The Gold Standard

As some of you know, I've placed myself on a few of the right-wingnut mailing lists just for the entertainment value. While the results have been entertaining in a way, I haven't posted much about it. That's because while entertaining, they're also rather sad or pathetic.

Case in point: "Dr." Michael Savage (Ph.D.-Mail Order) sent me an email extolling gold as an investment.

Now, first of all let's dispense with a common myth that somehow gold has some sorta inherent value. It doesn't. It's just this shiny metal stuff. You can't eat gold. You can't wear gold. Gold doesn't keep rain off your head or heat your home in the winter. Frankly, as a useful commodity, gold pretty much sucks, meaning that its only value is whatever you can trade it for.

And if you're going to trade a useless commodity for something, well, gold kinda sucks there too. You can't go down to your local grocery store and pay in gold. Unlike that green toilet paper stuff with pictures of dead Presidents on it, you can't buy a burger with gold. You gotta trade it for that green toilet paper first, which is cumbersome to do and involves fees and such.

And finally, gold isn't portable. It's heavy.

All in all, this means gold really isn't very useful as a money. Maybe back in Roman times, when every farmer and shop keeper accepted gold as payment for stuff, but not nowdays. Nowdays it's just this shiny metal that for some reason has this mythos built around it that it's something special, instead of just another metal like lead or iron or copper or whatever.

So why do Republicans rattle on about the "gold standard" as if it were something desirable? Well, it's because gold has one attribute that paper money doesn't: the government can't create more of it. The amount of gold in the world is pretty much fixed, and isn't growing very fast because all of the easily-mined gold was plucked up long ago.

Now, at first glance that might seem desirable. But the deal is, it's only desirable if the amount of goods and services in your economy are fixed and the number of people in your economy are fixed. If the number of people grow and correspondingly create more "stuff" (assuming that per-capita productivity at least holds constant), what you end up with is more "stuff", but not more money. That means deflation -- i.e., if it took $5 to buy some "stuff", now it only takes $4 to buy some "stuff."

You might say, "what's so bad about that?". Well, if you're a millionaire, nothing. You have lots of money, and now that money is going to go further. But if you work for a living, your own services are "stuff". If you're a farmer, the food you grow is "stuff". So you get paid less too. So you don't come out ahead. Only the rich guy does. And if you owe any debts -- if you owe a mortgage on your house, or on your farm -- you now are getting paid less (in admittedly more valuable dollars), but you have to pay back this loan that was taken out in cheaper dollars. In essence, your wealth is getting transferred to the wealthy -- they loaned you $1000 that would be worth $800 in today's money, but you have to pay them back the full $1000.

A perfect example is the deflationary spiral at the start of the Great Depression. Herbert Hoover refused to turn on the printing presses to keep the supply of money at least steady, and as banks collapsed, the money supply collapsed -- there were fewer dollars in the economy chasing the goods and services in the economy. This deflationary spiral resulted in huge numbers of small businesses and farms collapsing as they could no longer pay their debts because the debts were not re-calculated into the now-more-valuable dollars, thus creating windfalls for the big businesses and wealthy agri-businesses that took over their assets and farms and customers. It was the biggest transfer of wealth from the working class to the wealthy class ever in American history, and a perfect example of why Republicans are always rattling on about the gold standard -- or anything else that could cause a deflationary spiral, for that matter.

So anyhow, back to "Dr." Michael Savage (PhD-Mail Order) and his gold scam. It is a scam, you know. You never actually get the gold he's "selling". It is supposedly being held in a warehouse for you that's more "secure" and besides, gold is heavy, y'know, you really don't want to be lugging around all that heavy metal do you? Reality is that you are being sold "shares" in a gold-purchasing consortium. Some of the money you're putting into this consortium may be used to purchase gold. But most of it is going to "expenses". Like the expense of paying "Dr." Michael Savage hundreds of thousands of dollars per year to tout the scam on his radio show.

So anyhow, that's the low-down on gold and right-wing scam artists. Gold. You can't eat it, y'know?

-- Badtux the Economics Penguin