Archive for March 3, 2010

The Gold Standard and Zero Sum Behavior: 1

March 3, 2010 16 comments

Stick Post from the past.

Lately many people have started talking about a return to the “gold standard”. A lot of this talk is driven by nostalgia and general discontent with the ponzi scheme known as our economic system.

However I think that a return to the “good old days” is neither possible or worthwhile. Let me explain:

Gold can never be an everyday currency.

The limited physical amount of available gold combined with the amount of economic activity and the ‘quanta’ of economic activity, make it impossible to use gold as currency unless it was much more cheaper or plentiful. Can you pay for a burger+fries+ 2 beers with gold coins? Think about it.. What about filling up at the gas station or paying your changing utility bills in gold coins?

Using any proxy such as silver coins or paper will destroy the real reason behind the gold standard, namely that it is hard to fake. Once you start using a proxy for gold- scams, fractional reserve banking and debasement will follow. They occur because the gold trade is no longer transparent and is now subject to oversight by bankers. We all know how that will work out.. and in the past banking scandals were exceedingly common. The gold standard never prevented financial scams, bubbles or banks defrauding their investors.

A gold standard cannot function in a world as complex as ours.

There are a few reasons for this, and I will explain them one by one.

The first issue is the ability to redeem any gold linked currency. Given the amount of trade and commerce in the post ww2 world, any rightly or wrongly paranoid nation/ multinational could cripple confidence and trade by asking for redemption of debts in gold.

The pre-ww2 world had far less international trade and  much less complex (mainly raw materials or semi-finished bulk goods). Consider the supply chains for creating and powering the computer you are reading this on. Or consider the supply chains of raw materials, chemicals, labor, machinery and transportation necessary for you to be able to buy pineapples at safeway/ walmart? What does this world run on? Money or Trust? Every economic panic or collapse causes further negative feedback resulting in a further loss of integrity and trust in the system, triggering further episodes of panics and scams.

But we have a system that is interlinked precisely because we cannot survive without it. Trying to shut down this system might appeal to some delusional whites, but the technology to create and deliver nukes and bioweapons to devastate single strain crops/ animals is available to many non-white nations who might just decide to take their chances or ‘go sampson’.

Gold encourages zero sum behavior.

Alchemists strived in vain to convert lead to gold, but they never understood that the path to gold involves lead- specifically bullets. The easiest way to acquire money in a gold standard based world is to steal/ plunder/ loot someone else.

Such a world does not foster anything other than innovation in ways to kill each other, which sometimes does lead to better technology. But technology can be only fully utilized in a peaceful and relatively safe world. I am not anti-war just anti-stupidity. Peace and stability are required for a complex system to survive let alone flourish. Once again, I would like to remind the reader that the ability to wage total war is not a uniquely white ability and the spread of technology + demography have made it impossible for white nations to win wars against anyone other than small lawless ‘nations’.

Push comes to shove, “they” can hurt “you” more than you can hurt “them”. Falling from 60 feet is not the same as jumping from 6 feet.

A gold standard inhibits innovation.

Readers might try to point out that many scientific discoveries were made during the era if the gold standard, patchy as it was. But the real question is, when were they commercialized and affected the world on a large scale?

The answer is: in the era of default fiat currency (since the end of ww2). You see, the gold standard distorts the effects of innovation because it rations innovation based on a fictional constraint- the amount of gold.

Answer the following question honestly- How can you determine what a person should live like, enjoy or use? A poor person today might have a better living standard than a middle class person 60 years ago. The question is did either deserve their living standard?

I would say that unless you start prejudicing your views with concepts like race, class, IQ and other assorted BS, nobody can honestly tell another person what their living standard should be. However a gold standard creates an artificial constraint that tells people what they can or cannot have. Such judgements are colored by race, class and other BS, and create a society where a significant number are dissatisfied. In a society as complex and technologically advanced as ours, even a few pissed off men can kill and fuck up things far more than at any other time in human history.

Gold also affects innovation by favoring the eccentricities and whims of those who acquired gold through murder or deceit. So it is easier to get funding for a gold penis implant than a 100$ netbook.

Gold encourages people to hoard rather than spend.

Because it does not lose value and creates an uncivil adversarial society, gold encourages people to hoard money rather than spend it. The velocity of money drops to almost zero and rent-seeking behavior and oppressing others becomes the only way to become rich.

Given extensive automation and spread of industrialization, the result is a self perpetuating deflationary spiral. In the last 30 years consumption has become important than production, as it is becoming easier and cheaper to produce stuff and services. But who will buy them? and with what?

A drop in the velocity of money gives you totalitarian leaders who promise to redistribute income, and we have seen that happen before. A brazil like situation is untenable because the white brazilian elite are parasites who would die off without western backing. But what if the west ceased to he functional? Where would the elites escape to? We live in the world of nukes, viruses, missiles, drones and a million ways to hurt others.. The best part is that these technologies are widely available and cheap.

If things hit the fan, no part of the world would be safe. It can and will unwind and cause problems in ways that even I cannot foresee.

In summary, it is not worth it.. and yes, I am aware that the present ponzi scheme is also doomed.

More in another post on this new topic.

I wrote this post on the iPhone wordpress app.