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Confidence in physical gold

Tuesday, December 10th, 2013

According to kingworldnews.com and also confirmed on jsmineset.com, the Shanghai Stock Exchange would have delivered more gold than Fort Knox in the States. Needless to say the strong impact that would have on the gold price in the forthcoming future.
Some people even expect tapering to happen again or at least at some point.

Shanghai stock exchange
Shanghai Stock Exchange

The dollar is being printed on such a large scale that it leads to a complete devaluation of the US currency. That may be a satisfaction to the American to have more bank notes printed out but on the other side this does not help other countries like China who is presently sitting with some $3.7 trillion of foreign exchange reserves – other countries are actually in a pretty similar case with lesser quantities but still the concern remains …

Kingworldnews visited the Shanghai Stock Exchange in 2009 and said that they had delivered some 8655 tons of gold since 2009. The Chinese bought something like 1.700 tons of gold in the first eight months of this year. It means that gold is actually feeding the Chinese’ foreign exchange reserves. We know that the renminbi is already the second largest currency used in global trade … How long before the dollar becomes fully obsolete ?

Let’s have a closer look at the dollar :

Well, one should be scared when looking at that 14 year perspective published on jsmineset.com

a 14 year perspective for the de-dollarization

a 14 year perspective for the de-dollarization

In our article published on Nov 19th 2013 – China remains the world’s largest gold consumer in Q3’13 – we were actually talking about the lack of confidence in the global financial market and systems altogether. As Jim Sinclair was saying ‘Credibility speaks to Confidence and Confidence speaks to Gold’.

Soon we may have part of our savings confiscated. How trustworthy are the banks? 

Investing in physical gold has never been so important. Making it affordable to everybody is our main concern and feasible thanks to our LSP.

For further information with regards to the confiscation in the USA, please read our article The Great Confiscation : Gold ownership was illegal in the USA from 1933 to 1975.

The Krugerrand 1 once

Monday, December 9th, 2013

The Krugerrand is probably the original Gold bullion coin. It was introduced in 1967 as a vehicle for private ownership of Gold whilst also being circulated as currency, hence being minted in a durable alloy. From 1980, further sizes were introduced. See specification table overleaf.

Details

pict krugerrand 1 ONCE The history of the Krugerrand begins with the South African Chamber of Mines which had the inspired idea to market South African Gold by producing a one Troy ounce bullion coin to be sold at a very low premium over the intrinsic Gold value. It was intended to be circulated as currency, hence it was minted in a more durable alloy and contained 2.826g copper to resist scratching and thus giving the coin its golden hue. At the time of launch, the Krugerrand was the only accessible Gold investment opportunity for the everyday buyer and this thought came through from the inception. It was the fi rst coin to contain exactly 1 Troy ounce of Gold.
Despite the coin’s legal tender status, economic sanctions against South Africa made the
Krugerrand an illegal import in many Western countries during the 1970s and 1980s. These sanctions ended when South Africa abandoned apartheid in 1994 and the Krugerrand once again regained its status as one of the worlds’ leading bullion coins.
In 1967, only the one ounce coin was available. From 1980, the fractions were available, namely, one half ounce, one quarter ounce and one tenth ounce. The name is derived from a combination of Paul Kruger, a well-known Boer leader and later President of the Republic and the Rand, the monetary unit of South Africa. The obverse side features the Otto Schultz image of Kruger along with the name of the country “South Africa” in the two languages, English and Afrikaans. The reverse side, designed by Coert Steynberg features the image of a Springbok Antelope, one of the national symbols of South Africa.
By 1980, the
Krugerrand accounted for 90% of the Gold investment coin market. For example, it is estimated that between 1974 and 1985, some 22 million coins were imported into the United States alone. Although it is not a beautiful coin, many millions have been sold since its introduction due to the policy of selling with a very low premium. The success of the Krugerrand led to many other Gold-producing nations minting their own bullion coins, such as the Canadian Maple Leaf in 1979, the Australian Nugget in 1981, the Chinese Panda in 1982, the US Eagle in 1987 and the British Britannia in 1987.
The
Krugerrand is interesting in that the government of South Africa has classed the coin as legal tender although it has no face value. It therefore fulfills VAT-free criteria for investment coins.

Investment Advice

There are various grading systems in use around the world. However, the British system is as follows:

investment advice krug
Essentially, the bulk of
Krugerrands are produced in a non-proof form although the South African Mint produces limited edition Proof quality Krugerrands as collector’s items. These coins in particular attract a healthy premium and are priced well above the value of the bullion alone. However, non-Proof coins also have a premium above the value of the bullion.
The Proof and non-Proof coins can be distinguished by the reeding, that is, the number of serration on the edge of the coin. Proof coins have 220, non-Proof have 180.

key facts krugerrand

Krugerrands are made of an alloy of Gold and Copper – this effect also being known as Crown Gold as it has long been used for the British Sovereign coins. Due to the popularity of the Krugerrand, there are also many fakes in existence and the investor should be wary. Copper alloy gives a much more orange appearance than silver alloy. Likewise copper is very durable and coins should be in good condition always.
The best marker of authenticity is the weight and this should be checked carefully using the table below since the Gold weight and total weight are known. Check also the reeding.

Specs

specs krugerrand
All investment coins sold by LinGOLD.com are EF quality or above.

For further information: +44 (0)203 318 5612
info@lingold.com


The Panda 1 ounce

Wednesday, December 4th, 2013

The Chinese Gold Panda is a popular series of Gold bullion coins issued by the People’s Republic
of China in Proof-like, brilliant uncirculated quality. They are issued in a range of sizes between
1/20 Oz and 1 Oz with larger 2 and 5 Oz coins being additionally issued in some years.

Details
panda 1 onceChina issued its first Gold coins bearing the Panda design in 1982. These were limited
to sizes of 1/10 Troy ounce along with 1/4 Toz, 1/2 Toz and 1 Toz. From 1983, the 1/20 Toz size was added and additionally a 2 Toz and 5 Toz coin is sometimes issued.
These strikingly beautiful coins are always issued in Proof-like brilliant uncirculated quality and prove very popular.
A different design was issued each year until the 2000. When the 2001 edition was announced, so too was a freeze of the design and thus the 2002 Panda is identical to the 2001. Collectors spoke up on behalf of the annual change and China responded by reversing their policy so that from 2003 onwards, the designs again change each year.
However, on the reverse side, it always features the endangered Giant Panda. It also features the size, Gold fi newness and monetary value.
The main design on the obverse of the coin has hardly changed, save for minor detail changes in the image. It features Beijing’s famous Temple of Heaven (Tien Tien) in the centre with Chinese characters on the top saying “Zhonghua Renmin Gongheguo” meaning People’s Republic of China and at

the bottom the year of issue. If it is a commerative issue, the theme will also be marked here.
There was an adjustment of the face values of the coins in 2000/2001 – please see
the table overleaf for details.
The Chinese mints usually do not employ mintmarks. In certain years, there have
been minor variations in items like the size of the date, the style of the temple and
so on. These allow the numismatist to identify the originating mint. In some years,
but not all, other marks and Proof marks (signifi ed by a ‘P’) have been added. The
four mints involved in the production of the Panda are Beijing, Shanghai, Shengyang
and Shenzhen.

