What is the Gold Standard ?

What is the Gold Standard ?

Thomas Allen

    Much confusion exists about the gold standard. Under the true gold standard, which is also called the gold-coin standard and the unadulterated gold standard, gold does not back the money. Gold is the money.

    Most promoters of a gold standard promote a monetary system that does not constitute a true gold standard.

    First, gold is used to back a currency that is irredeemable. For example, between 1933 and 1968, Congress required federal reserve notes to have some gold backing. Yet citizens of the United States could not redeem their federal reserve notes for gold. With a few exceptions, they could not even own gold.

    Second, the government issues paper money that is redeemable in gold. The government buys gold and uses it, either as coins or bullion, to back its paper money. Often it issues more notes than it has gold backing it. An example of this type of money is the U.S. note between 1879 and 1933.

    Third, the government buys gold on its own account and coins it. This type of monetary system looks like a gold-coin standard, but it is not. The government arbitrarily decides the quantity of coins to issue. An example of this system in the United States involved silver dollars between 1873 and 1900. After 1873, the U.S. government no longer allowed the free coinage of silver. Instead it bought silver bullion on its own account and coined it into silver dollars, which it declared legal tender and standard money and which was not directly redeemable into gold until 1900.

    Fourth, some supply-side economists recommend requiring the central bank to expand or contract the money supply and credit to keep the price of gold within a specific range. This is obviously not a gold standard. It is a fiat monetary system where the price of gold becomes the index by which to adjust the money supply.

    Fifth, Irving Fisher’s plan to make dollars redeemable in gold based on purchasing power as determined by an index instead of weight is not a true gold standard.

    Although these systems use gold, they are not a true gold standard. They are forms of fiat money because the government or its central bank arbitrarily controls the money supply. The quantity of money does not expand or contract to meet the needs of commerce; the law and the  government’s collections and disbursements fix the quantity.

    Two other forms of standards that use gold are sometimes promoted. They are the gold-bullion standard and gold-exchange standard. However, gold coins do not circulate under either of these standards.

    Under the gold-bullion standard, paper money is redeemable only in large bars of gold bullion. The country’s money is not redeemable in gold coins. Consequently, it is considered a rich man’s standard. Because redemption is in large high-value bars, few besides specialists in foreign trade redeem notes for gold. Gold bullion presented to the government or its central bank is not coined. Instead the government or its central bank pays the presenter in government notes or bank notes.

    Under the gold-exchange standard, gold can only be used to transfer payments in gold to approved foreign institutions. Governments created the gold-exchange standard. It is a politically created system and not a product of the markets. The gold-exchange standard allows governments and their central banks to manipulate international gold flows for political reasons. The government holds the reserves of its foreign claims in gold. Most of the world’s gold ends up in the vaults of a few central banks. The gold-exchange standard offers little resistance to the desires of governments to inflate their currencies. Gold is subordinated to governmental policies and goals. Because of domestic inflation, against which it offers little resistance, the gold-exchange standard becomes unstable and dysfunctional. Most of the world operated under a modified gold-exchange standard between 1944 and 1971. (This standard was more of a dollar standard as foreign currencies were pegged to the dollar, which was pegged to gold at $35 per ounce.)

    A common misunderstanding about the true gold standard is that the government fixes the price of gold. For example, if an ounce of gold exchanges for $20, the government has fixed the price of gold at $20 per ounce.

    Under the true gold standard, the government does not fix the price of gold. It defines the monetary unit, such as the dollar, as a specific weight of gold. That is, the dollar is a specific weight of gold. For example, the dollar is defined as 1/20 of an ounce of gold or 24 grains of gold. The dollar is 24 grains of gold. It is a unit of weight like the pound or gram. It is just limited to money. By declaring the dollar to be 24 grains of gold, the government has no more fixed price of gold than it has fixed the price of a pound by declaring it to be 7000 grains.

    Thus, a fundamental principle of the true gold standard is that the price of gold is not fixed. The monetary unit is a specific weight of gold. Furthermore, gold does not back the money. The money is gold.

