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A Salvo in the Battle for the Gold Standard
by Keith Weiner
I wrote what I thought was a fairly simple article for Forbes on Tuesday. I noticed that some people really got it, and they were very excited. However, others were skeptical or asking questions that went into the weeds. The former tells me that I said something important, but the latter says that I said it in a way that not everyone could relate to.
I started with the observation that many people argue (vehemently) that money should be defined as the medium of exchange. In the US, the dollar is used to purchase everything. Therefore the dollar circulates as the medium of exchange. Therefore the dollar is money. Q.E.D.
The catch is that the dollar only circulates because the government forces it to circulate, and forces gold not to. This means that the very concept of money is under the control of the government.
Ayn Rand noted that force is not essentially about a physical push, or a bullet hitting flesh. She said, “Force and mind are opposites…” She added, “To force a man to drop his own mind and to accept your will as a substitute, with a gun in place of a syllogism, with terror in place of proof, and death as the final argument—is to attempt to exist in defiance of reality.”
She showed that force is an attack on the mind. Literally, the gun takes away your ability to see reality clearly and use logic to arrive at the best possible outcome. Instead, you must think and do as you are told. The insidious process she described is at work with the concept of money. The very concept of money has been perverted.
In most cases, people can see that government has no power to change reality, or alter the laws of physics. But in this case—by the leverage of a broken concept—many people assume that government has indeed the power to make concepts into what it wishes.
George Orwell once wrote about this.
Debt paper is not money, no matter who issues it. The government has no power to transform water into wine, or debt paper into money. I don’t think anyone is explicitly arguing that it has this power. I think their error is to gloss over why the dollar circulates, and just insist that, “well, it circulates therefore it is money.”
Thus, the government is granted the power to turn paper into gold, though the mind skitters away from openly admitting this conclusion.
The consequence to accepting the dollar as money is to think that gold goes up. As I often say, in reality, gold is going nowhere. It’s the dollar that is going down. But if the dollar is money, then the prices of all things are measured in dollars. And so, we think gold goes up. Because that’s the only way to frame it if the dollar is money.
If gold goes up, then one has made a profit. That’s right, one makes money for doing nothing, just holding a lump of metal. Where does such a free lunch come from? No time to explore that contradiction today. Let’s stay focused.
It may not be fair, but we have a capital gains tax that applies when an investment, commodity, or asset goes up. If you buy something for $1,000 and sell it for $1,500, then you have a $500 profit. You must pay tax on that income. There are no exceptions that I am aware of: antique Ferraris, stocks, bonds, bitcoin, copper, houses, etc.
And this is where the concept of money gets real.
The government has several ways of forcing gold not to circulate, of making us use their debt paper as if it were money. One of them is the capital gains tax on gold. You see, if you barter—remember, gold is not money, just a commodity—gold for a car then the government considers that to be a sale of gold at the current market price. If that is higher than what you paid when you bought, then you owe capital gains tax.
This tax makes it far too expensive to use gold in transactions, not to mention the ledger you would have to keep. So gold is forced out of circulation (and into private hoards). Gold is for holding, not for using as money.
I have been arguing that this bad tax provision ought to be repealed. And that’s the crux of the problem.
Am I just a crony, like every other crony, asking the government for a special favor and preferential treatment? Is the whole point of repealing the tax on gold so that gold speculators can make more money on their gold trades?
This was essentially the allegation of one Arizona legislator, who asked why gold should be treated differently than other investments.
If the dollar is money, then there is no good answer to this question.
To advocate for special privileges that benefit one’s own purse is to fight for cronyism (also known by its older name, fascism). This is not a principled position. Nor is it a sympathetic one. Everyone has a mental picture of a fat cats, seeking to engorge himself as public expense. Once we’re into that box, once we’re perceived that way, we’re doomed. No matter what “blah blah blah” comes out of our mouths, it will be seen as self-serving and hypocritical. And rightfully so.
Huh? Rightfully so?!? Yes. If we concede that the dollar is money, gold is a commodity, and if we concede that gold is going up, which means we make a profit, and if we demand not to be taxed on that profit, then we are no different than any other special interest group seeking favoritism. We are no different than any other rent seekers.
What is a principled free marketer to do? Well, if you cling to the notion that the dollar is money, then you are disarmed. You have to concede that gold should be taxed just like other assets. You can lobby to eliminate all capital gains tax, but that’s about it. Good luck with that. I will cheer you, but don’t expect victory any time soon.
I remind you of two things. One, tax keeps gold from circulating. In other words, the gold tax is the key to socialized money. We can never have a free market in money if gold is penalized with a tax every time the dollar loses value. Two, as Ayn Rand showed, the moral is the practical. Your belief in this bad definition of money is what keeps you from effectively fighting for a free market in money.