Investment Advice

INVESTMENT ADVICE

All Panda coins are issued as pure Gold fineness, 999.9‰ and in theory have a low premium just above the value of the Gold.
However, their intrinsic beauty makes them very collectable and they attract good premiums.
As with any coin, the best quality grades will attract the best premiums. The early years in particular will be those with the highest premium. Although the coins were issued in Proof form, many were unpacked and have thus been damaged and are at lower gradings. The mintage figures should be carefully examined – the number originally minted is quoted but it has been found that production continues for various years, hence the total mintage may be quite a bit higher some years after.

SPECS

SPECS

KEY FACTS

All investment coins sold by LinGOLD.com

are EF quality or above.

For further information: +44 (0)203 318 5612
info@lingold.com

The British Sovereign

Friday, November 29th, 2013

The Gold Sovereign is a highly collectable investment coin first introduced in Great Britain in 1489 at the request of King Henry VII. In 1816, there was a major reform of coins in Great Britain which resulted in The Coin Act. This laid down in law, amongst other things, the specifi cations and dimensions of Gold Sovereigns produced from 1817 onwards which have remained in place to this day. The Sovereign weighs 7.99g and is 22 carat Gold (or 916.667‰ fineness).

SOVEREIGN AVERSE AND OBVERSE

Details

The first Gold Sovereign was struck in 1489 for King Henry VII. Sovereigns continued to be issued by monarchs up until the end of the reign of Elizabeth I in 1603. As part of the coin reform of 1816/1817, the Sovereign was re-introduced. A young Italian engraver, Benedetto Pistrucci, was appointed to create the reverse design coming up with the beautiful image of St George slaying the dragon. This design saw many alterations over the years but is essentially the same. As a testament to the design, it still appears on the very latest 2013 edition. Other reverse designs have at times been used during the reigns of William IV, Victoria, George IV and Elizabeth II. The obverse of the Sovereign followed the trend established by the original and portrays an image of the reigning monarch, which remains the case up to the present.

Gold Sovereigns were withdrawn from circulation at the start of World War I in 1914 although production continued at the Royal Mint until 1917. They continued to be produced at other mints of the then British Empire but at lower quantities than before. Sovereigns which were not produced at the Royal Mint carry a mintmark showing their provenance, hence one finds coins referred to as Australian Sovereigns or South African Sovereigns. This “foreign” production stopped in 1932.

In 1957, the Royal Mint began again producing Sovereigns in order to meet world demand and to stop the booming counterfeit production which had become rife since the Royal Mint stopped producing in 1917. They were not however reintroduced into everyday circulation. Prior to 1979 only Gold bullion coins had been issued and it was this year that the fi rst Gold proof Sovereigns were issued. Between 1983 and 1999 the Royal Mint ceased producing Gold bullion Sovereigns and only minted proof Sovereigns. Gold bullion Sovereigns were re-introduced in 2000. There are several special designs but essentially, the George & Dragon design remains with the wheel turning full circle where Pistrucci’s design (which was on the Sovereign when the current monarch was crowned) has been re-introduced for the 2013 edition to mark the 60 years reign of Elizabeth II.

Investment Advice

There are various grading systems in use around the world. However, the British system is as follows :

SOVEREIGN 1

Whilst older Sovereigns were produced in much larger quantities than those produced today, it is much more diffi cult to source a good quality Sovereign from those times. Sovereigns from the reigns of George III, George IV and William IV are extremely rare in good quality and thus command high premiums. EF quality can be found but are still quite rare. For example, a UNC George IV Sovereign from 1825 made £14,950 at a sale in March 2004! Early Victorian shield Sovereigns are highly sought and therefore an EF quality coin would fetch a high premium. Indeed anything UNC or FDC from the reign of Victoria is a high premium coin.

Edward VII and George V are fairly easy to obtain in EF quality as they were produced in very large numbers. As with Victoria Sovereigns, any UNC or FDC coins would attract a high premium.

The majority of coins on the market is from the reign of Elizabeth II and has lower premiums than earlier editions. However, the quality again affects the premium and the investor should look for the highest grades. Any coin will always fetch a higher premium anyway than the price of Gold and can only become more sought after in the future. There follows a list of certain rare Sovereigns to seek out if possible – finding one of these will command an excellent premium:

SOVEREIGN 2

– 1817, the first year of the modern Sovereign

– 1838, the first Victoria Sovereign

– 1841, the rarest Victoria Sovereign

– 1917, London-minted Sovereigns, not Australian or South African

– 1989, 500th anniversary of the Sovereign edition

– Anything from George II, George III and William IV – FDC, UNC and even EF grades

Specs

SOVEREIGN 3

Detailed reading: http://goldcoin.org/numismatics/the-british-gold-sovereign-the-world’s-most-sought-after-gold-coin/4103/All investment coins sold by LinGOLD.com are EF quality or above.

For further information:   +44 (0)203 318 5612     or email : info@lingold.com

How much does 1 gram of pure gold cost ?

Thursday, November 28th, 2013

Who said that only wealthy people could afford buying gold ?

  • Save from 1 gram of gold per month
  • Secure storage in Swiss vaults – FREE*
  • No administration or signup fee
Sign up for the LSP for free

Gradually build your wealth by simply buying each month a minimum of 1 gram of physical gold, for your LinGOLD Savings Plan (LSP) and benefit from freestorage in Swiss vaults outside the banking system.

How to save with the LSP?

  • Connect to your LinGOLD account or create a new account
  • Signup free to the LSP programme
  • Buy each month a minimum of 1 gram of pure gold
  • The gold you have bought is fully referenced : bar code, photograph, certificate of ownership
  • The gold is stored in a Swiss vault outside the banking system
  • You are free at any time to increase or reduce the amount of your savings, or you can unsubscribe from the LSP with no charge or prior notice.
Minimum Purchase 1g pure gold per month*
Maximum Threshold Unlimited
Storage Charges Free*
Signup Fee None
Availability Immediate Resale
Minimum Engagement None

*The storage charges levied on your gold stored in the LSP are FREE, on the condition that you buy a minimum of 1 gram of pure gold per calendar month, before the last day of each month. If the minimum monthly purchase is not made, storage charges will be applied, currently £4 per month per 200g total weight stored.

What are the products that fall within the LSP?

  • All the fractions of pure gold (1 g, 10 g, 100 g) issued from bars or gold investment coins (Britannia, Sovereign, Napoleon 20F, Napoleon 10F, Panda, Vera Valor, etc)
  • A whole coin : Vera Valor 1 ounce
  • A 1kg bar of pure gold

For further information on the LSP.

Manipulation of financial markets ?

Wednesday, November 27th, 2013

What’s happening with the London gold fixing ?

First, Bloomberg reported that the U.K.Financial Conduct Authority (FCA) was investigating over the way gold prices were set every day in London, as the main bullion-trading centre in the world based on information from the LBMA.

