James:
First of all, I want to say thank you for putting so much effort in to an active blog on this subject. I try to read daily, and I always play catch-up once a week. I know it takes a TON of work to keep something like this alive and post as much each day as you do, so again, thanks. I was moderately concerned for the first time reading your blog this past week in regards to the post on Gold and Silver Barter. In there you referred to the American public as having “been robbed”. My concern is that this is one of the few places where survivalists get the bad rap of being crazy. I want to point out something: whether it’s gold, a paper dollar, or a rock, the value of whatever item is determined by faith, not intrinsic value. Gold is only valuable to us because we decided that shiny stuff was so important that we were willing to trade long, hard days of work for a little bit of it. At one point in our nation’s past we limited the currency in the market to be equal to the value of the gold the US Treasury has on hand – but there was a problem. By the 1950s, during our rebuilding of the country post-WWII, there was so much growth going on that we actually were outpacing the availability of gold in the market. We were slowly stifling our own economy because we could not produce more goods and services that there was physical gold in the market. Finally, common sense prevailed when we realized something: The American public did not need gold, they needed dollars. They can not use gold in the grocery, the feed store, or the mall. Dollars they can use. People have more faith in the dollar than they do in the ounce of gold. Let the economy grow! To imply that we have been fooled is to imply conspiracy and breeds distrust. We may differ here, but I believe that is completely possible to work within the system until there is no system. When there is no system, I will be beside the other readers here making the best of the barter system. Until then, I will happily use my U.S. Dollars to purchase those items, never once believing I have been duped. To summarize, whether it is gold, paper currency, diamond, or potato – the value of any item is what we’re willing to trade in labor or tangibles to obtain it. The U.S. Dollar’s value is not, and should not be based on our perceived value of gold, since gold has no value of its own other than what we assign it. Gather your junk silver and gold for WTSHTF, but don’t believe in it more than the dollar. Oh, and don’t worry about the feds coming to take away your gold – since we’re not on the gold standard then they don’t need it. – L.C.
JWR Replies: I really appreciate you taking the time to articulate your opinion because I’m sure that there are many other people that feel the same way. But I do beg to differ. We have been robbed. When the Federal government decreed that our 90% silver coins in circulation be replaced with essentially worthless copper tokens (worth perhaps 2% of what a silver is worth, in terms of their metals content) it was both a violation of the public trust and a violation of the Constitution. (Article I, Section 10 of the U.S. Constitution states, “No State shall make any Thing but Gold and Silver Coin a tender in payment of debt.”) It is no wonder that the pre-1965 coinage vanished from circulation in less than two years after the switch. Gresham’s Law is inescapable: “Bad money drives out good.”
By law, a pre-1965 dollar was convertible into real silver coinage. In contrast, a post-1964 Federal Reserve Note (FRN) “dollar” is merely an non-convertible “I Owe You Nothing” certificate. Whenever I get handed handed FRNs, I convert most of them into tangibles as quickly as possible. Someday, probably within the next ten years, there will be a dollar crisis. At the far end of that crisis, I predict that the dollar will revert to close to its real value. (Essentially, nothing.)
And, re: “…there was so much growth going on that we actually were outpacing the availability of gold in the market…” That is hogwash invented by Keynesian economists. If the free market were allowed to exist, then we would have had a free-floating currency, still backed by gold and silver. (The “bi-metallic” system.) A convertible, metals-backed currency acts as a natural check on the growth of government, not the economy. It is no coincidence that the Federal debt exploded after we went off the gold standard. With an unbacked currency, there is no limit to a government spending like a drunken sailor. (BTW: I mean no offense to drunken sailors. In my experience they act much more responsibly than governments.)
And, re: “…gold has no value of its own other than what we assign it.” You make it sound as if gold is just a pretty rock (“shiny stuff”) that has arbitrarily been assigned a high value. But gold’s high value is due in part because of its unique intrinsic properties. Gold is the most malleable and ductile metal known; (a single ounce can be beaten into a sheet that is 300 square feet). Heat, moisture, oxygen, and most corrosive agents have very little chemical effect on gold. (Gold coins recovered from 3,000 year old shipwrecks come up from the bottom of the ocean looking bright and shiny.) Because of its high electrical conductivity and resistance to corrosion and other desirable combinations of physical and chemical properties, gold is an essential industrial metal. Since it is a good reflector of both infrared and visible light, it is used for the protective coatings on many artificial satellites.Gold coating enables biological material to be viewed under a scanning electron microscope.Gold alloys are used as a catalyst in organic chemistry, as a treatment for rheumatoid arthritis, cancer treatments, and restorative dentistry.The resistance to oxidation of gold has led to its widespread use as thin layers electroplated on the surface of electrical connectors to ensure a good connection. Gold performs critical functions in computers, communications equipment, spacecraft, jet aircraft engines, and a host of other products.
(Source of information for the preceding paragraph: http://en.wikipedia.org/wiki/Gold )