Partners

Posts Tagged ‘Quantitative easing’

Tax Free Savings

Wednesday, December 11th, 2013

A Tax Free Savings Account in physical gold that you own

UK Taxpayers have a unique opportunity to save in pure gold, a real tangible asset, without paying VAT or Capital Gains Tax. Start from just 1 gram a month.

Gold Britannia and Sovereign investment quality coins offer a unique advantage to investors because they offer between 18% -28% additional benefits over other investments. Why? … because they are completely exempt from Capital Gains Tax. Furthermore, they are exempt from VAT.

Britannia 1 ounce_averse

Britannia 1 ounce averse

Gold Britannia 1 ounce coin

Britannia 1 ounce obverse

Britannia 1 ounce obverse

A beautifully struck gold bullion coin that has UK legal tender status and a face value of £100 – although its actual value is many times greater. The Gold Britannia coin was originally alloyed with Copper, but from 1990 the decision was made to alloy with Silver. This is why the earlier Gold Britannia’s have the deep Gold colour, as opposed to the lighter yellow gold colour of the Britannia since 1990. The latest 2013 coins have no alloy and are pure gold and 999.9°/oo fineness.

Sovereign Elizabeth II_averse

Sovereign Elizabeth II averse

British Gold Sovereign coin

Sovereign Elizabeth II obverse

Sovereign Elizabeth II obverse

The full British Sovereign is one of the most recognised gold coins in the world, with UK legal tender status and it can attract a healthy premium as it is always in demand, at home and abroad. Their legendary reputation comes from their use in a pilot’s survival kit by many air forces, being sewn into their jackets and used to negotiate their safe passage home if downed during a mission. The attraction was the integrity of their British origin which provided the utmost trust to their owners.

Capital Gains Tax (CGT)

Coins which are legal tender in the UK are exempt from CGT. The Britannia and Sovereign investment coins fall into this category. The UK Customs authority has issued a notice to accountants and financial advisors numbered CG12602 which deals with exemptions and in particular currency in sterling. It refers to:
- TCGA92/S21 (1)(b) which states “Currency in sterling is not an asset for capital gains purposes”. >Learn more
- Further notice from HMRC is given in CG78308 which states “Sovereigns minted in 1837 and later years and Britannia Gold coins are currency but, like all sterling currency, are exempt because of TCGA92/S21 (1)(b) >Learn more Value Added Tax (VAT)
Coins which are of investment quality do not attract VAT. Investment quality is defined as coins which contain a minimum of 900 one thousandths Gold. (900.000 ‰). Rather than being a specifically British rule, it is in fact from the European Union. See notice number 2011/C 351/07. The notice refers to all coins from various countries which would fulfill the investment quality criteria. >Learn more


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 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 Maple Leaf 1 once

Sunday, December 1st, 2013

The Canadian Gold Maple Leaf is one of the oldest bullion coins alongside the Krugerrand. It is a classically beautiful coin, internationally recognised and provides investors with a secure, quality addition to a portfolio.

Details

The Royal Canadian Mint introduced the Maple Leaf in 1979. Along with the Krugerrand, it has been in continuous production ever since. It came about because of the Krugerrand – at the time, there was an economic boycott of South Africa so Krugerrands were not widely available – and thus the Maple Leaf fi lled a gap in the market. It contains virtually no base metals at all and uses Gold exclusively mined in Canada.

MAPLE LEAF 1 ONCE GOLD COIN

The earliest years between 1979 and 1981 had a Gold fineness of 999.0‰ but 1982 onwards is 999.9‰. For those same fi rst years, only a 1 Toz coin was produced. Between 1982 and 1985, the 1/4 Toz and 1/10 Toz sizes were added. Then in 1986 the 1/2 Toz was added and in 1993 a 1/20 Toz coin joined the group. It has remained thus to date except 1994 when a 1/15 Toz coin was produced for that year only. That year, a Platinum 1/15 Toz coin was also produced, possibly for jewellery, but both the Gold and Platinum 1/15 Toz coins were not a success and were dropped. The Maple Leaf is also available in Silver and Palladium.

