James:
First of all, I want to say thank you for putting so much effort
in to an active blog on this subject. I try to read daily, and I
always
play catch-up once a week. I know it takes a TON of work to keep
something like this alive and post as much each day as you do, so
again, thanks. I was moderately concerned for the first time reading
your blog this past week in regards to the post on Gold and Silver
Barter. In there
you referred to the American public as having "been robbed".
My concern is that this is one of the few places where survivalists
get the bad rap of being crazy. I want to point out something: whether
it's gold, a paper dollar, or a rock, the value of whatever item is
determined by faith, not intrinsic
value. Gold is only valuable to us because we decided that shiny stuff
was so important that we were willing to trade long, hard days of work
for a little bit of it. At one point in our nation's past we limited
the currency in the market to be equal to the value of the gold the
US Treasury has on hand - but there was a problem. By the 1950s, during
our rebuilding of the country post-WWII, there was so much growth going
on that we actually were outpacing the availability of gold in the
market. We were slowly stifling our own economy because we could not
produce more goods and services that there was physical gold in the
market. Finally, common sense prevailed when we realized something:
The American public did not need gold, they needed dollars. They can
not
use gold in the grocery, the feed store, or the mall. Dollars they
can use. People have more faith in the dollar than they do in the ounce
of gold. Let the economy grow! To imply that we have been fooled is
to imply conspiracy and breeds distrust. We may differ here, but I
believe that is completely possible
to work within the system until there is no system. When there is no
system, I will be beside the other readers here making the best of
the barter system. Until then, I will happily use my U.S. Dollars to
purchase those items, never once believing I have been duped. To summarize,
whether it is gold, paper currency, diamond, or potato - the value
of any item is what we're willing to trade in labor or
tangibles to obtain it. The U.S. Dollar's value is not, and should
not be based on our perceived value of gold, since gold has no value
of
its own other than what we assign it. Gather your junk silver and gold
for WTSHTF, but don't believe in it more than the dollar. Oh, and don't
worry about the feds coming to take away your gold - since we're not
on the gold standard then they don't need it.
- L.C.
JWR Replies: I really appreciate you taking the time
to articulate your opinion because I'm sure that there are many other
people that feel
the same way. But I do beg to differ. We have been
robbed. When the Federal government decreed that our 90% silver coins
in circulation
be replaced with essentially worthless copper tokens (worth perhaps
2% of what a silver is worth, in terms of their metals content) it
was both a violation of the public trust and a violation of the Constitution.
(Article I, Section 10 of the U.S. Constitution states, "No
State shall make any Thing but Gold and Silver Coin a tender in payment
of debt.") It is no wonder that the pre-1965 coinage vanished
from circulation in less than two years after the switch. Gresham's
Law is inescapable: "Bad money drives out good."
By law, a
pre-1965 dollar was convertible into real silver coinage. In
contrast, a post-1964 Federal Reserve Note (FRN) "dollar" is
merely an non-convertible "I
Owe You Nothing" certificate. Whenever
I get handed handed FRNs, I convert most of them into tangibles as
quickly as possible. Someday, probably
within the next ten years, there will be a dollar crisis. At
the far end of that crisis, I predict that the dollar will revert to
close to its real value. (Essentially,
nothing.)
And, re: "...there was so much growth going on that we actually were outpacing the availability of gold in the market..." That is hogwash invented by Keynesian economists. If the free market were allowed to exist, then we would have had a free-floating currency, still backed by gold and silver. (The "bi-metallic" system.) A convertible, metals-backed currency acts as a natural check on the growth of government, not the economy. It is no coincidence that the Federal debt exploded after we went off the gold standard. With an unbacked currency, there is no limit to a government spending like a drunken sailor. (BTW: I mean no offense to drunken sailors. In my experience they act much more responsibly than governments.)
And, re: "...gold has no value of its own other
than what we assign it." You make it sound as if gold is
just a pretty rock ("shiny stuff") that has arbitrarily been
assigned a high value. But
gold's high value is due in part because of its unique intrinsic properties. Gold
is the most malleable and ductile metal known; (a single ounce can
be
beaten
into a sheet that is 300 square
feet). Heat, moisture,
oxygen, and most corrosive agents have very
little chemical effect on gold. (Gold coins recovered from 3,000 year old
shipwrecks come up from the bottom of the ocean looking bright and
shiny.) Because of its high electrical conductivity and resistance
to corrosion
and
other desirable
combinations of physical and chemical properties, gold is an essential industrial
metal. Since it is a good reflector of both infrared and visible light,
it is used
for the protective coatings on many artificial satellites.Gold coating
enables biological material to be viewed under a scanning electron
microscope.Gold alloys are used as a catalyst in organic chemistry,
as a treatment for rheumatoid arthritis, cancer treatments,
and restorative dentistry.The resistance to oxidation of gold has led
to its widespread use as thin layers electroplated
on the surface of electrical connectors to ensure a good
connection. Gold performs critical
functions in computers, communications equipment, spacecraft, jet aircraft
engines, and a host of other
products.
(Source of information for the preceding paragraph: http://en.wikipedia.org/wiki/Gold )
