Wednesday, February 18, 2015
Is gold money?
As the secular gold bear drags on, it is becoming increasingly popular to "debunk" the claim that gold is money, and that gold has ever been money.
Most of the arguments tend to center around observations such as the Maya used Chocolate as money, or the Laplanders used stones. This is like saying the Wheel is not the basis of mechanical travel because the Icelanders used snowshoes. In other words, a non-sequitur.
PRIMARY CURRENCIES THROUGH HISTORY:
650-700 BCE to 500 BCE Lydian Stater:
600 BCE - 350 BCE Kyzikene Stater:
510 BCE to 336 BCE PERSIAN DARIC:
336 BCE to 200 BCE: ALEXANDER TYPE STATER:
100 BCE to 400 AD ROMAN AUREUS: 500 years of relative stability.
400 AD to 1200 AD BYZANTINE SOLIDUS: 800 years of stability.
1200 to 1600 AD: Venetian Ducat: along with French and English coinage.
1700 to 1900 British Guinea:
Historically, from 700 BCE through the end of the Byzantine Empire, gold was certainly the reserve or primary currency par excellence. Certainly dominant military cultures that had access primarily to silver mines, like Athens and Macedonia used silver currencies too. Yet the Athenians kept large numbers of Kyzikene Staters in their Treasury and used them along side silver Athenian owl coins for official state payments. And Philip of Macedon's Empire was only consolidated with the conquest of the gold mines in the North East, from which time Gold became the dominant currency. Until the 20th century, whenever an Empire had access to gold, it was always the dominant currency. And, perhaps not coincidentally, there has never been an Empire that did not have access to gold.
We can go back to 3000 BCE to700 BCE, but this is futile because there was no concept of Money. It simply didn't exist as we conceive it.
So, what is money?
To narrow the frame of argument some will claim money is simply a medium of exchange. By this definition obviously anything can be money - over the very short term, as long as two people agree to exchange something for something else. Barter. A bottle of piss could money, if you're willing to trade me something for it.
Of course, if a government is powerful enough they can proclaim and enforce anything to be legal tender for settlement of all debts: ie: a medium of exchange. This has been the case, for example, in the global economy under the American Empire since 1970. 45 years. In historical terms, the blink of an eye. Statistically irrelevant. Yet it is the system currently prevailing.
To determine how long it can prevail we must look at other characteristics of money to try to judge how important they might be.
Obviously for longer term use, if you're planning an economy that might theoretically endure, money must be a store of value. That rules out Chocolate, for example. If chocolate were money in my personal economy I would probably consume all my capital in no time. Stones would still be pretty good. Though it might be difficult to settle international trade with 200 pound stones.
In our current system the store of value is determined by a combination of financial stability and military might: both of which inspire confidence in the system. This is, in fact, as it ever was. The difference is that from about 700 BCE until 1970 AD money inspired confidence also through its intrinsic store of value: its weight in precious metal: gold, silver and gold-silver or electrum.
The Store lies in the inherent properties of being Malleable, durable, and Inert. The Value is in the hazy concept of Beauty. Artwork made from gold has always (until the 20th century) been prized above all other materials.
It is not important why humans feel this way. Only that they do.
The more pure, and the more constant in weight over time, the greater the confidence in the currency. Gold being inert is obviously the only metal that could serve as a store of value over extended periods of time. The Byzantine Solidus was the primary global currency for 800 years, during which time it was mostly 99 percent pure gold at a weight of 4.5 grams.
Finally, to serve in all transactions, large and small, money must be an accurate unit of account. Malleable, divisible and consant Gold served this functions admirably as it could be cut down to the tiniest proportions and maintain its constant weight and preserve its official stamp that certified its purity and represented the power of the issuing authority.
This is why Gold was the PRIMARY CURRENCY of the Lydians through the Persian Empire, through the Alexandine Empire through the Roman Empire through the Byzantine Empire and right through the Empires of the Early Modern Era until about 1900.
Today, money is a concept represented by computer accounting and pieces of paper.
Money is a medium of exchange and a unit of account. Most of it is stored in Banks and traded on electronic exchanges largely regulated and operated by bankers. This has only been so for about half a century in all of human history. It is the period we live in so it is all we now know.
But current money is only a store of value so long as Confidence in the global banking system can be enforced by managed stability and military might.
The moment the system APPEARS to be unstable to the point that bank accounts are viewed as unsafe people begin to search for ALTERNATE STORES OF VALUE.
AND WHEN HUMANS SEARCH FOR ALTERNATE STORES OF VALUE THEY ALWAYS RETURN TO GOLD.
But how close are we to a crack in confidence?
There are many analysts working with wave and cycle theory to try to determine this answer to this question. Anyone who claims the answer is simple is simplifying.
On the one hand we are in completely uncharted territory with the theoretical issuance of currency units controlled by a cartel of Central Bankers, some of whom are academic theorists and other of whom are essentially employees of the Private Bankers who train and control them.
They are controlling Hundreds of Trillions of dollars worth of Theoretical Currency Units, most of which flow into the vaults of the multinational banks and the multinational corporations closest to the banks.
Many of these central bankers are bright and well educated but none of them are geniuses. They really don't know themselves exactly what they're doing as there is No Historical Precedent for any of this.
This should strike terror into the hearts of anyone not included in this tiny tiny club.
On the other hand, the banks and the corporations control all politicians and all facets of media. So the message that we are bombarded with day and night is always that ALL IS WELL. ANY PERCEIVED TURMOIL IS TEMPORARY AND TRANSITORY. THE SYSTEM IS FUNDAMENTALLY SOUND.
And, in fact, if you live in Europe or the North America, chances are even if you are poor, you have heat and hot water and plumbing and television and food and schooling.
These comforts trump most forms of discontent.
Though these comforts seem to be lacking in most of the Middle East, Africa, and much of Asia. And it seems some of these comforts are now disappearing in Europe too. This should be cause for some concern.
In sum, I can't help with the timing of a crack in confidence. But throughout history, it has always occurred.
The last time it Almost Occurred was in 2008.
That's within recent memory.
So don't bet everything against it happening again.