International Forecaster Weekly

Why Gold, Not Sand?

On Wednesday, I had written an article about how 50 years back, Nixon removed us from the Gold standard, and how we turned from being a currency backed by Gold, to a currency that was ONLY in demand, because we had a deal with the house of Saud that oil could only be purchased with US Dollars.

Bob Rinear | August 7, 2021

On Wednesday, I had written an article about how 50 years back, Nixon removed us from the Gold standard, and how we turned from being a currency backed by Gold, to a currency that was ONLY in demand, because we had a deal with the house of Saud that oil could only be purchased with US Dollars.

This got me several Email responses, and a few of them went along the same line of thinking. Sort of like “Bob, Gold only has value because we say it does. So what’s the difference if it’s paper dollars, or tree bark or sand? We could state that any of these now back the dollar, and affix a value to them.”

Well, kinda…no you can’t. So lets explore why gold has been the most important currency for over 5,000 years of written history and thousands of years before that.

If you take a piece of paper, and then “declare” that it is a one dollar bill, you have a “fiat” currency. The meaning of the word from Latin simply means “Be it as so” or “Let it be said”, etc. In other words, it only has value, because someone stated that it does.

Did it take any form of work to declare that? No. Did it take any form of physical labor to declare that? No. Someone in high authority simply said it has value. The same could be done with Shells, tree bark, sand, etc.

But would there be any intrinsic value in the currency? If you used sea shells as currency, couldn’t anyone just go to the beaches and harvest all the shells they wanted, and become rich? Indeed. So where’s the value there? There is none.

On the other hand, to come up with just an ounce of gold, takes labor, time, often giant machinery, etc. In other words, it has rarity. It is not something you can just stumble on at the beach. It’s not something growing from trees. It’s not something the average person can conjure up out of nothing.

Many many thousands of years ago, man had an interesting plight to deal with. Barter was all he had. So lets say you were a magnificent hunter. You had the skills to take down giant beasts like buffalo. Thus you had food. Well as you might guess, your neighbors wanted food too, but they didn’t know how, or have the tools to hunt. But maybe they did have the skills to make crude clothing and foot coverings.

Mr. Hunter probably wanted boots just as much as Mr. Boot maker wanted Bison meat. But what was the proper equation? How much meat was needed to buy a pair of sewn boots? Or when Mr. Boot needed a new thatch roof. How many boots did he need to “pay” for the roofer guy to fix his hut? What if the roofer didn’t need any boots?? Does that mean Mr. Boot can’t get a roof?

Therein lies the issue with barter. Getting a proper “value” on your goods and then equating that value to someone else’s goods was always the sticky wicket. Likewise, if your product isn’t in much demand, you starve. So they decided eons ago, that some form of “money” had to be used, where everyone could say “okay, this money has a set value.”

Well again, they had to come up with the appropriate material to use as money and then affix a value to it that  everyone the world over would agree to in some degree. It couldn’t be sand, anyone could go dig a canoe full of it. It couldn’t be shells, tree bark, pine cones, etc.

So what makes up a “money” Anyway? History decided that it had to have some properties. Consider these:

  • Durability. Money should be able to stand up under constant use.
  • Portability. Money needs to be small enough so it can be conveniently carried in clothes, pockets, or purses.
  • Divisibility. Money must be made in various units. You should be able to make change. By

having various units of money, goods of various value can be paid for, and change for larger units of money can be made. Barter, on the other hand, requires goods that are traded to be of equal value.

  • Uniformity. Every bill and coin of the same value needs to look the same. Money must be uniform in that one $20.00 bill and another $20.00 bill must be able to buy the same thing.
  • Acceptable. Money needs to be easily recognizable. Everyone knows what a dollar bill, a ten dollar bill, or a quarter looks like. We should also be able to recognize genuine money from counterfeit.
  • Relative Scarcity. Money needs to be hard to manufacture. If it were possible to manufacture money as easily as any other good, we would be flooded with counterfeit currency. Our money is a hard-to manufacture special paper and metal coins that have proven to be very difficult to duplicate. Money also could not be common substances like sand or clam shells that anyone could pick up on a beach. Money must be made of scarce or difficult-to-make goods.

The proper “money” had to have some universal traits to it. It had to be rare enough that not everyone could go get all they wanted. (gold is pretty rare stuff, I’ve never found an ounce of it in 64 years) It had to be durable (gold doesn’t corrode, rust, or rot) it had to be divisible ( gold can be cut from pounds to ounces, to grams, to grains, etc) It had to be recognizable ( gold has been found to be a unit of value, on every continent, and even remote tribes throughout history have known gold to be special) It had to be transportable ( I can carry 10 ounces in my hip pockets and not even know it)  I could go on, but you get the drift.

Gold fit all the aspects of what a sound money should be like. So, the world pretty much accepted gold as the go to, and that’s a wise decision. Gold is mentioned many times in the Bible. Gold coins were first struck on the order of King Croesus of Lydia (an area that is now part of Turkey), around 550 BC. Why would a king create gold coins? He knew it had value.

The Aztecs, Myans, Egyptians, Greeks, Romans, Chinese, Indians, all throughout history have recognized gold as the go to as a store of value, a rarity with worth. 

Suggesting that the paper dollars in my wallet, that are printed by the trillions with the flick of a computer button is money, is insane. Dollars aren’t money, they’re currencies. IOU’s. Promises. DEBT! Not money.

So yeah it was a really big deal when Nixon shut down the gold window. The world recognized the US dollar as having enormous value, because it COULD be exchanged for the precious metal called gold. When the window closed, everyone that held dollars instantly thought “Well this stinks, if dollars aren’t tied to something rare like gold, what’s to stop them from printing trillions of them???!!”  And the answer as we now know, is nothing at all.

This is why our dollars are almost worthless. When you remove the backing of something as regal and rare as a precious metal, and only declare that it has value because “We said so!” you’ve got nothing.

Gold worked for hundreds and hundreds of years. But politicians didn’t like it, because it limited the amount of goodies they could spend on. Now that the gold standard is gone, tell  me again what our national debt is??  21 trillion of public debt, and if you add in unfunded liabilities, over 130 TRILLION dollars.

And they just keep printing them. Dollars have become like sand, or shells. There’s no rarity any more. They conjure them up out of thin air, and then USE them to buy tangible assets. This is counterfeiting at the highest level. Yet we go along with it as if nothing is wrong.

The ancients were wise to settle on Gold as the universal standard of money. They had it right and it worked. Leave it to criminal bankers and politicians, to screw it up.  NO fiat money has ever survived. Over 120 of them have disappeared. Gold has never disappeared. What’s in your wallet?