Golden geese laying scrambled rotten eggs
October 21, 2016 § 36 Comments
A fiat dollar is a security issued by the sovereign. Like every other financial security issued by an institution, fiat dollars grant the owner of the security an economic claim backed by the institution’s balance sheet. Like every other financial security issued by an institution, it is possible to trade fiat dollars for other property in the marketplace. It is also possible to exercise the specific rights granted by the security instead of trading it: in the case of fiat dollars, to turn it in to the sovereign who issued it for the satisfaction of a particular tax obligation.
The worth of a fiat dollar derives from the financial rights that it grants. Its price in marketplace exchanges represents what other people are willing to pay, in terms of different kinds of property, in exchange for the financial rights granted by the fiat dollar.
A ‘gold standard’ dollar is the same kind of thing. It is a financial claim against the balance sheet of the sovereign; the financial rights conferred are the satisfaction of debts owed to the sovereign, in particular tax liabilities. The difference is that the gold standard irrationally presupposes that a substantial portion of the sovereign balance sheet must or should be made up of gold — an otherwise not very noteworthy kind of property, property which while fairly durable sits unproductively in a vault where it destroys economic value in the demands that it places on its defense and maintenance against the universal tide of entropy.
Advocacy of gold standard dollars is like advocacy of gold standard capital stock: in essence, it requires than any securities which an institution issues must be printed on gold or must come along with some ratio of gold stored away in addition to the rights granted by the security. Advocacy of gold standard dollars assumes that gold is the only valid kind of wealth, when in fact almost all of the wealth in the world is constituted by property other than gold. A gold standard involves making a wildly irrational assumption about sovereign finance that we would never make about private finance. It is as if the stock price of corporations were required to be indexed to the amount of gold that the corporation has stored away in a vault, even though the gold is entirely useless in the company’s business operations and its storage and provision for security constitute a senseless and perpetual drain of resources.
Gold standard dollars are no more rational than requiring by statute that eggs be sold in golden egg cartons, or bundled with certificates entitling the bearer to a gram of gold per egg. Gold standards are literally crazy, a scrambling together of entirely unlike property into a toxic mix. Folks who simply hate government per se advocate for them precisely because they understand on some level that the gold standard is irrational, debilitating poison. If you can’t drown the balance sheet of the government you hate by weighing it down with lead, at least maybe you can weigh it down with gold.
But you won’t see them – at least not the more rational ones – advocate for a ‘gold standard’ in the securities that make up their retirement portfolios, or in the goods they buy in the grocery store. An investor with an equity portfolio doesn’t want to require the companies whose stock he owns to carry large quantities of inert and unproductive gold on their balance sheets. For these folks, the gold standard is an unprincipled exception intended to apply only to government precisely because it is financial poison for the institution which they despise.
The crazier wing of the gold standard crowd isn’t even sophisticated enough to grasp that a gold standard is financial poison. They like the gold standard because GOLD. Their attachment is pure unreasoning emotion. A gold standard is, objectively, a requirement to literally add useless dead weight to unrelated kinds of property.
But better to let the scrambled eggs rot than to give up our irrational attachment to gold.
 Absent contractual terms or other legal restrictions to the contrary.
 T-bills are just fiat dollars once removed, as stock options are just shares of capital stock once removed: they are not debt, and the sooner you banish the idea that they are debt from your mind the better you will understand them.