Why I do not believe in a Gold Standard

Consider the estimated total amount of gold mined in the world: 161000 tons.

Estimated world population as I write this: 6 807 495 245 people.

(161 000 short tons) / 6 807 495 245 = 0.756812868 ounces per person.

There simply is not enough gold to be used as money between all people or even significant groups of people unless you consider using gold dust to be “convenient.” It has been done, however, by the Akan people of Ghana in West Africa for over 400 years, but this only works well when you have a stable source of “new money.”

If any state mandated a return to the gold standard, they would find themselves caught in a liquidity crisis almost immediately because they would not be able to gather enough gold to back their currency unless they used paper currency to symbolize gold and inflated the reserves. If you can’t do it with physical gold and you have to make your money more like fiat currency to make your economy work, you’re not really using the “gold standard.” You’re using a hybrid and you’ll forever be fighting the problems of auditing the money supply to keep it within some ratio with physical gold reserves and everyone else using the market has to take it on “faith” that you’re not printing more money than the system needs in order to fund undesirable state spending without taxation. [See: “Gold is comin’ apart at every nail” if you have any doubt about how much of these faith games are already in play.] The world population has far exceeded the number of people who could have used gold as money and the world economy has already adopted mechanisms (fiat currency) to reflect that.

“Civilized” countries that already have stockpiles of gold wouldn’t suffer as much as poorer countries, yet again, they wouldn’t be able to effectively trade with other countries if there should be a trade imbalance. Gold rapidly leaves one country in arbitrage for another whenever another country offers “more fiat” per unit. This is one of the major problems with the gold standard that led us to abandon it in the first place, but usually under the guise of helping the government stabilize prices for people because of foreign interference while pursuing inflationary spending. [Watch “Nixon Ends Bretton Woods International Monetary System” and read Nixon Shock for futher background].

Unfortunately, the world economy didn’t consider how much fiat money is too much and how to fairly inject it into the system for liquidity except for using “debt as money” solutions that create systemic boom/bust cycles when the web of interest between counter-parties becomes unsustainable.

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One thought on “Why I do not believe in a Gold Standard

  1. I think, what drove gold out of circulation as money was not inconvenience, but the fact that its value as a commodity was irretrievably separated from its purchasing power as money by absolute over-accumulation of capital during and after the great depression. I discuss this hypothesis in my series, “Theories of the current crisis”, http://tinyurl.com/6bvv6qf

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