Each coin features the image of Queen Elizabeth II by Ian Rank-Broadley on the obverse side. It also has the denomination and year of issue. On the reverse is an image of Canada’s national symbol, the maple leaf along with the word CANADA and the Gold fi neness in both English and French. Every coin is guaranteed to contain the stated amount in Troy ounces of fi ne Gold. The coins are identical in design except for the obvious items such as weight.

All Maple Leaf coins are legal tender in Canada although are categorised as “non-circulating bullion coins”. Their Gold fi neness easily puts them into the general category of being VAT-exempt.

On 3rd May 2007, the Royal Canadian Mint unveiled a 100 Kg Gold Maple Leaf with a face value of C$ 1 million although the Gold content makes it worth much more. The coin was produced as a promotional product to give the mint a higher international profi le. However, several interested buyers came forward so the mint announced it would manufacture to order. There are believed to be five confirmed orders and/or deliveries. It held the record for the largest coin until 2011 when an Australian coin superseded it.

Investment Advice

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

INVEST ADVICE

All Maple Leaf coins are issued as pure Gold finewness, 999.9‰ and in theory have a low premium just above the value of the Gold.

KEY FACTS 1

However, the reality is that a 5% premium should be achieved for a quantity of coins

with higher values for individual coins. As always, the smaller value coins will have higher premiums.
The coins were never really designed to be handled due to the softness of 24 carat Gold, the milled edge and clear fi eld around the image of the Queen. With some coins supplied in tubes, this makes them susceptible to handling marks and other damage. So careful examination of coins is highly recommended.

Specs

SPECS 2

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

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


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

THE GOLD SPOT: RICARDO ON GOLD AS VALUE

Sunday, June 2nd, 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.

Extracts from ON THE PRINCIPLES OF POLITICAL ECONOMY AND TAXATION by David Ricardo, from the collected Works and Correspondence edited by Piero Sraffa with the collaboration of M.H. Dobb, published for The Economic Society by Cambridge University Press, Cambridge, 1951

Adam Smith, after most ably showing the insufficiency of a variable medium, such as gold and silver, for the purpose of determining the varying value of other things, has himself, by fixing on corn or labour, chosen a medium no less variable.

Gold and silver are no doubt subject to fluctuations, from the discovery of new and more abundant mines; but such discoveries are rare, and their effects, though powerful, are limited to periods of comparatively short duration. They are subject also to fluctuation, from improvements in the skill and machinery with which the mines may be worked; as in consequence of such improvements, a greater quantity may be obtained with the same labour. They are further subject to fluctuation from the decreasing produce of the mines, after they have yielded a supply to the world, for a succession of ages. But from which of these sources of fluctuation is corn exempted? [Chapter I On Value, Section I]

It has therefore been justly observed, that however honestly the coin of a country may conform to its standard, money made of gold and silver is still liable to fluctuations in value, not only accidental and temporary, but to permanent and natural variations, the same manner as other commodities.

By the discovery of America and the rich mines in which it abounds, a very great effect was produced on the natural price of the precious metals. This effect is by many supposed not yet to have terminated. It is probable, however, that all the effects on the value of the metals, resulting from the discovery of America, have long ceased; and if any fall has of late years taken place in their value, it is to be attributed to improvements in the mode of working the mines.

From whatever cause it may have proceeded, the effect has been so slow and gradual, that little practical inconvenience has been felt from gold and silver being the general medium in which the value of all other things is estimated. Though undoubtedly a variable measure of value, there is probably no commodity subject to fewer variations. This and the other advantages which these metals possess, such as their hardness, their malleability, their divisibility, and many more, have justly secured the preference every where given to them, as a standard for the money of civilized countries.

