It Gets Down To Gold

The economic crisis in Europe has gotten to the point where the players have asked Germany to put up its gold as collateral for Greece.  This must be curious to those who wonder at why gold might be important.

Most market transactions in the history of mankind are free will offerings, as when your neighbor gives you a pie.  Think of all the hunter gatherer societies in history where the men brought in a mastodon and shared it out.  No money involved.

Money strictly defined is a medium of exchange.  Yes, it could be anything, but in most instances it has been gold and silver, gold for kings, silver for peasants. It emerged to facilitate trade when division of labor made more better cheaper faster of new things, and the problem of coincidence of wants needed to be solved.  I have a lamb for sale, you have knives.  You don't want a whole lamb, and I want only one knife.  If we cut up the lamb for a fair trade of leg or lamb for one knife, I now have rotting lamb for sale.  If my apple crop comes off the tree in October, and your winter wheat in April, my fruit rots before your wheat is available to trade.

For these more advanced economies, tallies were kept.  Various means were maintained to account for who got what and who owns what to whom.  Tallies would be made to show I got the knife from Bob, and Jim got the lamb, and I owe Bob some lamb, which Jim will give him when he finds enough people who want lamb to slaughter the animal.  Tallies will show Steve got apples in October and in April I'll use those tallies as a claim to collect some winter wheat.  Still no need for gold and silver.

As the economy got more complex and distances goods moved got farther, something better than tallies was needed.  Gold and silver have these benefits: universally recognized, dense (high value to weight and measure), easily divisible, does not rot, relatively stable value, and a value not realized until recently, antibiotic.  This last one is important as gold actually exchanged had to hand, and gold suppressed disease as it traded.  It may be just coincidence, but the plague spread in Europe at the same time paper money began to replace gold.  It would be an interesting masters thesis to track the plague and the introduction to paper money, so see how tight the correlation is.  At any rate, gold and silver foots the bill as a medium of exchange.

The reason this medium of exchange is important for these farther distances is that the traders may very well never see each other again.  Tallies will not work, so there needs to be a way to settle up that is a final accounting.  This is how gold and silver work throughout history.

When Germany and USA/UK were at war, there was still plenty of trade going on between the two warring nations.  The British needed German ball-bearings for their aircraft, the Germans needed oil.  These trades were settled up in Switzerland in gold. When the outcome is in doubt, people want to settle up in gold and silver.

When the US Armed forces wanted to mountain fighters of the Northern Alliance to liquidate Osama Bin Laden at Tora Bora, the USA forces presented the $25 million fee in USA currency.  The Northern Alliance demanded gold.  The assault was delayed (and OBL escaped) as the USA forces scared up the fee in gold.

I went to a lecture at UW a week or so ago in which the professor traced the history of Egyptian gold coins.  It seems at times of change, or disaster, gold coins emerge.  The last pharaoh before the Ptolemys conquered the country, was obliged to mint gold coins to pay the mercenaries to defend Egypt.  Tallies would not work.  A soldier can take gold anywhere, but a tally depends on the Pharaoh winning and Pharaoh then honoring his promises.  Gold is better.

Spooner noted the amount of gold in coins in circulation is perfectly matched to demand since with the price of gold drops, coins are melted down and made into "decoration, plate and jewelry."  When the price of gold rises (crisis times) that decoration plate and jewelry is melted down and made into coins.  Where are in a meltdown mode right now.

We largely stay put because of our vast resources in tallies.  Even if you are unemployed, you will not move to China where you can get a job teaching English (some do, but almost nobody as a percentage of the unemployed).  You stay put, unemployed because of all of the family connections, help, support etc, that you will get, that is owed you, that you would lose if you go to China.  Most of our resources are in tallies and connections, not in "money."

Another observation from the audience at the lecture was a correlation between freedom and gold.  Gold is suppressed as freedom is suppressed.  As USA converted to socialist country back in the 1930s, gold was outlawed.  It was legalized again in the 1970s, but we are returning to restrictions and taxes on gold, a forerunner of suppression.

So how does gold relate to money, that folding stuff in our wallets and what is in our bank accounts and retirement funds.  Well, none of that is money, it is all tallies.  And at any point Pharaoh can say what value it has, and do as he wills.

We are in a time of crisis, and we do not know if Pharaoh can settle up.  bankers are asking that the bailout of Greece be backed by German gold. In times of crisis, the mercenary knows to say "pay me in gold."  You should know this.

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