Now it is the BaFin, German’s financial supervisory authority, who is actually investigating into suspected price-fixing of benchmark gold and silver prices.

images-2

One should ask ?

The facts :
It would seem that the London fix, benchmark rate used by mining companies, central banks and other companies to buy, sell and value gold, may have been subject to manipulation over the past few months.  According to some traders interviewed by Bloomberg, it seems that ‘insider trading’ around the gold fixing is potentially possible as dealers and customers exchange information. That should lead to a wider investigation into how global rates are being set.
Remember last year when the London interbank offered rate – LIBOR – was being manipulated. Would other financial markets be manipulated ?
Similar investigations would be under way in the Uk and US, no sources

actually confirmed that point.
It wouldn’t be the first time prices are being manipulated.

Ext: Mining.com


Your savings in a safe place

Tuesday, November 26th, 2013

Traditional investments are at risk because they are inextricably linked to the world wide web of paper debt that exists in futures, bonds, hedges and spread bets.

Pension funds, banks, stock markets and even countries are using your investments to pay off their own debts rather than to seek a profit for you.

These paper investments are all at the mercy of the debt cycle and could be lost completely or become worthless at any time. What happens when these massive debts are called in and can’t be repaid ?  This will happen but nobody knows when. How bad will it be ? How long will it last ? Politicians publicly pretend it can’t happen because they couldn’t handle the panic and their main preoccupation is preserving power or surviving their ‘shift’.

Did you know?

– You can still buy a new car today with the same weight of gold as you needed to buy a new car 90 years ago.

– 300 years ago 2 oz of Gold could buy a cow, the same amount as you need today!

– Current devaluations are decreasing your ‘paper’ savings, investments and pension funds

– Since  2000 stock markets have slumped while the price of gold has increased more than 5 times

LinGOLD.com’s commitment to doing things differently is exemplified through its ‘Vera Valor’ gold coin.  The ‘Vera Valor’ is the first ethically produced coin made from “clean extraction” gold, which is 100% traceable from mine-to-mint.

LinGOLD.com’s vault storage facility is based in the highly secured facility of Geneva Freeport and is independently audited to ensure total propriety and counterparty.

investment in lingold

investment in lingold

Britannia 1 ounce Gold Coin

Saturday, November 23rd, 2013

The Gold Britannia is a 1 Troy ounce investment coin. Whilst the figure of Britannia has graced coins since Roman times, it is only since 1987 that the modern Gold Britannia coin has been produced. The Gold Britannia is also available in fractions and the Silver Britannia is 1 Troy ounce of pure Silver.

It is probably Athena, the Greek goddess of wisdom and war who set the pattern for powerful maidens, like Britannia, to personify the characteristics of the nation they represent. It was the Romans who first portrayed Britannia on their coins. However, in the mists of time, it seems Britannia was depicted as resisting the invasion of the Roman Empire paying tribute to the fighting spirit of the island’s inhabitants, the Ancient Britons. In modern times, Britannia remains the universally recognised personification of Britain.

BRITANNIA 1 OUNCE

BRITANNIA 1 OUNCE

The coin history can be traced through Roman coins, those of Charles II and Elizabeth I through to today. Queen Elizabeth II came to the throne in 1952 and by that time, Britannia had been on coinage continuously for the previous 300 years. These coins were made from copper, and later bronze. In 1971, Britain adopted decimal currency and Britannia was chosen for the 50p copper/nickel alloy coin. In 1987, Britannia was finaly “promoted” to grace the Gold bullion coin which is known today as the modern Britannia. Ten years later in 1997, a Silver bullion Britannia was also issued.

In modern times, different aspects of Britannia’s history and character have been interpreted by different artists. The portrait by David Mach is the ninth to appear on both the 2011 Silver and Gold coins of Elizabeth II’s reign. The 2012 and 2013 coins were designed by Philip Nathan with the obverse continuing to show the acclaimed monarch effigy by Ian Rank-Broadley FRBS.The first Gold Britannia coins were produced in 22 carat form.

The 2013 edition is pure Gold, 24 carat. See full specifications below :

Although it is 1 Troy ounce of pure Gold, the Britannia is in fact the highest denomination coin in Britain. So as well as being free from VAT as it is investment-quality Gold, it is also free from Capital Gains Tax on any sale or transfer which is advantageous over other bullion coins and bars as an investment instrument.

There are various grading systems in use around the world. However, the British system is as follows:

BRIT 2

The Gold Britannia is issued in weights of 1 Troy ounce, half-ounce, quarter-ounce and tenth-ounce. The Silver Britannia is produced in a weight of 1 Troy ounce only and has a face value of £2.00. The large coins are those which attract the best premium. The reason for this is the costs of manufacture are approximately the same regardless of size and therefore Gold content.

The premium of Britannia coins is determined by the quality of the coin, design features, mintage and Gold content. From 1987to 1989, the coin was alloyed with Copper. From 1990 to 2012 it was alloyed with Silver. From 2013, it is pure Gold.

BRIT 3

The British Royal Mint has issued Proof editions every year and these should be sought where possible. Generally, the Britannia is not a high mintage coin. The years with the lowest numbers minted are 1990 to 2000. Coins minted in the years 1990, 1991 and 1997 are particularly sought after as their proof mintage was 262, 143 and 164 respectively. There are several design variations of the reverse, notably the year 2003 which featured Britannia’s head only as opposed to the usual full figure.

Silver Britannia tends to be sold in bulk because of the much lower value of Silver. Beware that Silver prices are much more volatile than Gold.

BRIT 4

GOLD: SAVINGS AND PENSIONS

Thursday, June 13th, 2013

By Mark Rogers

“Save for a rainy day.” The old adage, but does anyone do so nowadays?

“Saving” is much more likely to mean pensions nowadays, the likelihood of ever having one, and the certainty, if one has been saving towards one, that the recent and continuing bouts of Quantitative Easing (QE) have eroded it. “As much as £30,000 could be wiped off a £100,000 pension pot.” (This is Money, November, 2012)

But QE is only inflation speeded up; paper money is inflationary in and of itself over the long term, and with high tax regimes thrown in, no savings are safe. Those who remember the late 1970s will recall the prudent people who realised that money sitting in the bank was money evaporating, so they reasoned: why not spend it? Slap up meals, theatre tickets, luxury holidays – use it now before it is gone. During the Weimar inflation, industrial wages were eventually paid on the hour, with workers rushing out to spend them before they lost such value as they had by the second.

Converting your savings into gold sounds good, but – those ingots?? Is gold for the ordinary person?

Connect to LinGold.com (either click here, or on the box below this article) and find out. Signing up as a Member of the LinGold Savings Plan at a minimum purchase of 1gm of gold per month gives you a foot on the gold savings ladder: the cost of 1gm of gold compares favourably with the cost of, say, travel passes on London transport. Figures for 2012 on average household expenditure give the highest weekly cost as transport at £65.70, with half of that going on running a car; weekly expenditure on groceries averaged £44.20, with 80% being spent at supermarkets – doubtless because of the loyalty schemes and loss leaders that help keep prices down, as well as all the other prices wars that the supermarkets are more or less permanently engaged in.