There is much more to say about the topic of money and credit, to support the case that gold is money. In this article, I just wanted to focus on this one issue, because I think the error is an important one. I expect gold’s enemies, as they begin to mobilize and organize, will be cunning enough to see the vulnerability and go for the jugular.
If we want to win, we will need to be armed properly for the fight. This is a battle for ideas, and the most important weapons we can wield are concepts. Preferably razor sharp concepts. Let’s get it right, starting with a clear understanding of the dollar and of gold.
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Gold standard is central planning and human history is full of examples of this particular planning being undone by man himself.
In other words, gold standard does not ever work. No historical eveidence of it lasting. It is not a solution for mankind. (why else would mankind evolve away from it and towards free floating currencies)
No, those that desire a gold standard are socialists in hiding because a gold standard/ central planning is socialism every single time it's been attempted.
The “dollar only circulates because the government forces it to circulate, and forces gold not to.”
Well, sort of.
Big banks, munitions makers and the indoctrination department (media) mandate (thru their boys in Congress) that Americans use this baseless currency we know as the dollar; and, if any should offer a voluntary alternative, they (big banks et cetera) send the IRS and Department of Justice after him – to describe it modestly.
I know this by experience. In 1976, I established a gold-based banking service to allow people to effectively boycott the Federal Reserve; I operated it for 28 years until the assassination squad stepped in and violated every rule, right and procedure to crush my company. During this judicial assassination I spent 5 months in jail for refusing to surrender records.
They, obviously, didn’t do the standard assassination probably because I also wrote several essays and books that recovered lost history, facts and law that we are not supposed to know. Had they done the standard, it would have given wings to my writings. Here is a recent sample, ‘What Price Gold… $infinity?’, of my writings – and what they don’t want you to know
If even half of your biography at your blog is accurate, you command my respect.
Q: If you knew the hardship you have endured would come to pass, would you have provided the system you created in spite of the future hardship?
I wonder for my own sphere if being 'awake' would have been a choice I would have made, given what is revealed on that path of 'awakening', so to speak.
Gold BACKED currencies always turn into frauds, too.
They start with full gold backing, and end up as just more confetti pretending to be money
Ding DIng DIng! You're a winner!
YES, GOld Standards always fail due to man himself.
Gold standard (central planning) doe not work for mankind.
A corollary would then be that: mankind does not work so well for mankind. Such that it is.
Agree. Gold is money, so is a 100% gold-backed currency, but any fiat currency is only a practical way to pay for goods and is bound to loose its buying power because of poor government management. Therefore, a capital gains tax on gold is theft : one does not gain capital ( better : buying power ) because the gold price rises, one does not LOOSE capital. Ergo, NO tax.
totally off topic but is anyone else having major problems with all the pop-ups and horrd video ads on ZH? What's a good ad blocker that won't load your system with even more crap?
...Good Lord Tyler, what the hell does videos of fashion shows and cooking have to do with the content and readers on this site??!!
Try Adblock and Ghostery
the money changers will never allow a gold backed currency....and any country trying to establish one would be invaded and destroyed.... to do so would destroy their system of graft!
the money changers will never allow a gold backed currency....and any country trying to establish one would be invaded and destroyed.... to do so would destroy their system of graft!
What if someone traded that old Ferrari, for a Ferrari just like it? A swap, in effect?
Clearly their value at the time of purchase was identical because they ARE IDENTICAL. Clearly their price has since appreciated by the magic of constant monetary inflation alone.
So, if I were to swap my old car for one identical to it. Do I pay a capital gains tax? Because the current price in dollars is ALWAYS higher than the past one? I think a jury would have a hard time buying that a capital gain occurred.
Interesting.
For the price in Gold remains remarkably stable over time.
A highly collectible 1964 1/2 Ford Mustang cost $2368 or about 72 ounces when new.
The same 1964 1/2 Ford Mustang in good condition today costs about $30,000 ... or about 25 ounces of gold.
So did you make a profit of $27,632? Or did you make a loss of a whopping 47 ounces of gold equivalent to $56,400 today?
Maybe this is a better way to look at it...
Suppose I bought that car in 1964 for the same $2368 the dealer wanted...but I paid for it with 4,736 Legal Tender Kennedy half-Dollars?
And suppose I sold that car today for the EXACT same 4,736 Kennedy half-dollars...worth $28,298.55?
Did I really make a profit of $25930.55?
There-in lies the rub.
The price when denominated in SILVER is virtually identical.
Thisis what happens when gold and digital currencies collide:
http://finance.yahoo.com/news/icon-launches-aureals-decentralized-digita...
It’s just a small slice of the government’s debt. It’s an I.O.U., a promise to pay, though most have long forgotten what the government once paid—gold.
