One of the ‘Big Lies’ about Gold is that there is not enough Gold around; after all, Gold is valuable because it is scarce, so Gold cannot be used as ‘money’… right? Well, no, not right at all. In reality, this particular ‘Big Lie’ is three ‘Big Lies’ rolled into one.
The first lie is that the quantity of money in circulation is crucial to the state of the economy, and determines recessions, booms, etc. After all, we hear about ‘money supply’ and ‘fine tuning’ the economy practically every day. Rest assured Mr. Bankster and Mr. G’man want our attention on this… not on the truth.
The bland truth is that the quantity of money in circulation has NO effect whatsoever on the economy…! Read the last statement again, carefully, because it probably goes against everything you have ever heard… from Mr. Bankster, from Mr. G’man, and their bought and paid for ‘economists’. Once again; the quantity of money in circulation has no effect whatsoever on the economy… zero, nada.
Ok, may you find this hard to believe… trust me, it took me a long time and a lot of study to understand how and why this is true. It is vital to understand that the quantity of money is irrelevant if we expect to understand what really goes on. History is full of examples that show beyond a shadow of a doubt that the quantity of ‘money’ in circulation is absolutely irrelevant… if we have eyes to see.
Surely you have heard of the cases of ‘New Pesos’ replacing ‘Old Pesos’… or ‘New Lira’ replacing ‘Old Lira’? This happens every time a currency is so debased that million, billion, and even trillion unit bills must be printed. A cup of coffee may cost three billion Lira… and it becomes impossible to add more zeros to the bills… lest the bills become the size of bed sheets.
At this time the G’man decides to issue a new currency… and in the process lops six zeros from the ‘old’ currency. That is, a billion Old Lira note is replaced directly by a new one Lira note. Think about this; every billion Old Lira is replaced by ONE Lira… and there were millions of the old Billion Lira notes in circulation… they are all gone, all replaced by One Lira notes.
The money supply just shrank, overnight, by a factor of one billion. Not by a percent or two as usually claimed by the ‘fine tuning’ money supply ‘experts’… but by a factor of one hundred billion percent. Yet, the next day, life goes on as usual… incredible, yes? Of course, it is easy to see why.
The price of a cup of coffee was three billion Old Lira; the price of a cup of coffee is now three New Lira. Meanwhile, the average wage was thirty billion Old Lira per hour… and is now thirty New Lira. One hour’s pay in Old Lira bought ten cups of coffee. Surprise, surprise… one hour’s pay in New Lira will also buy ten cups of coffee.
Nothing has changed… in relative prices that is. Clearly the quantity of money is irrelevant… only relative prices count. Or, to be more precise, only the purchasing power of money vs wages counts.
The second big lie is based on the first big lie… if money supply is crucial (lie # one) then the G’man must carefully manage it… (lie # two). Let’s take an economy with 300,000,000 people… like the USA. If we add $1,000,000,000.00 (one billion Dollars) to the money supply that sounds like a big number… but it only comes to $3.33, that is three Dollars and thirty three cents, per US citizen… now honestly, would it make any significant difference to your ‘economy’ if someone gave you three Dollars and thirty three cents? Methinks not….
On the other hand, suppose that the $1,000,000,000.00 (one billion Dollars) were given to ONE person… now that would surely make some difference to that person. But this is exactly what happens when a billion of new ‘money’ is printed… one person gets the whole billion; Mr. G’man gets the billion, and gets to spend it any way he chooses. This is called seignorage… profit made by the money issuing agent. It is more accurately called ‘legalized counterfeiting’.
Contrast this to that ‘barbarous relic’, the Gold Standard. Gold cannot be counterfeited, but has to be earned (or stolen openly). Gold is earned by either trading value for value, or by digging it out of the earth at full cost and with much sweat. Just like you and I earn our living… not like Mr. G’man, who makes us take his freely printed paper, at gunpoint, calls it ‘Legal Tender’, taxes us, and makes us sweat to pay him back.
Not like Mr. Bankster, who prints paper freely, and then has the audacity to not only demand that we pay his ‘money’ back in full, but demands that we pay him interest for the privilege of using his ‘money’. This is my definition of usury; create paper chits, pretend they are money, then charge real interest for the use of it… and if you or I try to print the chits, guess what happens? Only Mr. Bankster has the privilege of counterfeiting legally. His bedfellow Mr. G’man sees to that.
Under the Barbarous Relic, money supply took care of itself. If it cost 11 Gold coins to mine and refine 10 Gold coins, no one would do it…. On the other hand, if Gold was really scarce and valuable, and it cost only 9 Gold coins to mine and refine 10 new Gold coins, miners would get to work, and balance would be restored… in the long term. Short terms fluctuations are impossible.
The third big lie is a bit of a paradox, and we need to see both sides of this paradox in order to understand Gold. First, Gold is indeed a precious metal; to mine Gold today, tons of rubble must be dug up and sifted to find grams of Gold… indeed, this is why rubble cannot be money; it is far too easy to get new supplies… new gravel ‘money’ would be almost as easy to create as new paper ‘money’.
The paradox kicks in when we look at the supply of Gold on hand… remember, Gold has been money for thousands of years, and Gold was recognized as being precious and valuable far longer than its use as money in circulation… so Gold has been mined and hoarded since time immemorial… long before written history.
Thus, even though new Gold is very difficult and expensive to extract, there is an enormous supply of mined and refined Gold around. It would take about 80 years of mining at current rates to dig up as much new Gold as already is known to exist. This is called the ‘stock to flow’ ratio… and it means that the supply of Gold is steady, not subject to disruption on a new mine discovery.
As supply is steady, so value is also steady… and by steady I mean steady over centuries, not just over a few weeks or months. By comparison, all non-monetary commodities like copper, crude oil, grains etc. have stock to flows measured in weeks, not decades.
This is logical if you think about it; if there was a glut of zinc, like a year’s supply, the price would collapse. The value of all commodities except Gold and Silver… the monetary metals… declines rapidly with excess supply. Guess what the value of freely printed paper does.
The demand for the monetary metals Gold and Silver is endless. There is never a ‘glut’ of Gold or Silver. Indeed, only real interest paid in real Gold or Silver can lure hoarded monetary metals out of their hoards.
Today, we get no real interest… and so most Gold and Silver is in hiding, awaiting the day of freedom… the day it will once again be safe and legal to earn, to hoard, and to spend Gold and Silver instead of counterfeit paper; real money instead of Bankster’s debt notes masquerading as money.
Rudy J. Fritsch
Editor in Chief
The Gold Standard Institute