Gold therefore, if saved for nothing other than the rainy day of retirement, compares very well with other necessary expenditures. After saving money on the weekly shop at the supermarket, it would be well to consider putting the balance into gold – and thanks to the unique LinGold.com Savings Plan, you too can do it! The democratization of gold is here to stay.

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

GOLD STANDARDS III

Wednesday, June 5th, 2013

By Mark Rogers

I have discussed in Gold is Money, and the previous Gold Standards I and II the advantages of understanding that gold is not a commodity, that it is money that serves the usual purposes of money, as a store of value and a means of exchange, but with the vital difference that it also serves as a standard unit of measurement. The latter function is owed to its intrinsic qualities.

However, in Paper Money Collapse, Detlev Schlichter expounds Carl Menger’s view that gold, like all other things that people have found a use-value for, can indeed be considered a commodity, at least in historical terms. (I have looked at this book twice before in Gold Money A Currency of the Past and What Are Banks For?)

How does this argument work? Menger, says Schlichter, that “money could only have come into existence as a commodity”. It was not the creation of the State, there were no issuing authorities; money arose from mutual trading activities in which all commodities had a use-value. Without that use-value, no commodity was worth anything. Schlichter explains:

“For something to be used, for the very first time, as a medium of exchange, a point of reference is needed as to what its value in exchange for other goods and services is at that moment. It must have already acquired some value before it is used as money for the first time. That value can only be its use-value as a commodity, as a useful good in its own right. But once a commodity has become an established medium of exchange, its value will no longer be determined by its use-value as a commodity alone but also, and ultimately predominantly, by the demand for its services as money. But only something that has already established a market value as a commodity can make the transition to being a medium of exchange.”

Gold the Supreme Embodiment of Value

This anthropological-historical understanding of the emergence of money puts the market, trading, at the heart of the valuation process. Which, in turn, reminds us that the ultimate source of value, what something is worth, is its value to the parties, few or numerous, who engage in the transaction. So what in turn is required of a monetary medium, a currency, is a value that as far as possible stands outside that arbitrary subjectivity. Money itself, whatever its currency embodiment, is an attempt to render value objective in that the currency can be used in any exchanges, unlike bartering.

So in turn, the more objective the currency can become, the more it can become a standard (and this is where it is easy to see why it therefore becomes a unit of measurement), the more reliable, the more valuable that currency unit becomes.

And again, in turn, it is easy to see why gold quickly established itself as the supreme embodiment of exchange value: “it is no surprise that throughout the ages and through all cultures, whenever people were left to their own devices and free to choose which good should be used as money, they most always came to use precious metals.”

Gold is Money

Historically then we can enlarge Turk’s and Rubino’s contention that gold is not a commodity, not at least a commodity like oil or eggs, by allowing that the currency standard will have had a life as an object with use-value until other properties lead people to realise that it may have a value above its use-value. People have become familiar with these properties until it is singled out in use as being dominated by these properties and becomes money.

And the dominant characteristic of gold is its stability: soon all other characteristics were subordinated to this one, thereby changing not its nature but its purpose.

Of course, gold can be re-commodified as jewellery or ornament, as Jocelyn Burton, gold– and silversmith, demonstrates in her extraordinary work. People will always have these uses for gold, which are not intrinsically opposed to its properties as money: jewellery after all carries a premium and can, somewhat philistinely perhaps, be regarded as a form of storage, but then this form of storage shares with gold coins the property of portability.

And money can be re-subjectivised, in the past by mutilating it, clipping and shaving gold and silver coinage; and in the present of course the rolling of the printing presses with paper money has made money supremely subjective, its value becoming volatile and it storage properties destroyed.

It may be objected that we have little ancient anthropological evidence for this process, but we do not need to rely upon this as merely an explanation of what “must have happened”, we need only look at how those living in a territory with a devalued currency deal with the depredations of their government: in the twentieth century they have singled out dollars. When I asked an acquaintance from Zimbabwe how Zimbabweans coped with all those noughts, he laughed and said: “We just use dollars.”

The idea that money, and gold as money, emerged from the free trades of people going about their ordinary business also helps explain the deep disdain for gold in today’s political establishment: the idea that people are incapable of looking after themselves has become rooted in modern political thinking.

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

GOLD STANDARDS II

Monday, June 3rd, 2013

By Mark Rogers

In Gold is Money and Gold Standards I looked at the consequences of accepting that gold is not a commodity but rather money. I suggested in the former article that the confusion between a commodity with a price, and money with an exchange value, was part and parcel of the confusions that arise out of the corruption of money, its worth and functions that result from a command economy and its fiat currency.

Here’s a splendid example of this linguistic confusion, straight from the horse’s mouth; in remarks to the National Economists Club, Washington, D.C. on November 21, 2002, Bernard Bernanke said:

“[T]he U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” [My emphasis; and I shall be making a longer scrutiny of this talk in a later article.]

Talk of “positive inflation” is irresponsible, but it’s what you get when the printing press or its electronic equivalent is set rolling.

Language and Loans

In “Gold is Money” I went on to examine other possible misuses of language in discussing money and value. I raised the issue of whether it was proper to consider the interest one pays on a loan as being in effect the price of the loan, and whether or not the money constituting the loan is in fact sold to one: if it is, then “price” would seem to be the better way to describe the transaction.

Except that this in turn produces confusion, largely because service professions, such as banks, have come to be described in industrial or retail terms: banks have “products” which they “sell” to “customers”.

But this is nonsense: banks don’t manufacture anything, and do not buy in their “goods” at “wholesale” prices which they then try to “sell” at competitive rates.

Take mortgages: if you have one it is on condition that the bank or building society offers to remove a portion of your income every month over a period of years, and if you fail to fund this activity, your house is taken away from you. This is not a “product”. Why do you think you have got one, though? Because you have been beguiled by a metaphor.

Interest and Prices

I suggested: “In considering how we speak about value and prices and fiat money and borrowing and cheap and dear money, it might concentrate the mind if we did indeed speak of the “cost” of a loan, the “price” the bank charges us for lending, or perhaps selling, to us.”

This thought experiment was intended to throw into relief just how we think about what constitutes monetary transactions: there is an important moral sense in which it would concentrate the mind to think about “costs” if credit is extended for non-productive reasons.

When money is “dear” it is likely that the chief criterion for extending credit will be the purpose to which the loan is to be put. If it is for business expansion, say new plant, or into a new market, then the likelihood that the venture will produce a substantial return on the loan means two things: the loan is more likely to be repaid, and that after the loan is repaid the firm will have made a profit on that loan.

The problem comes with credit extended for consumption (and under consumption we most definitely must include homes that are not affordable outright): this is wholly an academic affair. Keynesian economists have persuaded governments that consumption equals an expanding economy (and note again the point in Bernanke’s talk that I emphasized: “a determined government can always generate higher spending and hence positive inflation”). But the question needs to be asked: why do economists think that expense means expanse?

