Version September 10, 20131. What is a gold standard?
2. How does a gold standard work?
Under a gold standard, gold is the unit of exchange and of account. The prices of goods are measured in a weight of gold and currencies like the dollar, euro or yuan would simply be a tradename for those weights. With gold, there could be coins, banknotes as well as digital money in use, just like today. The gold standard can be legally defined and / or be held in custody at an independent institute, just like the meter or kilogram. Under free banking (a free money and banking market without central banks), banks would automatically tie their money to gold, because their customers, in their strive for quality money, would require them to do so. The latter is a case of market money, which does not require a legal gold standard, but which standard will be kept by contract. So this is another way of defining and maintaining a gold standard. One can roughly distinguish between the following financial systems:
* A legal gold standard, possibly together with a standard silver (bimetallism).
* A free market gold standard, silver and other precious metals to be used as money under free banking, without government interference. This is the original money.
* A "paper standard", under government management, mostly with an "independent" central bank, without legal redeemability of the money in precious metals. This is the current fiat money.
3. Why would gold be suitable as money?
Gold has always been the most wanted precious metal of mankind. This is its most important feature. People naturally tend to optimize their well being. Only a few people produce all their needs themselves and therefore exchange of goods is inevitable for most people. This is facilitated by a medium of exchange: money. In the free market, goods were once used in direct trade. For several reasons, gold was the most marketable good and therefore supported man best in his endeavors. Over time, gold became money, without government coercion. Gold has a unique combination of favorable features: it is rare and quite expensive to mine, meltable and divisible without loss of value, useful for coining, industry and jewelry, stainless, beautiful, durable and easy to store and to transport. Gold is a real world currency and supports the much desired optimization of well being best. Fiat money, on the other hand, is vulnerable because it is produced out of thin air and has no origin in a marketable good. It is therefore not the free choice of individuals, but is created and used by force.
With gold and silver as money, labour is being respected again, rewarded with honest money. Working then no longer is a means to consume as much as possible with what it yields, but will again be the producing of quality goods and the use of skills. Gold and silver increase the motivation to work, the productivity of workers and entrepreneurs and the quality of the produced goods and services. They thus increase our prosperity significantly. Precious metals as money minimize the waste of scarce resources to non-essential (consumption) goods.
4. Why would a gold standard be useful?
Gold as money has many advantages over fiat money. It forces governments and banks to restrictive policies and is consistent with property rights. Government debts can no longer be monetized by a central bank, or otherwise a country loses its gold stock by citizens redeeming their money into gold and so collapsing the currency. With gold, citizens have the power and freedom, which they presently do not have versus the political and banking system: money would always be redeemable into gold. The same goes for free banking. Gold is an automatic hedge: inflation and business cycles caused by fractional-reserve banking (the real inflation) are absent. Trade balances between countries are more balanced. Economic calculation with gold is reliable. Maintaining the gold standard reduces the risks of any significant war, because they are usually financed directly from money printing. With gold, there is no longer a banking cartel with the privilege of money creation. Gold and a free market in banking separate money and state and surrender the ownership back to the original users of money: the people. For all these reasons, gold and the gold standard are neither barbarious nor obsolete.
5. But what about the fluctuating gold price?
This argument turns around cause and effect. Itís the currencies that fluctuate, both the supply as well as the faith that people have in them or not. Precious metals historically have a more or less constant supply versus other goods and have therefore usually a constant purchasing power. Gold as money would have no separate price in money, only a price in other goods, because gold and money then are one. One example is oil, which has been in an almost constant price ratio to gold for some sixty years. The current bull market in gold is a manifestation of weakening fiat currencies, which are all in a multiple decade bubble. After the Nixon closing of the gold window and thus the definitive abandoning of the gold standard in 1971, the worldwide creation of fiat currencies has increased extremely, resulting in a very high and volatile gold price, in separate money terms. The same goes for real estate stocks and bonds, which have risen and fluctuated wildly as well; consumer prices rise constantly. Under a gold standard this is all impossible.
