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In any debate about gold and silver,
certain objections are repeatedly raised by opponents of monetary freedom,
even though those objections have been refuted many times before. Some
of these objections are:
- There is not enough gold;
- Russia and South Africa, since they are the principal
producers will benefit;
- Gold is subject to undesirable speculative influences;
- Gold will produce instability in prices.
The first objection, that there is not enough gold, is
based upon a misunderstanding of the price of gold. It assumes that the
present exchange ratio between gold and notes is the exchange ratio that
must prevail when the gold is made a medium of exchange. Such obviously
is not the case. To put it simply, lower prices under gold currency will
eliminate the necessity for larger sums. One could buy a suit that costs
400 paper units with 20 gold equivalents at a different exchange ratio.
The second objection, concerning Russia and South Africa is equally groundless.
It could be considered an advantage, in the same way as oil or a fertile
soil could be, in comparative terms. The amount of gold taken out of the
earth in the last two thousand years is already superior to the known
but unminted reserves of Russia and South Africa. The unminted reserves
of Russia are estimated to be about 250 million ounces which is less than
what the United States already has in minted reserves. The total amount
of minted gold in official holdings only (without considering the privately
owned)according to the IMF can be estimated at 1,100 million ounces. The
demand for gold as medium of exchange will release the existing hoardings,
a process which is already in vogue in most central banks. The real fear
should be a massive increase in the supply of paper money which will bring
us another decade of high inflation like the 70's.
The third objection, that gold is subject to speculative influence and
therefore too unstable to be used as a medium of exchange, is also false.
During the 70's, gold became a major hedge against inflation. The run-up
in gold prices from $35 to $850 per ounce came as a result of fears about
the value of paper-money and developing international crises. People who
object to gold because it is speculative confuse cause and effect. The
real speculation is provoked by an irredeemable paper-money system and
people who logically want to protect themselves from it.
The fourth objection says that gold will produce instability in prices.
Comparing prices in gold in U.S. of 1833 with 1933, just prior to the
abandoning of the domestic gold standard, the index of wholesale commodity
prices increased only 0.9 percent in one hundred years! Since then the
index increased 350%by 1971 when President Nixon, declaring international
bankruptcy, announced that no more gold would be given in exchange for
dollars. In the last twenty years the index has gone up around 400%.
Gold is therefore stable and fit to be money, and history has shown us
that there is no money more unstable or unfit than paper-money.
Go
to Chapter 10
The Return of
the Gold Dinar
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