Credit lines extended purely for consumption end up damaging economies. In buying things now that one could not afford without the credit does not add to economic activity, it simply stokes up the personal indebtedness of the debtor and increases the book entries on the bank’s accounts. Because the money has to be paid back out of earnings, not production, it increases the likelihood of the debt being unaffordable and ultimately written off.

There is another problem here: credit lines for consumption imply that there is no real criterion: one’s present income hardly counts because it might not be there when the debt has to be repaid. No, the real irresponsibility is that the loan’s the thing, in and of itself, not whether it will be turned to productive purposes – that is used to make something that wasn’t there before. Failing to see that this distinction needs to be made is what makes Bernanke’s remarks so irresponsible.

Perhaps part of the problem lies in the fact that governments themselves do not produce anything: there are some seven million people who work for the British government, on average higher salaries than those in the private sector and with gold plated pensions (insofar as an unfunded liability can be said to be “gold plated” – the latter phrase really means that the government won’t break its promises to look after its own). These people produce nothing.

So while consumers intending to consume above earnings are anxious to find low interest loans to fund extra, unproductive consumption, it might indeed concentrate their minds to talk about prices, because that might put the nature of what they are doing into perspective.

In the serious world of productive business, however, interest is the proper term to use: the bank takes depositors’ funds and lends them at interest to enterprises that have been considered on balance likely to succeed for the purposes of the loan. In 100% reserve banking this process would perhaps be a great deal more transparent. And using gold as the ever-present unit of measurement will tell us what our money is really worth.

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

GOLD IS MONEY: DOES IT HAVE A PRICE?

Sunday, May 26th, 2013

By Mark Rogers

I recently looked at the question of why there has been no price rise in gold commensurate with Central Banks’ buying? This was raised at this year’s Money Week conference and caused some puzzlement. But perhaps there is another way of looking at the issue, one found in James Turk’s and John Rubino’s The Coming Collapse of the Dollar (see an earlier mention Gold and Permanent Value).

At the very beginning of their book, they insist that gold is money. “Generally, when gold is mentioned in the financial media, people refer to its ‘price’. This is incorrect, because gold is not a commodity like oil or eggs. […] And since we don’t talk about the ‘price’ of euros or yen, but instead discuss their exchange rate, in this book we treat gold in the same way, as in ‘gold’s exchange rate was $410 per ounce on December 31.’”

Gold is not a commodity?

It is often assumed that money has three basic functions: it serves as a store of value, a means of exchange and can itself be exchanged. If this latter function is a true function of money, then this means that money is a commodity along with its other two functions.

Now, it is not true, as Messrs Turk and Rubino claim, that “we don’t talk about the ‘price’ of euros or yen”, because we do. The Money Changers not far from me advertise their wares on electronic price boards, and against the currencies on offer are ranged two columns: “We Buy” and “We Sell”. It is very common to talk of the prices of currencies and to treat them as commodities: it is possible to make money by watching the exchange rates and converting into favorable currencies and back again, making a profit on the way. (It is probably safest to do this in a Swiss bank, as a friend of mine used to do.)

We also speak of cheap money and dear money: what do we mean? Cheap money is when monetary policy is loose, people are exhorted to borrow and encouraged to do so by low interest rates; dear money is when policy is tight and lenders aren’t lending or only cautiously, and interest rates are concomitantly high. Is interest not, therefore, the “price” we pay for the money we have borrowed? While Turk and Rubino assert that we talk of exchange rates rather than prices, it would seem odd, would it not, if we were to talk of the exchange rate of pounds for pounds that we pay for bank loans? And if “the price of money” in terms of interest makes better sense when dealing in and with a domestic currency, and “exchange rate” makes better sense when we are swapping unlike for unlike, even if it is still currency rather than oil or eggs, then where does that leave gold: as a commodity or as not a commodity?

Assets and Exchange

However, this is not to be pedantic; sometimes it pays to split a hair, and in the case of the puzzle referred to in the first paragraph, it may be highly instructive to do so.

For Turk and Rubino point out two other incontestable matters, which throw a lot of light on this vexed problem of what money actually is and therefore how it behaves and we must speak of it. In the first place, if money is not to be considered a commodity, it is indubitably a standard of value – “a generally agreed-upon measurement used to express the price of goods and services.” And this measurement is of the same order as other standard units of measurement: feet and inches, pints and gallons, ells and yards, perches, furlongs and chains. Some of these units have been abolished or fallen into disuse, but as standard units of measurement – and here is the rub – they do not change over time. An ell has ever been an ell, even if no longer used; nor do we change our feet daily.

Now it follows from this that, when it comes to a unit of measurement that is a medium of exchange, that is money, “only money can extinguish an exchange for some good and service. That is, an exchange is extinguished when assets are exchanged for assets. If you accept a money substitute (for instance dollars) when you sell a product, the exchange is not extinguished until you use those money substitutes (those dollars) to purchase some other good or service.”

We begin to get to the heart of the matter: money substitutes. These are what cause the confusion, because by definition they are not money itself only its token or emblem. We take for granted that money takes the form of currency, and are liable in our paper age to therefore confuse “money as currency” with money itself. But currency as such is merely the instrument of exchange unless it also happens to be specie: that is, if gold (and/or silver) is the standard unit of value and gold passes in the form of gold coins, then there is no distinction between the standard of value (gold) and how it is represented (gold coins): the currency IS the money.

Furthermore, if the most important function of money is as a standard of value then it is possible to say that money is not a commodity, though it is still a store of value and a medium of exchange. To illustrate the point about units of measurement (standard of value) Turk and Rubino point out the unchanging nature of gold: “A gram of gold has bought roughly the same amount of wheat since the Middle Ages.” (A similar point is made about ounces of gold, Pharaonic oxen and contemporary oxen in “Gold, A Different Point of View”.)

Gold Is Money

We can begin to see how the question that puzzled the Money Week conference might be viewed, and in particular what gave rise to it, the observation that since the “price” collapse, central banks had been buying gold hand over fist and yet the price hadn’t moved. If gold is not a commodity, but is rather money, is the unit of measurement for value, then to look at gold as having an exchange rate is very fruitful: what it now tells us is just how bad the dollar is. If the unit of measurement doesn’t change, and the number of dollars or pounds that are measured against it is greater or smaller than it was, say, yesterday, or an hour ago, we are being told something about the currency, in this case a money substitute, and not the gold.

It is easy to grasp what is going on when gold goes through the roof, but we need to change our metaphor: gold has stayed where it was, it just takes more dollars or pounds (which, remember, today are money substitutes) to exchange for an ounce. Now, adopting Turk’s and Rubino’s vocabulary, the exchange rate of the dollar against gold fell in April, though it was still high compared to four or eight years ago. In the following weeks, notwithstanding the boom in the purchase of gold coins (away from ETFs) and the purchases of central banks, that exchange rate remained stable: commodities don’t behave like that, especially not scarce ones. So we were instead being told something about the dollar. The unit of measurement wasn’t behaving obdurately. Therefore, was what happened in April, not a calamity for gold, but a respite for the dollar?