If equal quantities of labour, with equal quantities of fixed capital, could at all times obtain, from that mine which paid no rent, equal quantities of gold, gold would be as nearly an invariable measure of value, as we could in the nature of things possess. The quantity indeed would enlarge with the demand, but it value would be invariable, and it would be eminently well calculated to measure the varying value of all other things. I have already in a former part of this work considered gold as endowed with this uniformity […] In speaking therefore of varying price, the variation will be always considered as being in the commodity, and never in the medium in which it is estimated. [Chapter III On the Rent of Mines]

Comment: Apart from the importance Ricardo attached to machines cropping up in this discussion (his famous Chapter XXXI On Machinery), the interesting thing to note in these passages is that the argument with Adam Smith about sources of value devolves on gold as having the least variability when compared to other possible sources. Smith laid so much stress on corn, partly because it is a staple foodstuff and people must eat, and partly because the labour used to plant and harvest it was an easily quantifiable volume of work; Smith’s theory of value ultimately depended on labour, because the fact, the necessity of labour is an everyday constant.

Ricardo took exception to both corn and labour as measures of value, because the fact that both are necessary does not therefore bar them from continual accident and misfortune: exceptionally bad weather before a harvest destroys not only the crop but the need for labour at all, and has almost the same complete effect should bad weather occur during the harvest. The resulting famine may cause seed prices for next year’s crop to go up. That people must work for a living may be a constant, but their ability to work at any given time is contingent. Similarly, improvements in machinery may have a longer term effect on labour even as these improvements increase the harvest in a good year.

Therefore, these cannot be units of measurement of value: they fluctuate, or are capable of fluctuating too wildly.

The subject was to crop up again in Ricardo’s “Notes on Malthus”, where he takes issue with the gloomy Mr Malthus’s misreading of the points Ricardo makes above, in particular Malthus’s overlooking the qualifications about gold being “nearly an invariable measure of value” and his consequent assumption that Ricardo meant that as things stood, here and now, gold was such a measure. Indeed, Ricardo gets so hot under the collar in pointing out to Malthus that he had not been so simple as to claim this that he practically reverses himself as expressed above, almost implying that gold has no such intrinsic virtue! But indeed, he was quite cross with Mr Malthus all round; he did, in correspondence, express himself as being even less pleased with Malthus’s book on his second reading than he had been on first reading it, his further disgruntlement with Malthus leading to the “Notes”.

What is important about Ricardo’s quarrel with Adam Smith is that it is a very early rebuttal of the notion of labour as the source of value, and an equally important claim for precious metals as that source, as being the closest thing we are ever likely to possess for the purpose. That this claim is hedged with qualifications demonstrates two things: a prudent mind, and, secondly, that the major and long term experiments with paper money lay, of course, well in the future, i.e. the Twentieth Century. What Ricardo was doing was to estimate which of all possible sources of value, supposing such a measure to be desirable (and he concludes that it is), would best serve. There are obvious attractions in Adam Smith’s approach: it is practical, deals in vital constants of human action, and is empirical. But in the end it is insufficient. There is a discussion of paper currency in Ricardo’s book but it is fairly narrowly focused, as the experience of it in his day was narrowly focused, primarily on its promissory nature in terms of specie. Nothing like what we have experienced in the Twentieth Century was available to the political economists of the Eighteenth Century.

Nowadays, while accommodating the arguments to prudence as is always desirable, a stronger case for gold as “nearly an invariable measure of value” can and must be made because the realities foisted upon us by the advocates and practitioners of paper have been so dire.

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

Wednesday, May 29th, 2013

By Mark Rogers

The proposition was examined in the last posting, Gold is Money, that gold is not a commodity or at least not in the sense that other commodities are (a distinction that will be looked at in a later posting). This proposition leads to an important observation, that gold is a unit of measurement, but an even more momentous observation arises from this: that whether there exists a gold standard of the classic kind (England from the end of the Seventeenth Century up to 1914, for the world at large 1870 to 1914) or the more controversial gold exchange standard of the interwar years, or the patched up standard of Bretton Woods, as a unit of measurement gold always provides a standard.

