounce of gold per person. In a free market, price dictates the demand. People’s demand for gold is signaled to the mining industry by its price, determining whether or not gold mining entrepreneurs should engage in the risk of exploring for and developing gold mines.
But governments have united, forming organizations and agreements designed to protect paper currencies and, some claim, to hinder or dissuade people from selling their paper currencies to buy gold. Government banks are the largest holders of gold, and it is argued that these banks repress the price of gold by selling their stocks of gold. Conspiracy theory or not, one can certainly concede that it would be in the interest of governments to prop up their currencies by doing so. GATA (the Gold Anti-Trust Action Committee) believes that they have sufficient evidence of the manipulation of gold to undertake litigation.(7)
It used to be that the government needed to tax its citizens in order to achieve its objectives, whether that is wealth redistribution or war. But taxation has limitations; when people are taxed too much, they move elsewhere or stop working. The original paper monies created by states could be redeemed for gold. This so-called gold standard has coincided with the most significant rises in real wealth. In the 20th century, states have reneged on their promises of gold redemption, divorcing legal tender from gold. This has enabled politicians to print money at random to finance war, special interests and political ambition. We have borne the results in the form of devastating losses of life, the destruction of savings, and massive debt. It’s the state’s new means of taxation: grabbing our savings through inflation by printing money. There is one gleaming (and non-allergenic) hope, however. Just as Indonesians ran to their rivers to pan for gold during the last collapse of Indonesian paper currency, people, where and when they are allowed to, have turned to gold as a store of wealth. Lord Keynes may have viewed this as “hoarding”, but most know it to be saving for the future. The Chinese, in their march to becoming an open society, have just been allowed by their state to own gold.(8) Thankfully, most peoples of the world can now own gold and the world’s mining industry is providing us with a means of saving as we all move together towards greater prosperity. If people who wish to stop gold mining succeed to any degree, they should be aware that it is the poor and working people of the world they are hurting, who will have a much more difficult time saving.
- Rothbard, M., “What has Government Done to Our Money?” Auburn, AL: Ludwig von Mises Institute, 1990.
- Mises, L. von, “Human Action: Scholars Edition”, Auburn, AL: Mises Institute, 1999.
- Rothbard, M., “Man, Economy and State with Power and Market”, Auburn, AL.: Mises Institute, 2004 (1962, 1970)
- Taken from the world gold council’s website: www.gold.org
- Taken from the world gold council’s website: www.gold.org
- Baker, L.M., “From the Gold Standard to the Credit Bubble: Gold’s Evolution as a Store of Value”, Austrian Scholars Conference 9, 2003
- See the Gold Anti-Trust Action Committee (GATA) website, www.gata.org
- “China Opens Up Gold Trade,” The Standard, September 8, 2004.