Prices versus Exchange Rates

In considering how we speak about value and prices and fiat money and borrowing and cheap and dear money, it might concentrate the mind if we did indeed speak of the “cost” of a loan, the “price” the bank charges us for lending, or perhaps selling, to us. My bank lends me (sells me) £5,000 pounds over three years, with total interest of £760, and everybody commends me on my bank – what a reasonable rate of interest! But if instead I was to boast that I had bought £5,000 for £5,760, well, that wouldn’t seem such a good deal. It is because it is repayable over a term (over which of course, thanks to inflation, the inevitable accompaniment of money substitutes, it will in fact be costing more) that one doesn’t quite realize what has been “exchanged” or “bought”.

This of course raises the intriguing possibility that in getting our nomenclature as much as our metaphors backwards in speaking of money, we are indulging in loose talk, and that this in turn may be a result and feature of fiat money systems.

In What is Money? I raised the issue of the relation between money, value and property:

“The idea that money is a realisation of value inherent in property means currency is the result of a property holding system which, to be realisable, must have clear title. Then, on the basis of that title, the value of the asset can be ascertained and then realised as capital which then has a representational form as currency. That is, money as a representation of value, as a means of realising that value and being a store of that value is the result of a legal system that can render property fungible – that is, that the asset can be more than one thing.

“This, of course, means that property is a form of savings, and that savings are therefore at the root of money. […] The failure to realise the necessity of savings and their wider functions in a workable economy is at the root of the financial crisis.”

And the hostility to savings translates into hostility to gold and the failure to understand it as a unit of measurement. Turk and Rubino are right: gold is not a commodity and in realising this we may start to understand the dense fogs of the currency wars.

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

SIR ISAAC NEWTON AND THE END OF MUTILATED MONEY, 4TH MAY 1969

Thursday, May 16th, 2013

By Mark Rogers

In the Seventeenth Century, “[t]he financial system of England had staggered through the disturbances of the Civil War and had grown worse during the inefficiency and corruption of the Stuarts … the current money had deteriorated to a state of confusion.” (Louis Trenchard More, Isaac Newton: A Biography (first published 1934), Dover Publications, Inc., New York, 1962)

This state of confusion resulted from the mutilation of money, rendering its recoinage a matter of urgent necessity. In the 17th century counterfeiting and adulterating the coin of the realm was so common that a coin worth its original face value was extremely rare. Both crimes were capital offences.

Louis Trenchard More describes the debauched currency and its consequences:

“The standard currency of the country was silver; and till the reign of Charles the Second the minting of the coin had been carried on by the process introduced by Edward the First in the thirteenth century. The metal was cut with shears and then shaped and stamped by the hammer. Coins made thus by hand were not exactly round nor true in weight and, as they were neither milled nor inscribed on their rims, they were easy to clip, or file, without detection. Clipping thus became one of the most profitable kinds of fraud. The custom had become so detrimental that, in the reign of Elizabeth, it was treated as high treason [hence the death penalty M.R.]. At the time of the Restoration, a large proportion of the coins had been more or less mutilated. To remedy this condition, a mill worked by horses was set up in the Tower which stamped the coins accurately and inscribed their edges with a legend; as, however, the old money was kept in circulation, the remedy was useless. The new coins were either hoarded, or melted down and shipped abroad; the old coins persisted as the medium of business, and they continued to shrink in weight and value. In the autumn of 1695, it was found by actual and careful test that the average value of a shilling had been reduced to six pence. Every transaction was accompanied by a bitter altercation between the buyer and the seller; the former insisting on estimating the coins by tale, and the latter by weight. Every Saturday night, all over the country, was a period of riot and bad feeling between employer and employee. The labourer and the clerk might receive the stipulated number of shillings, but for their purchases they acted like sixpences or less. We have, as a startling witness of these troubles, the complaints of Dryden that his publisher, Tonson, on one occasion included forty brass shillings in a payment of clipped money, and at another time the money was so bad that all of it was returned. If the foremost writer of the day was so treated, we can easily imagine the distress of the common people. … During even a most disturbed and evil rule, the common people manage to pursue their personal affairs, but such a state of the money as then existed affected every moment and every transaction in their lives.”

The situation was worse than impossible, and in 1695 King William III, addressing Parliament, recommended that the coinage be reformed. Thus, Charles Montague, the Chancellor of the Exchequer, prepared a Bill to this effect.

Charles Montague

Montague was the fourth son of a younger son of the first Earl of Manchester; he was later ennobled as Lord Halifax. Although Isaac Newton’s junior by nineteen years, Montague struck up a deep and lasting friendship with the great philosopher, then Lucasian Professor of Mathematics at the University of Cambridge, when he, Montague, matriculated at Trinity College as a Fellow-Commoner.

Montague was a man of superlative ability and quickly impressed himself upon the political life of the nation. His highest achievement, the great recoining, came about after his appointment as Chancellor of the Exchequer in 1694. He also instituted the Bank of England, as a private body. As a result of his friendship with Newton, he secured the latter the position of Warden of the Mint in 1696. It was this partnership that was to carry out the new minting. According to Montague, the success of this project was due to the administrative work of Newton.

The Great Recoinage

The first remarkable aspect to note of the proposed recoinage, was that this was to be done at a time of war: this was the war between France and the League of Augsburg (known as the Nine Years’ War 1688-1697, or the War of the Grand Alliance), which King William III joined soon after becoming King of England with his wife Mary as Queen, on the occasion of the Glorious Revolution of 1688. The North American theatre of this war, known as King William’s War, finally settled the issue of the American colonies between France and England in the latter’s favour.

To embark on the wholesale refashioning of the national coinage, and to complete it in a short time, at a time like this was a remarkable feat and owed everything to Charles Montague’s fortitude and eloquence. Although the Jacobites tried to discredit the government and the Whigs advised half-hearted measures, Montague managed the House of Commons so adroitly that the Bill was passed into law on the King’s signature on 1st January, 1696.

It provided for the recoining to be to the old standard of weight and fineness, and for all new coins to be milled. The public exchequer was to bear the loss on the clipped coins. Most expeditiously, the time at which no mutilated money could pass ever again was set at 4th May 1696: this great task, therefore, was to be carried out in a mere four months. We must assume that such was the pressing need to address this huge task as Montague and Isaac Newton, the new Master of the Mint, understood it, that no time was to be lost.

This new coin was the cause of the window tax, which was not as unpopular as legend has suggested. It came about like this: the loss to the exchequer referred to above was not easy to estimate, but Montague obtained a loan from the Bank of England which was secured by the new tax levied on the number of windows of the houses; however, inhabitants of cottages were to be exempt from the new tax in compensation for the cruel harassment they had undergone at the hands of the assessors of the now defunct hearth tax.

A month after the bill became law, the recoining had begun. Furnaces were erected in the gardens behind the Treasury and vast quantities of mutilated money were melted in them and cast into ingots which were at once conveyed to the Tower for minting. Although there had at first been widespread panic at the thought of money, however bad, being withdrawn from circulation, its relative scarcity did not become a serious factor and the panic soon subsided.