    Moreover, under the true gold standard, the government does not monetize gold. Gold does not have to be in the form of a coin minted by the government to function as money. Privately minted coins can function as money as well as those minted by the government. Furthermore, gold often functions as money in the form of bars. Thus, coining by the government does not monetize gold. To the extent that gold is monetized, the markets, and not the government, monetize it.

    Under the true gold standard, regulation of the money supply is automatic and decentralized. Supply varies to suit the needs of the people and commerce. Governmental intervention is unnecessary and would cause more harm than good. The true gold standard automatically optimizes the quantity of money to suit the needs of the people and the economy.

    In summary the true gold standard has the following attributes:

    1. Gold does not back the money; gold is the money.

    2. The price of gold is not fixed. The monetary unit is a specific weight of gold.

    3. Gold coins circulate as money.

    4. The value of a coin is the value of its metal content.

    5. There is the free coinage of gold: Anyone can bring any amount of gold to the mint, which does not have to be owned by the government, and get it coined.

    6. Anyone can melt coins without restriction and use the metal for nonmonetary purposes.

    7. No restrictions are placed on exporting or importing gold.

    8. All paper money is redeemable in gold on demand.

    9. The supply of money is self-regulating and automatically adjusts to meet the demand for metallic money. The government does not manage or otherwise manipulate the money supply. No monetary policy is necessary, and none is desirable.

    10. The government does not buy gold and coin it on its own account.

    11. Gold coins are the property of the individual holding them; they are not the property of the government. No restrictions or controls are placed on the private ownership of gold.

    12. Legal tender laws are unnecessary and undesirable.

    13. The government’s monetary duties are limited to defining the monetary unit, coining all gold presented to it for coinage and guaranteeing the weight and fineness of such coins, punishing counterfeiters of such coins, punishing issuers of paper money who fail to redeem their paper money on demand, and punishing acts of fraud and enforcing contracts in monetary matters.

Copyright © 2013 by Thomas Coley Allen.

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Is the Price of Gold Fixed Under the Gold Standard

Is the Price of Gold Fixed Under the Gold Standard

Thomas Allen

    A common misunderstanding about a commodity standard is that the government fixes the price of the monetary commodity. Many people believe that under the gold standard, the government fixes the price of gold. For example, if an ounce of gold exchanges for $20, the government has fixed the price of gold at $20 per ounce. No one would sell gold bullion for less than $20 per ounce because he can take the bullion to the mint and get it minted into coins at $20 per ounce. Furthermore, no one would pay more than $20 per ounce for bullion because he can melt coins to obtain bullion.
    Under the gold standard, the government does not fix the price of gold. It defines the monetary unit, such as the dollar, as a specific weight of gold. That is, the dollar is a specific weight of gold. For example, the dollar is defined as 1/20 of an ounce of gold or 24 grains of gold. The dollar is 24 grains of gold. It is a unit of weight like the pound. It is just limited to money. By declaring the dollar to be 24 grains of gold, the government has no more fixed price of gold than it has fixed the price of a pound by declaring it to be 7000 grains. The dollar is a unit of weight like the pound or gram. It is just limited to gold. The dollar is fixed in terms of gold; gold is not fixed in the terms of the dollar.
    Another way of stating this point is in terms of the independent variable and the dependent variable. People who claim that the price of gold is fixed under the gold standard are claiming that an abstract unit of value, e.g., the dollar, is the independent variable. A concrete weight of gold is the dependent variable. Thus, an abstraction fixes the value of a concrete weight of gold.
    Conversely, people who claim that under the gold standard the price of gold is not fixed claim that the value of gold is the independent variable. The monetary unit is the dependent variable as it is a fixed weight of gold. A concrete weight of gold fixes the value of the monetary unit.
    “The metre is the length of the path travelled by light in vacuum during a time interval of 1∕299,792, 458  of a second.” Does the speed of light fix the metre, or does the length of the metre fix the speed of light?  If they are consistent, people who claim that the government fixes the price of gold instead of gold defining the value of the monetary unit, must argue that the government fixes the distance that light travels in a fraction of a second instead of defining that distance as the length of the metre. How absurd. The government defines the abstraction, the “metre,” in terms of the tangible distance that light travels in a fraction of a second. It does not define the tangible distance that light travels in a fraction of a second in terms of the abstraction. Likewise, with gold, government defines the abstract monetary unit in terms of a tangible weight of gold. If the speed of light fixes the metre, then the weight of gold fixes the value of the monetary unit.
    This discussion may seem to be an unimportant discourse about semantics. It is not. The distinction is highly important. Is gold to be fixed in dollars, i.e., gold is priced in dollars? That is, the government declares that the dollar is an abstraction, and it has arbitrarily fixed the price of gold. This notion leads quickly down the road to paper fiat money. On the other hand, is the dollar to be fixed in gold, i.e., the dollar is a unit of weight of gold? The government declares the dollar to be a tangible and defines it as a measurable amount of gold. This notion is the essence of the gold standard; the monetary unit is a weight of gold.