As long as gold remains largely in private hands and circulates, its exchange value determined by the markets, with banks holding a modicum of gold reserves, then gold will act as the benchmark against which currencies are measured, its prime function in a world of debased paper currencies to tell us what those currencies are actually worth, a bellwether that provides the information we need about how we manage our assets and how we exchange them for the safe haven.

There is another aspect of this, therefore, that throws up an interesting answer to the question that Turk and Rubino ask in their book discussed in “Gold is Money”. They point out that all paper currencies have collapsed and the reaction of governments has been, perhaps to confiscate wealth, perhaps to tighten currency controls, to generally adopt measures limiting the freedom of action of their subjects.

But this time round, it may not be governments who will take the initiative. The likelihood that the US government will confiscate gold as it did in 1933 must be set against the far less trusting, more cynical attitude of the general public towards government.

Gold has been remonetized in Utah, the Swiss People’s Party recently won the right to a referendum on the Swiss National Bank’s ability to sell off gold reserves, and the same party is arguing for a Swiss gold franc as circulating currency.

More and more people are realising how gold may be managed in such a way that investors are, in effect, re-inventing a free gold standard for the conduct of their monetary and financial affairs. Another example of a spontaneous order emerging? Let us hope so.

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 TO RETURN AS A PURE GOLD STANDARD IN SWITZERLAND?

Thursday, May 23rd, 2013

By Mark Rogers

Some interesting news from Switzerland: the Swiss People’s Party’s campaign to compel the holding of a referendum on the sale of the nation’s gold by the Swiss National Bank has successfully gathered the required 100,000 signatures; last Thursday, May 16, 2013, the Federal Chancellery announced that the referendum would be held. The Financial Times, however, points out that “it is not uncommon for the period between an initiative being accepted for referendum and a vote being held to extend to several years.” No doubt the Swiss National Bank welcomes such a delay.

At present the SNB holdings of gold form 10% of its reserves, and not all of it is in the bank’s own vaults; the bulk at 70% is in Switzerland; 20% is at the Bank of England, with the rest stored at the Bank of Canada..

The Swiss People’s Party wants that externally held 30% to be returned to Switzerland, and wants the bank to increase its holdings to 20%. Until the constitution was revised in 2000, the SNB had been obliged to keep 40% of its reserves in gold.

But the interesting thing about this initiative is that it is part of a much larger campaign by the Swiss People’s Party to return to a pure gold standard by reintroducing the Swiss gold franc as money. Confidence in the Swiss franc and monetary policy has been shaken by the attempts of the SNB to devalue the franc which have resulted in big losses; this combined with the sell-offs at low prices (shades of Gordon Brown’s tampering with the U.K.’s gold) 2001-2006 have accumulated losses of billions of Swiss francs.

Given that Switzerland was the last country to stop backing its currency with gold, only coming off its domestic gold standard in 2000 under the revised constitution, it is noteworthy that the dumping of gold and the devaluing of the franc followed promptly in 2001.

The latest initiatives, for a referendum and for a gold franc, have not unnaturally caused consternation at the SNB; it is concerned at “the monetary policy implications of the demands in the initiative.”

Well, indeed.

For further stories on this issue, see “Swiss Parliament to discuss gold franc”; “Swiss Intiative reveals push for gold-backed currency”; and “Swiss To Vote On Gold Repatriation – “Gold Is The Only Valuable Asset On The SNB’s Balance Sheet

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: WHY NO PRICE RISE COMMENSURATE WITH CENTRAL BANKS’ BUYING?