Isaac Newton assumed responsibility for the work in March, and under his direction branches of the mint were set up in several towns, thus easing the passing of the old money in exchange for the new throughout the country.

4th May

Loius Trenchard More describes the result:

“The real agony began in May when the clipped coins were no longer received by the government in payment of taxes. There was little of the old money which would pass the test and the new money was just beginning to trickle from the Mint; but, by means of barter, of promissory notes given by merchants, and of negotiable paper issued by the Exchequer, the summer slowly wore away. It was not till August that the first faint signs of returning ease in the money situation appeared, and there is no doubt that the able administration and indefatigable industry of Newton shortened this period of distress. He wrote peremptorily to Flamsteed that he would not be teased about mathematical things nor trifle away his time while he was about the King’s business. The Wardens of the Mint had previously been fine gentlemen who drew their salaries and rarely condescended to do any work.”

But work Newton certainly did: “It had been considered a great feat to coin silver to the amount of fifteen thousand pounds weight a week; but under the energetic management of Montague and Newton, the weekly coinage soon rose to sixty thousand pounds, and finally to a hundred and twenty thousand pounds. But even this rate was inadequate, and normal conditions were not restored till the following spring.”

Thus on 4th May 1696, mutilated money was finally abandoned for true coins, which were far harder to counterfeit, and a proper system of milling and guaranteeing the standardised value of the coinage came into being, overseen by one of the greatest scientific minds of all time, Sir Isaac Newton. We shall see what he thought of debasers of currency below.

“When was the last time you read your money?”

The question is posed by the analysts Daniel Brebner and Xiao Fu in their report for Deutsche Bank, London, Gold: Adjusting for Zero (discussed here). They go on:

“It is useful to do so as it will call attention to its subtle warnings. A £20 note reads: I promise to pay the bearer on demand the sum of twenty pounds. Two immediate questions arise: 1) 20 pounds of what? 2) Who is I, and can he/she be trusted? The US dollar bill is more prosaic, its nebulous message being: This note is legal tender for all debts, public and private. Our only comment would be that since fiat money is inherently a form of obligation (liability) that it is simply a tool for exchanging debts of different riskiness and thus underscores that there is an inherent risk in such an instrument.”

That risk is well brought out in a passage I have quoted in an earlier article. It is by C.H.V. Sutherland (then Keeper of Coins at the Ashmolean Museum, Oxford, in “Gold: Its Beauty, Power and Allure”)

“Collapse of the gold standard was followed by the era of credit currency. We accept a bank-note for the payment of £1, but in accepting it we receive in fact only the bank’s promise to pay £1. We accept a cheque, similarly; but a cheque again is no more than its drawer’s promise that his bank will pay us another bank’s promises. The growth of ‘money’ in this sense – and of course it is not money at all, in any true sense, but an extension of credit – is one of the most remarkable features of economic life since 1914 [emphasis added].”

The risk is presently underscored by quantitative easing and low interest rates: capital/worth is fiercely undervalued, with millions of pounds being wiped off pensions and savings.

In other words the promise on a modern English banknote is meaningless, and as such is a breach of trust with the general public. At one time the note was no more than a convenient substitute for gold and silver coins, and the strength of the currency depended on knowing that should anyone wish to hold the “I” to account, the promise on it would be redeemed in actual gold/silver coin or bullion. Knowing this was sufficient to keep the notes rather than coins in circulation; the trust was reciprocal in that the Bank of England did not dare print more of them than could be practically redeemed, thus keeping faith with the general public that the value stated on the note was a real value.

Mutilated Money Now

While the mutilation of the imperfectly guaranteed silver coinage in the seventeenth century was obvious to all, hence the squabbles in trading and on payday that an English note is itself mutilated money is not so obvious. The comparison can be made with the PAYE system: the vast majority of people in work in this country is on PAYE and as such receives their salary/wages net of tax, it having been deducted by the business they work for before the wages are paid over. In other words, not having to write out a cheque to the Inland Revenue, most people are only aware of the taxes they pay in the abstract – it is not a painful moment of reckoning each time tax is paid as it is for those of us who are business owners or freelance.

In this sense, the promise on a bank note represents mutilated money at one remove: we take it on trust that we can proffer these notes in exchange for goods and services, so we tend to think of the notes themselves as money. But they are not: I have remarked before that QE is the state forging its own currency, but without gold backing, even before QE, the actual “currency” in circulation is fake. And of course the coins we use are made of base metals and not precious ones, and are therefore far easier to forge. Indeed it was estimated earlier this year that three in every £100 pounds worth of pound coins is counterfeit.

This is the denouement of the situation described above by Keeper Sutherland.

Hang Them

As observed in above, counterfeiting and adulterating the coin of the realm were capital offences: death by hanging in these instances. It is interesting that the public did not approve: although the debased coinage was an economic disaster which enveloped everyone, the act of skimming a few shreds of precious metal from a handful of coins seemed, in itself, too insignificant for such a draconian punishment. “The sympathy of the people extended to the malefactors: juries would not sentence except in flagrant and wholesale cases, and judges would not sentence; while the evil effect of the practice spread its poisonous influence throughout the trade and life of the nation.” (Trenchard More)

The gallows did nothing to curb the practice because it was too easy to perform, thus ensuring that many people of course went undetected. While he was Warden of the Mint, Sir Isaac Newton had the fate of a counterfeiter drawn to his attention. He was firmly on the side of upholding the existing law, and the short letter in which he does so is worth quoting in full:

Newton to Lord Townshend

My Lord,

I know nothing of Edmund Metcalf convicted at Derby assizes of counterfeiting the coin; but since he is very evidently convicted, I am humbly of the opinion that it’s better to let him suffer, than to venture his going on to counterfeit the coin and teach others to do so until he can be convicted again, for these people very seldom leave off. And it’s difficult to detect them. I say this with the most humble submission to His Majesty’s pleasure and remain,

My Lord, your Lordship’s most humble and obedient Servant,

Is. Newton, Mint Office Aug. 25, 1724

Of course, the problem is in many ways worse now because whereas the counterfeiters and adulterers of yore were common criminals and ordinary folk on the make, and the problem was the cumulative result of the individual acts of hundreds of people, the debasers of the currency today are government ministers and state officials: debasement is official policy, the inevitable consequence of fiat currencies.

Is hanging too good for our lords and masters today?

A Statue Commemorating Sir Isaac’s Service to his Country as Master of the Mint on the Fourth Plinth at Trafalgar Square:

Among the ideas for a permanent memorial on the plinth at the North West corner of Trafalgar Square, there have been from time to time suggestions that the statue should be of a notable civilian.

In keeping with the other statues – one King, two generals and one Admiral – a life which contained some signal service to the country at large ought to be the guiding principle on which such a civilian should be chosen.