Copyright © 2014 by Thomas Coley Allen.

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Indo-Australian: Part II

Indo-Australian: Origins and Migration
Thomas Allen

[Editor's note: Footnotes and references in original are omitted.]
    When God created a species that depends on sexual reproduction, at a minimum He must have created a male and female of the species. For most species He probably created multiple males and females. Furthermore, for species that can and do interbreed, He had to isolate them from each other until their population had built up. If they were allowed to crossbreed indiscriminately, their unique and distinguishing characteristics could be lost.
    The Indo-Australians were created about 75,000 years ago on the Anatolian Plateau. From here they spread westward into Europe and eastward into Iran. Most of those who left their Anatolian homeland settled in Mesopotamia and Iran with some even reaching East Asia.[5] By the time that they began migrating from western Asia, they had acquired the Mousterian culture from the neighboring Neanderthals. During the Würm I glaciation, they migrated eastward and southward in search of a warmer climate. Many had reached India by the end of the Würm I glaciation (c. 57,000 B.P.) where they spread across the Indo-Gangetic Plain. Here they remained until the Melanochroi population grew large enough to encroach on their lands.
    As the Melanochroi moved into the Granges valley, they drove the Indo-Australians living there into Burma. (These were the progenitors of today's Australians.) As the Melanochroic population grew in the Ganges valley, they began to move westward across the Indo-Gangetic Plain. As they moved, they forced the remaining Indo-Australians into the Deccan and down the west coast of India or to the Chota Plateau. (These Australians became the progenitors of the Pre-Dravidians.)
    Later the Melanochroi drove most of the Pre-Dravidians farther south into the coastal lands and jungles of southern India and other places that the Melanochroi found as undesirable habitats. (The Pre-Dravidians of the Chota Nagpur seemed to have remained there throughout the millennia of Melanochroic invasions.) Some Pre-Dravidians fled to Sri Lanka (Ceylon). The Vedda of Sri Lanka are the descendants of these Pre-Dravidians.
    The Indo-Australians who fled to Burma migrated down the Malay Peninsula into Indonesia. These Australians were the Wadjak man from whom today’s Australians descended.[6] For the next several thousand years, Melanochroic and Turanian tribes were continually pushing them southward and eastward. At the peak of the Würm II glaciation (c. 45,000 B.P.), Indo-Australians spread across the East Indies (Indonesia) into New Guinea with Turanians close behind. About 40,000 years ago Australians had reached Borneo[7] and Australia.[8] A few crossed the Timor Sea and settled in Australia about 30,000 years ago.[9] About 9000 B.C.[10] most of the Australians remaining in Indonesia migrated to Australia. This wave came because of Turanians pushing into Farther India. Eventually, the Melanesians and Papuans, who were the primary people pushing the Australians, drove the Australians remaining in New Guinea to Australia (c. 7000 B.C.).[11] Except for occasional encounters with the Melanesians and some minor encounters with Aryans earlier in the seventeenth and eighteenth centuries, they would live here free of outside interference until Aryan settlers (soldiers and convicts) arrived in 1788 A.D.[12]
    While Melanesians were pressing the Australians, Melanochroi were pressing the Pre-Dravidians. During the Würm III (Achen) glaciation about 25,000 years ago, the Dravidian Melanochroi invaded the Deccan and drove most of the Pre-Dravidians living there southward, eastward, and westward into the lower coastal lands and jungles.
    The Indo-Australians driven from India by the Dravidians into Burma spread across Farther India. As these Indo-Australians spread across Farther India, they pushed the Turanians northward and the Australians southward. About 24,000 years ago the Dravidians drove many of them from Farther India down the Malay Peninsula across the East Indies into New Guinea. These Indo-Australians became the progenitors of the Papuans. Later Dravidian invasions, beginning about 7600 B.C. and lasting several millennia, drove the remaining Indo-Australians out of Farther India except a few tribes of Negritos. The Negritos of Malaya, Indonesia, and the Philippines and the Melanesians are the descendants of these Indo-Australians.[13] By 847 B.C. the Melanesians had reached New Caledonia, and by 46 B.C. they had reached Fiji.[14]
     Some Indo-Australians journeyed to South America in their attempt to escape the Indo-Australians who had retreated to Australia fleeing from the Melanochroic and Turanian advances.[15] When the climate in Antarctica was much warmer than today, a group of Indo-Australians who had earlier migrated to Australia crossed the south Pacific to Antarctica. Traveling along the coast of Antarctica, they crossed the from the Graham Land (Palmer peninsula ) into South America.[16] They became the progenitor of the extinct Lagoa-Santa type and the extant Fuegian.
    As a result of the Turanians pushing into Farther India, a group of Indo-Australians who became known as the Ainu began migrating toward Japan. They arrived in Japan about 8000 B.C. A few centuries after the Ainus had settled in Japan, Mins crossed over from Korea to Japan. They quickly drove the Ainus out of Kyushu, Shikoku, and Honshu Islands to Hokkaido and Sakhalin Islands.
    Since the arrival of the Aryans in Australia, Australians of that continent have been in retreat. The only thing preventing the extinction of these Australians is that the Aryans had not completely opened their borders to the Turanians hordes to the north.
    Aryans and Turanians have also contributed heavy to the demise of the Fuegian. Miscegenation more than anything else is driving the Fuegians to extinction.
    In Japan the Ainu are close to extinction. However, in India the Pre-Dravidians have generally persevered. Today they account for nearly all of the extant Indo-Australians. Nevertheless, miscegenation may well cause the extinction of the Pre-Dravidians.
    Laws protect races of bloodsucking, disease carrying mosquitoes, ticks, and fleas from extinction. Unfortunately, no laws protect the races or nations of man from extinction. To the contrary, laws encourage their extinction.

