Yippee ki-yay …
October 26, 2016 § 37 Comments
So called ‘gold standard’ currency is a scrambled mess of confused and opaque financial nonsense, a toxic mix of securities and commodities which poisons the finances of governments and the minds of economists. I’ve explained why fiat currency is more transparent and honest than gold standard currency any number of times. But of course many folks know all sorts of things that aren’t true about sovereign finance, and can’t tell the difference between a financial security and the media upon which it is printed; so they disagree.
Sometimes folks relate better to concrete stories than to dry and abstract explanation of financial concepts. So in this post we’ll consider a hypothetical situation which will hopefully help the still-perplexed understand why fiat currency is more honest and financially transparent than ‘gold standard’ currency.
Suppose we are on a gold standard currency. The government issues official gold notes and for each gold note there is 1/40 gram of gold stored in the vault at Nakatomi Tower. Each gold note notionally entitles the bearer to 1/40 gram of gold, though in practice almost nobody ever actually turns in the notes in exchange for actual gold. The government accepts the gold notes it issues – and only those gold notes – for payment of taxes.
Hans Gruber and his merry band of faux-terrorists carry out a sophisticated paramilitary assault on Nakatomi Tower. Despite John McClane’s best efforts they escape with all of the gold and McClane’s selfish chunky feminist wife, whose constant whining causes half of the exceptional thieves to commit suicide. McClane reclaims his stolen children and lives happily for a while as a NYC cop, until he is killed in a Black Lives Matter terrorist attack on police orchestrated by the Clinton Foundation in conspiracy with a Saudi Arabian donor — a terrorist attack which gets blamed on Donald Trump, who at the time was innocently visiting Playboy Mansion but just for the articles.
Back in front of your iPad in suburbia, you have plenty of government issued gold notes and a tax bill that is coming due.
Should the government accept the gold notes that it issued from you, even though the gold is gone; or are you out of luck because your gold is in a non-extradition country earning 20%? Now that all of the gold has been spirited away, is everyone holding government gold notes a tax evader with literally no available legal means to pay their taxes?
If the government should accept the gold notes that it issued to settle your tax bill – even though the gold is gone, the top of the skyscraper exploded along with the heads of numerous Austrian economists, and the Johnsons and their helicopters are no more – doesn’t that tell you that the presence or absence of the gold doesn’t really have much of anything to do with the value of the “gold notes” as a financial security issued by the government?