6. If gold is so great as money, then why we donít have a gold standard?
The people right now donít have a free choice in money, but use legal tender, consisting of fiat paper money and token coins. Politicians have appropriated money constitutionally, abandoned the gold standard and outsourced "monetary management" to central bankers, with private bankers in their wake. Instead of the gold standard, they put in place a "paper standard", consisting of large scale fractional-reserve money creation and thus high profitability for the banking cartel. Governments (politicians) are in close connection to the banking cartel and thus favour interest groups by implementing their policies through the printing press. This is done in many cases without having to impose unpopular taxes, though the resulting inflation works more or less the same. Citizens and businesses who make loans and mortgages also work through this money creation process. For all of this, governments and the banking sector are rabid opponents of gold and a gold standard. Under free banking, fiat money would never be viable; the fact that it exists at present now does not mean people would choose it themselves if they had a free choice.
7. Why was the gold standard ever abandoned?
The end of a gold standard or the establishing of pseudo-standards (like a "gold exchange standard" without direct redeemability), are always result of money creation by (or on behalf of) governments and the banking sector. It is a proof of the bankruptcy of a state which can no longer meet its obligations and wants to work around this problem. Besides, in times of warfare, gold standards have been abolished regularly. Without a gold standard, money creation can continue unhampered. This may be done to finance wars, political goals and lobby groups, without the need and accompanying courage to raise taxes. But people are confronted with higher prices. A gold standard can not by itself "collapse" or "perish", but can only put to an end by human action. This usually occurs after a prolonged period of breaching it or by a sudden event like a war.
8. Is there only one kind of gold standard?
Yes. The one and only true gold standard has a hundred percent gold backing, like the gold coin standard or gold reserve standard. They consist of gold coins and convertible notes, possibly with silver coins. All others are pseudo gold standards, such as the gold core standard and the gold exchange standard. They had only partially backing by gold and restrictions on convertibility, often confined to governments and central banks. These monetary systems, such as the Bretton Woods system from 1944 to 1971, were abolished because they gave way to inflationary money creation. Governments and centrale banks could no longer fulfill their duty of convertibility of the money into gold under the agreed rate.
9. Will the gold standard lead to more excessive profits for banks?
Quite the contrary. A strictly adhered to gold standard excludes profits based on the privilege of money creation and restricts investments to existing savings. Gold encourages savings and productive investments, where money creation mainly promotes debt and misinvestments. Of importance is that fractional reserves and government guarantees on bank activities wonít be allowed, be it considered a crime or fraud. This is to avoid both the crash of the money system which gold is so helpful to prevent as well as moral hazard. The free banking discipline discourages fractional reserve banking. Banks then will be normal companies with profits that reflect their consumersí preferences as well as their investing employeesí talents. They would have mandatory enforcement of contracts with their clients, such as maintaining gold as money and abstaining from meddling with it. Gold is thus the only way to limit or even prevent the bankersí extraordinary and above all privileged bonuses.
10. Would there be the same amount of wealth under a gold standard?
Even more. That is, there would be much less misinvestments based on fractional reserve banking. People would have more real economic growth, based on the productive deployment of resources, thus better fulfilling peopleís basic needs. These include quality food, clothing, living space, safety and health care services. In the present consumer society, grown to a large extent on decades long cheap credit money, scarce resources are widely wasted to fulfill non-basic needs. Examples include all kinds of real estate bubbles, banks and financial institutions that became artificially large and rich, vast and expensive armies, destructive wars, a bureaucratic public sector but also expanded assortments in stores (based on temptation more than on need), luxury products, events and many managers and consultants. These are using or destroying scarce economic resources (people, capital, commodities), do make more important things impossible by driving up prices (including wages) and thus impoverish the rest of society. The current money system and its consumerism, have created a fragile and phony wealth. Consumerism is not a strength of our society, but a weakness. In a number of ways most people are much poorer than they think they are or appear to be:
- The money is now irredeemable in gold or silver, so it lacks a relatively fixed value one gets for his labour.
- Due to fractional reserve banking, which encourages wasteful consumption, there is an ongoing decline in purchasing power and one runs the risk of losing all savings in a bank run or bail-in.
- Most consumer goods are almost worthless because they get written off soon after purchase and use. And if one should get money from the sale of used goods, the purchasing power of it has continued to fall since the original purchase. The fall in housing prices further reduces peopleís (virtual) wealth.
