Fiat Money Versus Gold Standard, Privatization of Currency!

Fiat Money Versus Gold Standard, Privatization of Currency!
We discussed how government interference in market causes all inflations and depressions here The Price of Rice, What caused it to go so high? And here The story of Money; what causes Inflation.
Q>Yet, even price of gold can change, appreciate or depreciate. So, how is it more safe than the Fiat Currency? Read more about Fiat Currency1
The price of gold can rise and fall, but you can’t print more gold to temporarily float an economy, at the cost of later, catastrophic inflation.
Gold backed currency is the most stable, most immune to inflation, and most representative of the actual value of an economy. The fiat system (described in all its horrible failure in the previous two posts) can never even begin to match the stability, honesty, and genius of the gold-backed currency system.
Fiat Money Versus Gold Standard, Privatization of Currency!
Yet, some may point out and question like “You can’t print more gold, but you can mine more, and release more onto the market if you want to undermine the price of gold. Likewise, you can restrict the supply of gold by mining less, forcing the price to rise.”
That’s just as good as printing more money: no – it’s better.
And it is already being done. The major gold producers limit the amounts of gold they produce to meet their economic and political requirements (or those of their masters). ”


  • First of all the question is conspiratorial. Yes, by dumping more gold into the market gold prices can be brought down, gold being a single fungible commodity, its prices can be easily adjusted.
    Take for example; today there are 100 tones of gold into the market. So, all the prices are adjusted to that. a laptop can be bought for 1 KG of gold. Now tomorrow if someone brings another 100 tones of gold into the market, the prices will be readjusted the new value of gold. Yeah the prices will rise, but then now everybody has an incentive to save their gold.

    People will start holding back their gold since the prices are high this literally means some amount of gold is pulled back from the market(so some gold is dumped and some is taken back as a reaction to this), when the gold is distributed across the market(basically when your salary increases because there is more gold into the market) you will start spending at the regular rate. In numerical terms if the gold supply rises at 2% per year, and economy grows at 4% per year, then the investors and share holders will adjust the prices by 2%(less).
    Similarly if gold supply rises at 4% per year and economy grows only at 2% per year, then the people will bring up the prices by 2%.
    Every ounce of gold you have now fetches more, and you work and give more to earn an ounce of gold.
    So you start working in terms of half ounces.
    Main difference between fiat currency and gold currency inflation would be that information travel will be much faster.

    There is no single opaque entity to decide how much to expand the money supply rather now numerous people dig up gold or save/consume gold. The information propagation about the quantity of gold is much faster.
    If tomorrow government declares that they are doubling the money supply overnight, on Television channel, everyone will immediately double their prices, thereby effectively neutralizing the government’s expansion of money supply. Government won’t be able to buy anything more now. So its in best interest for the govt to NOT allow the information of expansion in money supply to propagate. Because of this anyone directly on the payroll of the govt gets more benefit and those who are on the fringe of receiving that money are screwed up.
    In terms of gold, if 1000 more tones of gold is discovered and as soon as people find it out, they double their prices and salaries. They don’t wait till they start earning double to spend double.

    So that laptop I wanted to buy is immediately now for 2KGs of gold. It doesn’t matter whether I have that gold or not. I would simply wait till my salary reflects the extra gold in the market and then I go and buy the computer.

    Now let us discuss the problem of artificial restriction of the gold supply.

    Well first of all Gold is not like Oil, if there is less gold (prices are higher) then people will use less gold, unlike in oil where it’s very difficult to reduce oil consumption.

    Secondly, to restrict the gold supply you will have to form a cartel of gold producers, very difficult in free market.

    So when gold prices will rise, the first reaction of people would be to bring out their gold savings.
    I will sell my mom’s old jewelry now because it fetches me good value.

    Once all the gold savings are out, and the prices still continue to raise then people will merely adjust their values and salaries accordingly.

    Instead of getting 1Kg of gold in your paycheck, next year you will only get half kg of gold, then next year 250g of gold.

    You are working the same, you are able to buy the same amount commodities, my rent has come down by half, my expenses are also half now(in terms of gold). I am spending half the amount of gold, but getting the same value.

    That’s just as good as printing more money:no – it’s better.

    This is not as “good or bad” as printing more money.
    That’s like saying oh having free market in cell phone services is the same as having government’s monopoly in telecom, because you pay the taxes and you get to use the telephone, and there you pay the monthly subscription fee and you get to use the telephone.

    What the questioner fails to see is that gold currency represents privatization of currency.

    The unjust power to create wealth out of thin air is taken from the government (and nobody is allowed to have it).
    Now there is a competition in the free market.
    There are various sources of money supply(the gold diggers), just like no single country pumps out all its oil in one day or a month, no gold miner is going to do the same with his gold.

    Also, if any gold miner tries to hold back the gold production to raise the prices then it will be countered by the other gold miners who will now produce more.
    If some day we run out of new gold, that means our gold supply is now restricted to a specific quantity, then all we have to do is follow a price drop rate every year, depending upon the economic growth that year.

    So if economy grew by 10% last year, which means every calculation about gold, will now have to presume the weight of gold less by 10%.
    So if you were accepting 1 KG of gold by your employer every month, now you will accept only 900 grams. Everything you pay for will now cost 10% less.
    I gave example of laptop there, which may again raise some questions because laptop is not a commodity which is sought desperately everyday.

