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The E-Gold Standard THIS CERTIFIES THAT THERE HAVE BEEN DEPOSITED IN THE TREASURY OF THE UNITED STATES OF AMERICA TWENTY DOLLARS IN GOLD COIN PAYABLE TO THE BEARER ON DEMAND This is a form of gold standard. A gold standard means that gold is being used as a medium of exchange, and that the dollar value of a set quantity of gold is fixed - gold is 'pegged' to the dollar. Each dollar is backed by the equivalent gold. The world's monetary systems actually begun with commodity money. The precious metals such as gold and silver came to dominate, because they are relatively stable in value, conveniently portable, malleable, of uniform quality, indestructible, universally appreciated, generally diffused, sufficiently plentiful and inconsumable by use. Because gold is relatively indestructible, known reserves can only increase. Because it is difficult to produce and process, the rate of increase in supply is fairly limited. For instance since 1492 the world's supply of gold has never increased by more than 5% in any one year. Even today with modern mining technologies, total gold stocks are only increasing at a rate of around 2% per year. These properties of gold enable it to effectively function as an objective measure of value, a measure that can exist independently of any political authority. Carl Menger comments: 'The origin of money...is...entirely natural... Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary to its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state'. (C.Menger, 'Principles') The gold standard contrasts with the Fiat standard, the prime example of which is paper money. The fiat standard is not an objective measure of value, because the money supply can easily be increased or decreased by the issuing authority. The supply of paper money is subject to the whims of politicians. They can (directly or indirectly) control this supply either by printing more of it, or removing some of it from circulation. This money only has a value because of government fiat. If a government collapses, its currency becomes worthless. The main advantage of the gold standard is that it is much more independent of political control, because it is virtually indestructible and it's supply cannot be easily increased. It is an objective measure of value and historically the gold standard was widely used right up until the early years of the 20th century. In the United States the gold standard finally collapsed in 1933, and the rest of the world followed suit. Why did the gold standard go out of fashion? According to conventional wisdom, there are two main disadvantages of a gold standard. First, because the supply of gold changes only slowly, the monetary supply cannot be easily altered to reflect the rate of economic growth. Prices are not stable. Second, commodities like gold are very expensive to transport and mine. But do the arguments against the gold standard hold up? It's true that the supply of gold cannot be easily changed. The supply never decreases, and only increases slowly. But as has been pointed out, this is in fact an advantage, not a downside! It is precisely because the supply of gold changes only slowly that a gold standard is largely immune to government meddling. Fluctuations in prices should not be a problem so long as there is a market that is free and flexible. If gold production does not keep pace with economic growth, the prices of goods and services are likely to decline (price deflation), but why is this a problem? Any negatives arising from this process should be exactly balanced by other positives. Rising productively would mean that there is no reason for wages to fall, and so economic growth would cause the value of gold to appreciate over time. Historical data back this up. Under the classic gold standard in England and the United States (1821-1914) the wholesale price index tended to be slightly deflationary, although there were short-term fluctuations. Compare deflation under the gold standard, with the situation that occurred when the gold standard was abandoned. The result (the 20th century) saw ruinous hyperinflation and extreme business cycles as governments went on artificial spending sprees by over-printing paper money. For instance in Britain the gold standard saw two centuries of monetary stability, as shown by the fact that in 1932 prices in Britain were slightly lower than they were in 1795. Of the total increase in the price level from 1264 to 1940, less than 3% of it occurred in the 676 years up to 1940. More than 97% of it occurred in the 55 years after 1940 (when the gold standard had largely been abandoned). These figures are quoted from Roger Boote, in his best-selling book 'The Death of Inflation'. Boote argues that zero inflation or actual deflation is the natural state of an economy with a properly functioning currency-standard, and that the hyper-inflation seen all over the world in the 20th century is but a brief abnormally caused by gross government mismanagement of paper money. Boote thinks that improved fiscal discipline and lessening government control over the money supply can again return us to a 'natural' zero-inflation environment. What of the second argument against a gold standard: that producing and storing all the gold is a waste of resources? The answer is that the cost of mining and processing gold has to be balanced against the costs of paper money in the form of damage to the economy caused by government mismanagement of the money supply (such as the hyper-inflation just explained). A gold standard need not be 100%. That is, a gold standard need not require that all banking deposits be backed by 100% gold reserves. Some reasonable degree of 'free banking' can be allowed, whereby the monetary unit is gold but banks are still partially free to determine reserve levels. The ruinous experiment with government fiat standard must end. Government fiats are not an objective of value, and a return to the gold standard is well over-due. Ayn Rand knew the value of gold standard: "Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account that is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked: 'Account overdrawn.' ('Atlas Shrugged', Francisco d'Anconia's speech about money) What could those who wish to see a return to the gold standard do? It turns out that a solution is emerging, one that could again return us to a world where money assumes it's proper value. E-currency is currency used to perform transactions over the Internet. Such currency can be used to bypass paper money. But how could such currency be established to be an objective measure of value? The answer is by backing it with gold - a gold standard! Several forms of gold backed e-currency have emerged, but one of the most popular so far is 'E-Gold'. It costs nothing to set up an e-gold account. Getting started is easy. Go to the E-gold website and 'Create Account'. After setting up your account you'll want to load some E-gold into it. To do this you can go to a bullion exchange website which supports E-gold and trades in your currency – E-Forex Gold for instance. Simply 'Buy E-Gold' and follow the banking instructions. To trade in E-gold you log into your E-Gold account and 'Spend', which will let you transfer some of your e-gold to another account holder. You can also receive E-Gold by setting up a shopping cart to accept E-gold on your website. When you want to exchange your e-gold for cash, go back to E-Forex Gold or your chosen bullion exchange website and 'Sell E-Gold'. You simply give your bank account details and the money will be wired to your account. The process is completely secure and no credit cards are required. E-gold is supported by a growing number of merchants and organisations, especially Libertarian oriented ones. Those Libertarian/Objectivist oriented people who use the web regularly and want to support a gold standard should try getting an e-gold account. If you have your own website place a link to E-gold on it and refer others to the service. Begin trading value-for-value with your fellow Libertarians/Objectivists and watch your store of E-gold grow. If on-line gold backed forms of currency such as e-gold grow popular enough, it may even one day become possible to challenge the dominance of paper currency, and return to a true gold standard. We are cyber-radicals for capitalism and E-gold shall be our sign!
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