- In a bank run, a risk to which fractional reserve banking adds considerably, non-primary goods are not much wanted anyway, due to oversupply and/or lack of demand.
- The pension funds are mostly invested to the hilt into stocks, (government) bonds and real estate, with strongly fluctuating or even collapsing prices, especially in the current (pyramid) money system. Possessing the natural monies gold and silver has none of these disadvantages and risks; their value in the long term to all other goods is always relatively fixed. Gold and silver are real stores of wealth.
As gold is a real scarce money, interest rates under gold would generally be higher, as a real reflection of the time preferences of savers. As a result, our economy would be growing more than with artificially cheap fiat money, which allows for wasteful projects that would not come into existence under gold. Wars do not solve any crisis, but are themselves a multitude of crises. Perhaps, under a consequently sustained gold standard, humanity would already have become much more sophisticated by now. A better question therefore is whether we have more wealth with fiat money than with gold. Credit creation only leads to a statistically higher economic growth, but no real growth in terms of purchasing power. It only facilitates a redistribution of wealth, as the first recipients of new money profit by taking away purchasing power from late receivers. The money supply has no relevance to our prosperity and therefore fiat money does not increase it. Only an increase in the production of goods gives more wealth. If money creation would lead to more wealth, poverty could be erased instantly through the printing press.
11. Isnít money creation necessary to meet the demand for money?
No. Those who find the money supply under gold insufficient, in fact say that the market fails. But then they will have to answer the question when the money supply is "enough" and according to which yardstick. Typical of any economic good is that there is always a shortage of it to fulfill anyoneís needs. Non-economic (free) goods like seawater, air and sand are abundant. But any supply of money is sufficient to be used as a medium of exchange for all goods, which is the basic function of money. Money creation on a fractional basis does not solve a "shortage of money", because it causes prices to rise and thus perpetuates this supposed shortage. Itís not the money supply, but its purchasing power that ultimately determines our wealth. Under a gold standard savings receive a useful purpose. Credit creation by the banking cartel distorts this market process, as is now the case. Artificially low interest rates by central bankers facilitate this process. This leads to an artifical, excess demand for money and hence price inflation. The supply of new, cheap money creates the demand, rather than the other way around.
12. Does a gold standard hinder anyone to get a loan?
Under a gold standard loans could exist as well, if sufficient money would be offered to loan and the borrower would pay a sufficient interest rate. A very noteworthy point is that under gold, the (cost)prices would constantly fall due to productive innovations, which would (a) make less credit needed for the same investments and (b) leave money for new enterprises and products and thus increase prosperity. Money creation to facilitate credit is needless: productivity growth makes money available. On a free market, interest rates are always sufficient to attract enough savings to be (partially) lent out. Only goods and services for which thereís enough demand would be produced under gold. Gold without fractional reserves prevents people to bear the brunt of other peopleís credit creating loans, due to higher prices they cause in society. Credit creation (like consumer credit, mortgages) in the current fiat money system, steals purchasing power and thus prosperity from others and turns the recipients into a (false) economic elite. One might wonder why this provision should be in place at all. Credit under gold could be provided if depositors would explicitly "lend" their money to the bank for a certain period and at interest. This lending to the bank would avoid multiple claims on the gold money and thus make bank runs unnecessary. And of course, under gold people could buy stocks and bonds from a bank or business and provide it as capital.
13. Could people still get a mortgage under a gold standard?
Not the demand for mortgages should be favored, but for housing. Building homes affects nobody's property, but mortgages based on credit creation do. They lead to price inflation across the board, as well as housing bubbles (both in prices and mortgages), the popping of which is a painful but healthy sign of normalisation. Subprime mortgages would not exist in a free market without government interference, because of the huge default risks. Mortgages and other credit creation are no justification for the current fiat money. It is debatable whether mortgages truly make housing affordable. Under a gold standard one can build at least as many houses much as now, especially if the housing market would be truly free. People could also rent a house and fund their own home by working, saving and investing. This encourages thrift, makes real capital available for investment and ensures that people are productive for several years with the proceeds of which they buy a house. With the current monetary and disruptive mortgages these are all exactly the opposite.
14. Could the gold standard become prone to speculators?
Gold standards have a fixed rate against one another because as all currencies are a certain weight in gold, for which governments and banks should have an obligation to keep. It is impossible to speculate against this, as long as the standard is being held up and no fractional reserve banking takes place. Nonetheless, speculators are useful because they deliver market information and signal the underlying economic factors, including meddling with money. They are actually a thermometer of a market.
15. Is there a need for a central bank under a gold standard?
No. A central bank and the banking cartel together only lead to political and financial abuse. A gold standard can be written into law after which a so called free banking market could be established with a legal obligation for all participants to stick to this standard, so not to issue fiat money by fractional-reserve banking. The gold standard could so become completely privatized. Banks could be issuing money with a fixed weight in gold in a contractual obligation with their customers and other receiving counterparties. Free banking automatically leads to precious metals as money, especially gold. People would want precious metals if they only had free choice in money. If they would freely choose fiat money, there would not be legal tender laws and central banks as are in place right now. Fiat money has no chance in the absence of these institutions. The quantity of gold money on a free market would be determined by supply and demand and thus always reflect the consumersí wishes. Money creation then no longer affects anyoneís properties in a coercive and harmful way, but would be part of the market process like most other goods are. Freely competing banks have a need for an outstanding reputation and would comply with their contracts, including keeping up the quality of their gold money. Therefore, they would issue sound money, more so because without a lender of last resort (a central bank) they stand no chance of survival in the case of illegal fractional reserve banking and the ensuing bankrun. Optionally, lawmakers could explicitly forbid fractional reserve banking as fraud.
16. Isnít a central bank necessary for price stability by controlling the money supply and interest rates?
A policy of "price stability" only obscures the effects of money creation, which affects prices and favours groups with the new money at old prices to purchase goods at the expense of the later receivers. Price indexes and terms like the "price level" are misleading because prices never increase gradually across the board over the same period. The effects on each individual differ, depending on their income and spending patterns. Besides, monetary "authorities" are lacking the necessary comprehensive information for price stability, proven by the steady price inflation and bubbles in many markets (carefully kept outside of their price indices). With free banking all this would not take place as customers would simply go to a competing bank if the quality of money of a bank is no longer to their wishes. Or they could refuse money issued by certain banks; usually banks themselves keep an eye on this through their clearing houses. With gold, price stability is the norm, though absolute stability is impossible to achieve, as the quantity of gold and the quantities of goods can vary at any time with consumer preferences. This instability is partly the reason money exists in the first place, otherwise goods would be exchanged at never varying rates with no need for a medium of exchange. Economics implies uncertainty.
17. But governments can still violate or abolish the gold standard?
Governments and people can violate any law, but that does not make laws obsolete. So itís not an argument against a gold standard, but against a central bank and government meddling with money, more in favour of free banking. With any infringement it would then be clear who frauded when and who bares the consequences. With fiat money we can be sure that policymakers damage property. One could be of the opinion that a real gold standard is not a government promise, but independently defined like the meter and kilogram, or contractually agreed between a free bank and its customers. The government may limit itself to laws against fraud with those contracts. The discipline of the free market provides reliable banks and their money.
18. Does gold make us dependent on Russia, China or South Africa?
Gold discoveries in gold mining countries like the ones mentioned above, are only a fraction of the amount of gold already mined and stored. Not much damage would be done to most people if these countries decide to provide us no longer with new gold. It would only affect them that had a wish for newly mined gold. And the gold mining would have to abandoned completely, for delivery of the gold to other, befriended countries may still end up in the rest of the world. But gold mining can be a lucrative business, especially when freed from fiat money manipulation. It is conceivable therefore that the economic influence on gold-producing countries is greater than the influence from them.
19. Doesnít a gold standard lead to wars for gold, just as for oil?
Without a government interfering in money and banking, one can obtain gold only by voluntary trade. In a free market, wars are impossible because they are too expensive in many ways for civilians or companies to fund them privately and without government (taxpayer or money printing) support. A free market with a gold standard means peace and encourages it too. The former looting of gold in South America on behalf of European monarchs provides no legitimate argument against gold discoveries. And fiat money not only makes war possible, but also creates new, due to the economic and political chaos that wars cause.
20. Can the government still tax us under a gold standard?
Yes. A major advantage of gold is that politicians and central bankers can no longer decide to monetize debt, an act that increases the money supply and avoids painful direct taxes. Both taxes and government loans in gold have to come from the existing money supply. The separation of state and money increases transparency in politics and economics to a large extent.
21. Does a gold standard lead to harmful deflation?
Price deflation has wrongly gotten a bad name because it has become synonymous with economic crises. But falling prices caused by innovations and productive investments have nothing to do with crises; they instead increase our wealth. This kind of deflation would be the rule under a gold standard, because of the relatively constant or modestly increasing gold money supply. Deflationary crises, on the other hand, are caused by the popping of credit bubbles due to fractional reserve banking which only exist under fiat money. In fact, crises are a healthy and inevitable correction of these in any way untenable bubbles. Gold and other goods roughly balance out to each other. Under a gold standard, an economic cycle would roughly work out as follows: * Economic booms under gold, by innovations, consist of an increase in the amount of useful goods that fulfill peopleís needs.
* This lowers their prices in gold, which means more real prosperity.
* As gold will buy more goods, this stimulates gold mining, which then potentially leads to some price inflation in gold due to more supply. This could come from existing gold being spent on the cheaper goods as well.
* Mining makes gold cheaper (more abundant) and thus promotes the use of gold in industrial goods or jewelry, of which prices will fall. This means that the initial price inflation after the mining, would fade away. So thereís not a constant and unlimited price inflation such as under fiat money.
So gold mining increases our wealth in both money and non-monetary goods. In both cases thereís no stealing of purchasing power as with fiat money, as gold mining is then a free market enterprise. Gold has a very elastic demand. The economic cycle is the reverse of the present one and would be less severe but more predictable. In 1873 to 1896 both America and Germany had deflation and economic growth at the same time. Falling prices do not discourage entrepreneurs, because the profit margins (what business is about) can be sufficient enough to keep them going.
22. Didnít the gold standard cause the Great Depression?
No. The Great Depression was a prime example of the bursting of a massive credit bubble, prolongued by government policies (New Deal), instead of letting the free market do the cleaning up. There was a connection with Great Britain returning to the gold standard at the outdated pre-World War I rate of $4.86 and restrictions on the redeemability in gold and implications on US monetary policy. From the autumn of 1929 on this house of cards collapsed, which was actually a market return to base money (gold). President Roosevelt should not have abandoned the gold standard in 1933 by confisquating gold and devaluing the dollar, but had better abolished the Federal Reserve. Abandoning gold as happened in many countries in the thirties prevented the Depression from being resolved, as currencies were devalued and thus a form of protectionism was practiced. World War II was an outcome of this collapse. The present currency wars work precisely the same. An almost identical gold exchange standard was put in place from 1944 on, in the dollar dominated Bretton Woods system. This came to an end in the period of 1968-1971 and led to the complete abandoning of gold in 1971, the "Nixon shock". This caused a period of great monetary and economic turmoil, during the seventies. The current crisis is an example as well, which has its roots in 1971. With a sound and strictly adhered to gold standard, all this can be prevented.
23. Does the gold standard prevent full employment?
No. Unemployment is not due to a "money shortage" or "underconsumption", but to factors like wages above the market level, other laws that discourage work or a mismatch in education or experience. These disrupt the price mechanism, with wages being the price of labour. Money creation does not fix this and affects real wages negatively. In times of crises, unemployment is caused by the bust of malinvestment bubbles in the form of bankruptcies and layoffs. In a free labour market, wages tend to keep pace with the labour productivity of workers and thus the employment is optimal. This does not require money creation and therefore a gold standard can not disturb this process. The price mechanism itself fulfills the task of rationing supply and demand of scarce resources, including labour. And after decades of massive money creation, many people are still or again without work and parked in the social security system; financed and perhaps even encouraged by the present fiat money.
24. Could the mining of gold cause a business cycle?
No. Gold mining does not disrupt the market process, like money from fractional-reserve banking, but is an integral part of it. Under gold, there are fluctuations rather than cycles; these are somewhat predictable and do never exceed the amount of mined gold. This is all contrary to fractional-reserve money, which is created on an unlimited scale. Miners are driven by a sufficiently high price of gold, expressed in previous lower prices of other goods. There is always a certain balance between gold and other goods.