Monday, May 20th, 2013

By Mark Rogers

At the Money Week annual conference (held at Queen Elizabeth II Conference Centre, Westminster, London, Friday, 17 May, 2013), two of the speakers, Mr Dominic Frisby and Mr Simon Popple were asked the same question: was the drop in the gold price in April manipulated, and if so by whom and why? Both speakers disdained conspiracy theories as the likely answer: nothing but fruitless speculation. Mr Frisby asserted that we deal with the cards as they are on the table. Another question was however a good and intriguing one. Why is the price still down given that central banks have been buying “hand over fist”?

ETFs

As I noted in “Gold in Flux”, the main cause of the drop in price was the sudden dumping of huge quantities of paper gold. If this was because those who held these paper stocks had suddenly come to realise that they were worthless, then this was a rational thing to do, in spite of the fact that it would drive the price of gold down. Indeed, at the conference Mr Frisby pointed out that as long as the next crisis is held at bay, or indeed that the present crisis is bottoming out (he was ruefully cautious as to whether this is indeed what is happening!), then it would be reasonable to say that the current price of gold is a fair one. After all it is still high, in comparative historical terms: in 2009 it was $950 an ounce.

This does not, however, address the possibility that the price of gold has over the last year been too low. I first discussed the possibility in “The Price of Gold”. Why might it be considered that the price has been low? Those wretched ETFs. The swelling mass of ETFs had become so much papier-mâché (literal meaning: chewed paper), clogging the market. This might have had the effect of keeping the price lower than it otherwise would have been. Equally, of course, it could have kept the price artificially high.

As previously mentioned in “The Price of Gold”, the probability that the central banks’ buying of gold has been spurred by Basel III is a reasonable inference, whatever else may have caused it, though of course it does not answer the question about why the price continues low (subject to Mr Frisby’s caveat.) In passing, it is interesting to note that unlike European central banks, China did indeed start compliance with Basel III rules on January 1, 2013, when they ostensibly came into force.

DRAG ON THE PRICE

Now it is entirely plausible that the ETFs continue their drag on the price of gold: ETFs have not been abolished or abandoned, merely that a large quantity have been dumped. And the price of gold therefore inevitably mixes (perhaps confuses is the better word) physical gold and paper gold.

Clif Droke quotes Bill O’Neill, principal with LOGIC Advisors: “The biggest negative continues to be the ETFs. We’ve had steady and constant ETF liquidation,” adding that many suspect the exodus is not over, and continuing: “Further, once major hedge funds rotate away from such an asset, they typically don’t jump right back in anytime soon. The big players are going to be slow coming back into the market.”

Mr Droke comments: “The unspoken reality for gold investors is that the increasing institutional demand for equities is taking the wind out of the sails of the gold market,” and goes on to quote Kitco News on Tuesday, 14 May, 2013: “Continued exchange-traded-fund outflows, strong equities and US dollar gains are limiting the upside for gold, while recently strong physical demand and continued central-bank accommodation are providing support.”

Mr Droke elaborates: “While there has been strong demand for physical bullion since the April lows, especially in Asia, the fact that stocks are garnering an ever-growing share of ‘hot money’ flows while gold is largely ignored by institutional and hedge fund investors isn’t helping the yellow metal’s cause.

“Moreover, as the value of S&P 500 Index increases while gold goes nowhere, it’s causing the relative strength for gold to actually decline. This gives the hedge fund and other sophisticated investors who look at technical indicators one less reason to invest in gold in the near term.

“Kitco reports, ‘A number of observers have cited the rotation into equities as one of the factors prompting an exodus out of gold exchange-traded funds so far this year….’”

This seems to be a very acute analysis of what is happening.

Another complicating factor is that while central banks are indeed buying up gold, some of the most important are continuing with, or continuing to threaten, more quantitative easing. This is another paradox waiting to be resolved, for as described in the Deutsche Bank, London Head Office analysis “Gold: Adjusting to Zero” (discussed in “Gold and the Keynesian Groupies”) QE pushes the price up, or is there some Mephistophelean spell that negates the gold price when it is central banks which buy it? (See “The Gold Standard: Further Encouragement from Wise Eminences”)

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