    Let’s say, if I need one Kilogram of wheat flour or Rice to make food, I wont wait for my salary increase, I can’t, I have to eat everyday until salaries are increased….
    So, what will happen for the daily usage commodities in times of such influx of extra gold?

    Fiat Money Versus Gold Standard, Privatization of Currency!

    Remember one thing; whenever there is a problem like this, this is a demand in the market to find a solution for this.
    And anyone who finds a solution to this problem/demand makes profit.
    Basically you check the gold prices every day. If gold prices go up, you automatically get paid less salary, if gold prices go down, you are automatically paid more salary, at the same time, and everything you buy has a higher price.
    The market will form a mechanism for this thing.

    “Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.” – Francisco’s Money Speech, Altas Shrugged

    1. Fiat Currency , at Wikipedia []

    12 comments for “Fiat Money Versus Gold Standard, Privatization of Currency!

    1. June 4, 2008 at 2:44 pm

      hmm. tht made some sense.

    2. June 4, 2008 at 6:31 pm

      brillient header images….
      and thoughtfull writings…..good site Gargi….

    3. June 5, 2008 at 3:00 am

      hmmm…..nice….very insightful indeed!!

    4. June 9, 2008 at 6:47 pm

      This is an excellent post because the issue mentioned here is plaguing every country’s financial system. Awesome choice of topic and keep spreading the word.

    5. Mayuresh
      July 1, 2008 at 1:28 pm

      I did not understand first line of “Francisco’s Money Speech”
      What is meant by  “destroyers” here ? Is this a war-like situation ?

    6. Unpretentious Diva
      July 1, 2008 at 1:47 pm

      @Mayuresh.
      Well, when it is clear that they are looting you and me. when it is clear that on the name of “collective welfare”, they are harrassing the very essence of Individual liberty, can’t you see it is the war-like situation?
      Check for marxists, stalinists, Naxalites, communists killings and mass murderings. Communism/Socialism is the second biggest killer and mass murerer of humanity, first being religionism.

    7. Unpretentious Diva
      July 1, 2008 at 1:57 pm

      @Mayuresh

      For further clarifications, why don’t you read Francisco’s speech by yourself?
      The link is given on right hand side, under the heading “Important Links”.

      For your convenience, here it is

      http://capmag.com/article.asp?ID=1826

    8. Unpretentious Diva
      July 1, 2008 at 3:52 pm

      So, finally some of the Indian economists also pointed out the real cause of Inflation.

      In his Excess Speculation recent article in Times of India, Swaminathan Aiyer explicitly explains that although the production of oil has been increasing gradually, the cause of inflation lies “elsewhere”.

      Actually, inflation occurs when too much money chases too few goods. Today, no great shortfall in goods is evident. World oil production is rising, though slowly. Mineral and metal production is up. The FAO predicts a record global harvest in 2008.

      We discussed it all here.

       

      He also addresses the major root of inflation as—


      Money supply expanded fast in Third World countries too (including India). This was partly because central banks bought up dollars in forex markets rather than let their currencies appreciate.

      Alas, a flood of money cannot for long lift production alone. Soon it starts raising prices. First the excess money raised housing prices, and everybody was happy. Then it raised stock market prices, and people were very happy. Finally, the flood of money raised consumer prices, and suddenly people are very unhappy.

       

      He also clarifies that there is no link between inflation and forward trading.

      There is hardly any forward trading in iron ore, yet its price is up 76-95% in new contracts. By contrast, huge forward trading in sugar has left world prices low. Nickel futures are down from a peak of $60,000/tonne last year to just $22,000. Wheat futures once spiked to $13/bushel but are now down to $9/bushel. There is no clear link between forward trading and skyrocketing prices.

       

      At last, he opposes subsidies and taxation system too—

       

      Today, at last, governments across the globe are reluctantly reducing oil subsidies and starting to fight inflation through a monetary squeeze, even if it means slowing growth. Squeezing money in India alone will produce only limited results. For good results, central bankers of the world should get together for coordinated action. But no such initiative is in sight.

      Politicians are quick to take the credit when the economy does well, and to blame others when things go wrong. They must take the responsibility for bad as well as good policies. Banias may be quick to grasp the inflationary potential of bad policies, and profit from it. But the root cause of rising prices lies elsewhere.

       

      What I wonder about is, he is still reluctant to strongly oppose the wrong and clarify and support the right.

       

      One thing which should be kept in mind is, there is no “left” for the right, whatever opposes the “Right” is nothing else but WRONG.

    9. berry
      January 23, 2009 at 2:17 am

      A very good post. Thanks for the great Insight.

    10. February 9, 2009 at 6:03 am

      http://www.politonomist.com/the-benefits-of-a-fiat-currency-00852/

      The price of gold has not really changed over the last hundred years. In fact, it would make sense that it has only appreciated in value as production went up; as we produce more stuff, you should be able to buy more with the same stuff as before, since there’s the same amount of ‘gold’ or even ‘fiat currency’ chasing an increased amount of product.

    11. aisyah
      September 11, 2010 at 2:10 am

      well the price of gold will fluctuate in short term but fiat money will fluctuate even greater in a long term while gold doesn’t..

      fiat money will cause a grater inflation with the unstable and the value were control by the “invisible group”…

    12. Shaifi
      September 30, 2011 at 10:31 am

      I think.. The destroyer here are the zionist bankers..like rothschilds..jp morgans..etc and the biggest of all the Federal Bank Of USA, the initiator of fiat money and which causes the inflation around world..making countries poor and in debt.. Beaware of these zionist bankers..

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