25. Were there economic crises in times of the gold standard?
Yes, but only when governments and bankers violated the gold standard. Theoretically, the convertibility was still in place, but fractional-reserve lending was practised widely, due to interference from governments and lowering the reserve requirements by central banks. This led and still leads to business cycles with crises such as those in the twenties and thirties of the twentieth century and nowadays again, without gold as money. A strict enforcement of a gold standard could prevent all this. The weakness of a gold standard is not gold, but man. Such crises invariably create a flight into gold, as can be seen today. Confidence in gold is constant, in fractional fiat money itís not.
26. Could a bank attract gold from the public too?
Yes, in addition to mining gold, a banks or any other investor can also offer to buy gold, add this to their own stock and issue redeemable bills. This will be the common way in a free banking market. This is particularly attractive in periods of low economic growth, when prices are high and gold is cheap versus other goods. The banks can then invest this gold money in a productive way so that its purchasing power rises. Again thereís a constant balance between gold, productivity and economic growth.
27. Who owns the gold that is located in the vault?
Gold in a banksí vault does not have to be personally owned, but anyone with a banknote or account at that bank, can go to a branche to exchange his money for the weight in gold. In a free banking market, non-account holders could exchange their money at the issuing bank as well: coins, banknotes, digital money and gold assets of that certain bank. Hence it is unnecessary for gold to be dragged between banks, nor is the tracking of notes.
28. Isnít it wasteful to mine gold and to put it into a bank vault?
Gold diggers respond to a demand for gold and thus do not waste anything. It is the free choice of bankers and their customers to keep gold in a vault; for them at that time itís apparently the best option. A large influx of gold lowers its price against other goods, so that the non-monetary use of gold becomes more attractive and part of the gold could be deployed elsewhere. On a free market, gold is always there where the owners want to have it and there is no wastage.
29. Isnít gold useless whenever there is hyperinflation?
Usually the objection is that "you can not eat gold". Itís overlooked that you can not eat fiat money as well. But money was never meant to be eaten in the first place, rather to buy food with. During hyperinflation, most markets implode because people need all of their money for food and other basic needs. And precisely then gold proves to be of an extra value: the price of it keeps up with the hyperinflation and it is actively being used as a means of exchange. Its use has been awarded the death penalty under the Assignat-hyperinflation in the 1790ís in France. That says it all. With a strictly enforced gold standard, hyperinflation is impossible, which pleads again in favor of it.
30. Hasnít the world economy become too complex for a gold standard?
This argument changes cause and effect. Fiat money and fractional reserves make the economy more complex and unpredictable than usual. At its core itís all still about production and trade, no matter how complex products are.
31. Isnít using gold as money wasteful, compared to the almost free paper money?
This comparison is incomplete and therefore misleading. Any use of a good has its costs, consisting of the foregone benefits of a different deployment of that certain good. Costs are not a shortcoming and this holds up for gold as well. One should accurately scrutinize all available options. The real costs of fractional reserve money consist primarily of its declining purchasing power, the boom-bust cycles it causes, the advantage that early recipients of new money have at the expense of latecomers, the misinvestments it causes, the costs of having central banks, the hindrance in making reliable economic calculations and the disturbed anticipation of businesses on future actions of monetary authorities. The costs of mining, storing and safeguarding gold are small compared to the above mentioned costs of fiat money. And the benefits of gold as money outweigh both its costs and the supposed advantages of fiat money.
32. Isnít the world gold stock too small for a return to the gold standard?
The amount of gold is irrelevant to its function as a medium of exchange. The question rises which amount of gold there should be in order to be suitable for use as money. The price mechanism makes prices adjust to the quantity of gold. More money simply reduces the purchasing power of a currency unit.
33. Isnít the quantity of gold per currency unit too small?
During the classical gold standard in the U.S. (1834-1933), the dollar was defined as $20.67 per troy ounce (31.10 grams) or some 1.5 grams of gold per dollar. This small amount was apparently not an unworkable problem. Any amount of gold is useful and if necessary people could calculate with it in nanograms. Gold does not have to physically change ownership as there may be gold backed bank notes and electronic money.
