# Why a Gold Standard?

by Dan Popescu, Gold Broker:

In this article I want to approach the idea of a gold standard from a more “regular people” perspective rather than from a “high academic” economic/finance and, sometimes, legalistic perspective. I constantly read books and articles full of mathematics written by the economic academia, trying to show why a gold standard is a relic of Antiquity, undignified of the modern world.

As a physicist, still, I would like to remind economists that they would not be able to write their papers on a PC, communicate with an iPhone, drive a car or fly on a plane, if it weren’t for two relics of Antiquity essential to scientists and more than 3,000 years old that barely changed since then: algebra and geometry.

When I was a child, my father, an engineer, used to tell me over and over again, “If you can’t explain it in simple words, it’s because it makes no sense or you don’t understand it yourself”, and “keep it simple”.

Recently, while researching for an article on the gold standard, I stopped and thought about a “new” (not from Antiquity) standard: the metric system. I realized how exceptional and how humble those scientists were when they created it. I just couldn’t believe it. Here is a system designed to correct a problem faced only by scientists, which is to measure quantities at the angstrom level (10−10) and at the astronomical level (1010) that the old system couldn’t handle. They could have designed a system that only they can understand. Who cares if the common people don’t? Too bad for them… They will have to hire us to do the calculations. However, look at the system they designed. It allows those highly educated “rocket” scientists to work in fields like particle physics and astrophysics but at the same time so simple that even an analphabet can learn it fast. They used the base 10, which is the easiest to learn and use. Don’t need a diploma to multiply or divide by 10. For temperature, they chose as limits the freezing point as zero and boiling point as 100. Again, base 10 and the range humans deal most of the time. No need to do sophisticated calculations to understand it.

Why do I tell you this? Because every time I talk to an economist (except Austrian) about a new monetary standard he comes up with complicated formulas of triple integral of a basket of 100 commodities, weight adjusted, etc. No, I don’t exaggerate much. I am also often asked after presentations why gold and not oil or water? The Ph.D.proudly remarks to me that they are much more valuable and useful than gold. I usually tell them that if I brought a 10 year-old analphabet from the streets of Cairo or Los Angeles he would have no problem answering this question without hesitation. After thousands of years of trial and error, gold has always been preferred. Gold is almost perfect for money. Even during the last 100 years of fiat paper currency, gold remained in the background and in crisis brought back into the limelight with the speed of light (2008 financial crisis).

Some economists argue that the unit of account is the most insignificant aspect of money. Well I don’t think so. Try to go to a store not knowing how much a kilogram or, for the Americans, a pound is from place to place and from one day to another. But that is what we have now with fiat currency and more recently electronic currency.

For thousands of years coin clipping was a crime punished by death. Today under a very academic name of inflation, it is a very high monetary policy instrument in the management of the economy and the international monetary system. Recently it was replaced by a “higher level language” of QE (Quantitative Easing). I am surprised they didn’t call it Quantum Electrodynamic Easing (QEDE). Sorry, professor Feynman, for degrading your theory (which by the way I understand better than professor’s Bernanke’s QE). Also, for those of you who didn’t study economics and wasted your time in medicine or engineering, in plain and common English, inflation is coin clipping and, for thousands of years, equivalent to stealing, often punishable by death.

Recently there has been talk of an international monetary standard based on a formula called P-gold, and another based on a basket of fiat currencies called the SDRs (Special Drawing Rights). Jim Grant, publisher of the Grant’s Interest Rate Observer, says about it that, “… Gold is instantly and optically recognizable as money. SDRs, like a bad joke, have to be explained.” I couldn’t say it better. P-gold (Paper-gold) is linked to Friedman’s k-percent rule. I am not going to explain k because then I would have to explain GDP, and then on and on.

Let me tell you the story of the gold prospector who met St. Peter at the Pearly Gates. When told his occupation, St. Peter said, ‘Oh, I’m really sorry. You seem to meet all the tests to get into Heaven. But we’ve got a terrible problem. See that pen over there? That’s where we keep the gold prospectors waiting to get into Heaven. And it’s filled – we haven’t got room for even one more.’ The gold prospector thought for a minute and said, ‘Would you mind if I just said four words to those folks?’ ‘I can’t see any harm in that,’ said St. Peter. So the old-timer cupped his hands and yelled out, ‘Gold discovered in Hell!’ Immediately, the gold prospectors wrenched the lock off the door of the pen and out they flew, flapping their wings as hard as they could for the lower regions. ‘You know, that’s a pretty good trick,’ St. Peter said. ‘Move in. The place is yours. You’ve got plenty of room.’ The old fellow scratched his head and said, ‘No. If you don’t mind, I think I’ll go along with the rest of them. There may be some truth to that rumor after all.’
This story from Ben Graham that Warren Buffett likes to tell is actually about an oil prospector, but it’s just as fitting with a gold prospector. Why am I telling you this story? Because inflation (coin clipping) has the same effect on humans. Comes a time when even those who created the rumor (inflation) end up believing in it and its beneficial effects. I have found myself so very often with wealth managers, investment advisors or economists who would mistake price rises due to changes in supply and demand with inflation, which is a devaluation of the medium of exchange (dollar, euro, etc.). Moreover, devaluation of the medium of exchange lets the State create confusion, to the point that people no longer know how to protect themselves, even those supposed to have created and studied it. After having created inflation, they end up believing themselves in it and its nominal imaginary benefits, like the gold prospector.

Recently, at the famous world central banks’ annual gathering in Jackson Hole, USA, according to the Wall Street Journal, even “Central bankers aren’t sure they understand how inflation works anymore”. As if they ever did.

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### 1 comment to Why a Gold Standard?

• Christine

It is actually funny that the US would have been stupid, hubristic and arrogant enough to bet on oil as a “limited-supply commodity” (the black gold) for so long, and even go as far as kill millions to appropriate it, when Russia published quite a bit of research proving that oil is constantly renewed, and that said research was picked up by he west (NASA among it) and tested and expanded to… confirm Russians conclusions!

On the other hand, silver and gold are in limited supplies and despite centuries of research on how to artificially create either one, they cannot be man made. Alchemists tried by every possible mean and never could.

“Bodies of credible, independent western scientists, collaborating and collating their findings via the internet through fledgling organisations such as Principia Scientific International are calling for a re-assessment of over 2,000 eastern European peer-reviewed science papers on the issue, previously ignored by western governments, state-funded universities and the mainstream media.

For decades Russian scientists have known that the fossil fuel theory is bogus and have compellingly demonstrated that petroleum is derived from highly compressed mineral deposits deep beneath the surface. But the most startling consequence to these findings is that oil is a constant renewable regenerating in nature.”

http://www.principia-scientific.org/russians-nasa-discredit-fossil-fuel-theory-demise-of-junk-co2-science.html

America, just like Israel, was created and run on fundamentally false premises. Anything created from a lie cannot survive. The question now becomes: are they going to go down and drag us along with them or will they simply disappear and make it in history books as “The experiments never to reproduce”? Boy, are education and academia going to need a serious overhaul! And boy is humanity’s pride going to be knocked down!