Endnotes -- continued
5.  Bean, p. 104. Herbert Wendt, It Began in Babel: The Story of the Birth and Development of Races and Peoples. (Translator James Kirkup. Boston, Massachusetts: Houghton Mifflin Company, 1961), p. 127.

6. Gates, pp. 145 ff. G. Elliot Smith et al. Early Man: His Origin, Development, and Culture (Freeport, New York: Books for Libraries Press, Inc., 1931. Reprinted 1967), pp. 15-16.

7. Vincent Megaw and Rhys Jones, The Dawn of Man In The Putnam Pictorial Source Series (New York, New York: G. P. Putnam's Sons, 1972), p. 73.

8. John Gowlett, Ascent to Civilization (Editors Louisa McDonnell and Emma Fisher. New York, New York: Alfred A. Knopf, Inc., 1984), pp. 118, 139.

9. James F. Downs and Herman K. Bleibtreu. Human Variation: An Introduction to Physical Anthropology. (Beverly Hills, California: Benziger Bruce & Glencoe, Inc., 1972.), p. 283. Megaw, and Rhys, p. 73.

10. Carleton S. Coon, The Origin of Races (New York, New York: Alfred A. Knopf, 1962), pp. 92, 406-407.

11. Calvin Kephart, Races of Mankind: Their Origin and Migration (New York, 1960), p. 170.

12. Herbert Wendt, It Began in Babel: The Story of the Birth and Development of Races and Peoples (Translator James Kirkup. Boston, Massachusetts: Houghton Mifflin Company, 1961), pp. 339-341.

13. Wendt, pp. 124, 196-197. Kephart, pp. 82-86, 169.

14. Carleton S. Coon and Edward E. Hunt, Jr., The Living Races of Man (New York, New York: Alfred A. Knopf, 1965), p. 171.

15. Kephart, pp. 61, 103-105.

16. Comas, p. 631.

Copyright © 2015 by Thomas Coley Allen. 

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