34. Does the competitive advantage of devaluation disappear with a gold standard?
Devaluation of a currency is at best fighting a symptom and besides it does not work as it makes imports more expensive and in the end causes price inflation. If products out of a country become less attractive on the world market, that's a sign of a weak competitiveness, due to high wages, lack of productivity, inefficiency or other structural problems. Devaluation only keeps these things as they are, so does not solve anything. Borrowing artificially cheap money works much the same, as the situation in many euro countries has shown. Under the gold standard and a free (labour) market, businesses are competing more on a strong, structural basis than purely on low prices due to a weak currency. Germany had its strong and popular D-mark due to an excellent export position of quality products. Gold promotes savings, investment and innovation, thus adding to long-term prosperity. Trade flows would then be a reflection of human capacities and efforts, not financial manipulation with harmful consequences.
35. Are the financial market not too big and too complex to handle a gold standard?
This argument again confuses cause and effect. The dominance and complexity of the financial markets is an argument in favour the gold standard rather than against it. Saving nowadays is unprofitable due to low interest rates and constant price inflation. Individuals and investors therefore speculate in shaky stocks, bonds, real estate and complex financial products. The lack of knowledge, the unpredictability and the huge financial interests, lead to malinvestments and continually overstressed financial markets, a pyramid scheme fed by a necessarily accelerating debt money growth. With gold, people could save at free market interest rates, their banks would invest it in innovative businesses and people could buy profitable shares and bonds with the existing money supply. Banks would specialize in knowledge of markets and technology and could thus help to improve it. Not only savers and consumers would benefit, but in fact everyone in society. The appreciation for exact science would grow as it would be a main driver for more prosperity, instead of the ďfinancializationĒ of the last (lost) decades. Prosperity and wealth would grow sustainably and mass speculation would disappear.
36. Is a return to the gold standard realistic?
Abandoning fiat money and re-establishing a gold standard is only a matter of will. If politicians and the banking sector should give up their privileges, it could succeed today. The fact is, they then must give up privileges like highly paid jobs and spendthrift. Supporters of gold, who are convinced of its virtues, can at least continue to do research and write about it. Above all, the real question is whether continuing the current money system is realistic, given its many side effects, the recurring crises and its inevitable demise.
37. Isnít the gold standard too complicated for the general public?
All that a gold standard involves is a currency name representing a fixed weight of gold. In the nineteenth century there was an intense public debate in the United States on topics such as gold, silver, central banking or free banking and money creation. Today, with abundant information available on paper and the internet as well as high class and free education, one can get informed better than ever before. Anyone can learn as much about gold and money as he wishes. And itís exactly the current financial system that so many do not understand. It is chaotic, complex and constantly in turmoil because economic laws relentlessly do their work without policy makers and the public seeing or understanding it.
38. Isnít a gold standard superseded by the electronic money?
Electronic payment methods can be used with a gold standard, in addition to gold coins and redeemable banknotes. One example is the website www.goldmoney.com, where physical gold, silver and platinum can be bought on a digital account and which customers can use to pay with patented gold grams. This is a private commodity currency. Payments outside GoldMoney can be made as well. This is a form of digital gold currency.
39. If the world under a gold standard should disintegrate into regions, would globalization be actually reversed?
If the world gets disintegrated under gold and free banking, because of more local production and trade region, then that is the outcome of the peopleís free choice. Such a smaller society apparently provides adequate fulfillment of everybodyís needs and is as natural as gold itself, because they both come about pn a free basis. Globalization is not and should not be a goal in itself.
40. How could we return to a gold standard?
For the turnaround to a free banking market and a corresponding (free) gold standard, the following steps are in any case necessary:
- A stop on any further money creation.
- The sale of gold reserves held by governments and central banks if governments would not pick up the task of maintaining a gold standard. The proceeds should flow back to the citizens.
- The full liberation of the money and banking sector so that entrepreneurs could freely set up banks and start to issue money based on gold or any commodity their customers would appreciate.
- The abolition of the central banks.
The advantage of a controlled transformation to a gold standard and free banking, however dramatic the steps are, is that thereís no need to wait for the (inevitable) collapse of the current fiat money system, usually caused by hyperinflation.
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