(From the Forbes article)
Yes, we've forgotten the Constitutional requirement of gold and silver. We've forgotten the foundations upon which our society was built - strength and stability. Fiat cannot build - only destroy.
The article is not clear on which is the greater evil: the power to tax, or the power to issue and maintain fiat currency.
Furthermore, it is entirely unclear whether the author understands the true nature of money. Is money a thing, or a fiction agreed upon for mutual convenience?
Unless people are forced to use ONLY gold for every exchange, they are at liberty to use paper, such paper being promises to pay in kind at a later date. Deals in a "free" market permit the deferment of payment, which creates credit instruments from the contracts which have such payment terms.
Now credit itself comes from the word credos, meaning trust, and therein lies the hint that money, including promises to pay in kind at a later date, is actually not much more than the record of trust between two parties. The gubment and their road agents have very little to do with the matter.
It follows that paper will always be used as money, unless agovernment forces everyone to use only gold, and outlaws all contracts that use alternate payment terms. Curiously, history shows a frequent lapse into such policy, with the catholic church banning ursury and the communists also prohibiting any freedom to contract. Both systems were destroyed from within by movements that gave the liberty to contract to the individual, a novelty of the reformation, and of the collpase of communism in those countries that did not experience the reformation.
It is interesting to note that those countries which had the reformation did not lapse into communism, while those which avoided the reformation did lapse into it.
Essentially, free market theory holds that the liberty to contract as one sees fit is crucial to economic prosperity, and this ipso facto requires the acceptance of paper money, or paper documents describing trust relationships between traders.
It follows that the author's real problem is not with the government's use of paper money, but rather he distrusts the government and does not value their promises to redeem their paper for value.
He has discovered inflation!
When he prices it into his trades, he will find peace, and can forget about gold.
De ID'en die kamerleden in Nederland bespreken zijn totaal niet van belang voor de inlichtingendiensten. Ze lopen immers 10 jaar achter op netwerk @GuusjA.
http://nos.nl/artikel/2021337-kamerleden-kunnen-gemalto-simkaart-ruilen....
Federal Reserve Chair Janet Yellen testified before the Senate banking committee on Tuesday, and again the end result from the market`s point of view was to borrow even more money, and buy risk assets in the form of bonds and stocks.
http://www.zerohedge.com/news/2015-02-24/janet-yellen-encourages-more-le...
Janet Yellen hanteert dus de methode van Spinoza om 'de dwaling te doorleven'.
http://www.waarheiddelen.nl/3espinozagolf/3espinozagolf.html
Nu de vraag welke MuntUnie het langste de 'Lieve Vrede' kan bewaren.
In order to price inflation into a "trade" it is necessary to have stability. Strength and stability are the strong foundations necessary for any well organised society. Given human nature, i do not believe a fiat currency is capable of performing this function. It (the printing press) cannot stand the test of time, the results being more wars and zero peace - society killers.
"Gold is money and nothing else" JP Morgan
Soon enough it won't trade - not for paper.
"One good ear knows meaning of wind in trees,
the leaves come down as seasons change.
Fools see falling "price" of gold as "death of tree,"
they chase its "price" as leaves on the ground.
Ones of simple thought, such as I,
will save the wood and not the leaf,
as they buy the gold and not the price !"
A pearl given by Another/FOA/FOFOA on New Years Day 2014.
I had previously read your article and it certainly seemed logical (and simple enough) to me - but then again I'm one of these "Austrian Wackos" on Zero Hedge. That said, these days Forbes is one of the last remaining MSM sources which I even bother to look at - at least some of their content (like was the case of your latest article) is worthy of my time.
Some of their content: correct.
Your statement equally applies to Mr. Weiner. Generally I skip his articles, but this one is pretty good as far as it goes (i.e. a fine intro for newbies). Too bad he didn't mention Ron Paul's angle that gov't has no business telling anyone what they can or cannot use as money.
If ZHers would all watch Mike Maloney's video series, agree or not with all he says, they'd at least have an agreed-upon set of terms to have a discussion.
A gold standard and a debt based monetary system are incompatible. You can have one or the other but they can not work together. TPTB will always choose debt based money unless forced to do otherwise by a crisis.
It is well outlined here:http://debtcrash.blogspot.com/2015/02/history-and-introduction.html
The immutable law that causes people to hoard gold and spend dollars is Greshams' Law. And that law is irrevocable.
Only if legal tender laws, regulation and taxes force you to use dollars, then bad money forces out good. If there are no such laws good money will force out bad. You were only mentioning hald of Greshams law.
The problem is we have dug a hole of Grand Canyon proportions and have no will or ability to fill it back in so everybody has to keep dancing faster and pretending that the party will never end. The implosion will be immense and at this point unstoppable.