It is suggested here that an eminently suitable candidate for this honour is Sir Isaac Newton. Apart from Sir Isaac being universally known for his astonishing scientific achievements, his claim to notice in the context of a public statue in Trafalgar Square is the heroic effort he put into the Great Recoinage of the debased gold and silver currency which eradicated mutilated money and thus put an end to the argument and riot that habitually took place when pay day drew nigh or payments fell due.

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

THE GOLD SPOT: GOLD THE REFERENCE POINT

Tuesday, May 14th, 2013

The Gold Spot is a regular feature in which Mark Rogers excerpts a passage from his reading as the Text for the Day and then comments on it.

Extract from CURRENCY WARS: THE MAKING OF THE NEXT GLOBAL CRISIS by James Rickards, Portfolio/Penguin, New York, 2011

The continuation of the trend toward a diminished role for the dollar in international trade and the reserve balances begs the question of what happens when the dollar is no longer dominant but is just another reserve currency among several others? What is the tipping point for the dollar? […]

Barry Eichengreen is the preeminent scholar on this topic and a leading proponent of the view that a world of multiple reserve currencies awaits […] the plausible and benign conclusion that a world of multiple reserve currencies with no single dominant currency […] this time with the dollar and the euro sharing the spotlight instead of the dollar and sterling. This view also opens the door to further changes over time, with the Chinese yuan eventually joining the dollar and the euro in a coleading role.

What is missing in Eichengreen’s optimistic interpretation is the role of a systemic anchor, such as the dollar or gold. As the dollar and sterling were trading places in the 1920s and 1930s, there was never a time when at least one was not anchored to gold. In effect, the dollar and sterling were substitutable because of their simultaneous equivalence to gold. Devaluations did occur, but after each devaluation the anchor was reset. After Bretton Woods, the anchor consisted of the dollar and gold, and since 1971 the anchor has consisted of the dollar as the leading reserve currency. Yet in the post-war world there has always been a reference point. Never before have multiple paper reserve currencies been used with no single anchor. Consequently, the world […] is a world of reserve currencies adrift. Instead of a single central bank like the Fed abusing its privileges, it will be open season with several central banks invited to do the same at once. In that scenario, there would be no safe harbour reserve currency and markets would be more volatile and unstable.

Comment: It is hard to fathom such an unrealistic expectation of lead currencies, swilling about supporting each other and every other currency, as being somehow optimistic and benign; Rickards is not saying that he thinks they would be by using these terms, he is pointing up the authors of these expectations as hailing them as benign: what could go wrong, we’re all good chaps…aren’t we?

Rickards’s view is of a piece with Gustav Cassel’s point (quoted in Gold on the Outbreak of the Great War), that “the responsibility for the value of the currency, in cases where the gold standard has been abandoned, must exclusively lie with those in whose hands rests this provision of the means of payment.” The point being that this is an astonishing level of trust to put into the institutions of government, not just moral trust, but a trust that the necessary calculations, observations and measurements can be made consistently and continuously to keep things afloat and stable. The euro is a very good object lesson that both these sorts of trust are misplaced, which is putting it mildly…

From an Austrian School point of view, the goodness of the humans in charge is irrelevant: it is the utterly impossible nature of the task that is the stumbling block. But it is just there, of course, that the immoral temptation to swing things to the state’s advantage comes to the fore – again as shown up by the euro.

Where there is no reference point, no anchor, no solution is feasible… which is why we keep getting  more of the failed nostrums. Which leads on to a very interesting observation: why taxes must go up in an economic world divorced from the gold standard.

Politicians are incapable of managing monetary affairs (see the article linked to below on The Mess We’re In: Why Politicians Can’t Fix Financial Crises). The gold standard prevented them by and large from acting on economic hubris. Unconstrained by gold, bewildered by their failures, corrupted by their power, they turn to the one nostrum that lies unfailingly to their hand: taxation. That is why it is found important at times of high and progressive taxation to denounce “avoiders” as selfish cheats who won’t do their bit for their fellow citizens (see my The Moral Dilemma at the Heart of Taxation). So the gold standard not only prevented printing money, it also held down taxation. Another reason to vote for gold!

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

THE GOLD SPOT: GOLD ON THE OUTBREAK OF THE GREAT WAR

Monday, May 13th, 2013

The Gold Spot is a regular feature in which Mark Rogers excerpts a passage from his reading as the Text for the Day and then comments on it.

Extract from MONEY AND FOREIGN EXCHANGE AFTER 1914 By Gustav Cassel, Constable & Co. Ltd, London 1927 (originally published Constable 1922)

ABOLITION OF THE GOLD STANDARD

The first thing that happened in the financial sphere upon the outbreak of the World War was that the existing gold standard was abandoned – not only in the belligerent countries, but also in the majority of neutral states. Upon the entrance of the United States into the War, corresponding steps were taken in that country. A realisation of this fact is of fundamental importance for a proper understanding of all the occurred later. From the moment of the outbreak of war, the various currencies had in the main to be regarded as free paper currencies, and consequently as currencies which were not limited to any metal, and therefore were not in any relation to one another. Only an economic theory which from the very outset takes cognisance of a system of free currencies can be in a position to offer a true and intuitive picture of the essential points in the development of which followed. Wherefore, it is of primary importance to realise that the value of the monetary unit in a pure paper currency can manifestly only be based upon the scarcity in the provision made by the country for means of payment, and that, therefore, the responsibility for the value of the currency, in cases where the gold standard has been abandoned, must exclusively lie with those in whose hands rests this provision of the means of payment.

When I say that the gold standard was abandoned, I refer to an actual fact. Its form one has everywhere sought as far as possible to avoid, and it may, therefore, be possible to assert, with a certain amount of plausibility, that the gold standard has not been abandoned – nay, even that it still obtains. But from an economic point of view that has no meaning. Economics have only to reckon with facts. When the essential conditions for a gold standard are removed, then the gold standard, as viewed from an economic standpoint, is abolished.

Comment: These are the first two paragraphs of Cassel’s book, and what follows is a dense and, at times, difficult to follow analysis of the convolutions that followed when the Great War was over: the institution of the gold exchange standard, free floating currencies and floating exchange rates. One of the reasons that the analysis is hard is that Cassel shows that throughout the period he deals with – 1914 to 1922 – there were great misunderstandings, misapprehensions, misassumptions and false assumptions of which few had a practical, factual grasp. The form of the abandonment allowed merchants, financiers, bankers and politicians to avoid realising its consequences, and to pretend that not only had the gold standard been maintained in its pre-War form, and but to also pretend that it was remotely possible to return to pre-War prices and values. The classical gold standard was not re-introduced, and it was, in the circumstances, impossible to return to pre-War values, indeed the attempt to do in the light of the wartime inflation, or indeed, the pretence that this had been done, was in no small measure responsible for the economic chaos that dogged Europe in the aftermath of the War and in a way continues to confuse and confound the economic managers of the global economies ever since. If one allows that the pegging of the dollar to gold at Bretton Woods was not a true gold standard, not even a gold exchange standard, but a continuation of those post Great War pretences, then it has been almost a century since the world abandoned gold and abolished the gold standard.

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES