Gold and Freedom

I've known for a long time that there are two levers of power that governments never consider giving up. And yet it is essential that these power levers are removed from the state's control - if we are ever to have a truly FREE society.

Power Lever #1 is EDUCATION. Education is "state" education. It is compulsory. It teaches what the state mandates (whether delivered by public or 'private' schools). It is a means of ensuring all citizens grow up with the right mindset - i.e. predisposed towards the very idea of big government, social welfare, taxation, war. In other words the 'Big Brother' mindset.

Power Lever #2 is MONEY. The state issues the money. This is called fiat money - money with no inherent value other than the fact the state declares it legal for all debts and financial obligations. The state then enforces a monopoly on the issue of this fiat money - ensuring it can manipulate it to its advantage.

I could wax lyrical about what I think should happen to state education, and that's a subject for another essay. However, today I want to talk about government fiat money, and how it is a tool of enslavement. And I want to talk about one possible way out of this slavery.

First I should define the term "fiat". From comes the following definition:

1. An arbitrary order or decree

2. Authorisation or sanction: government fiat

So, fiat money is money that is DECLARED to be money by the arbitrary order or decree of government.

Government fiat money is the end result of an evolution of money as we know it. And it can be summarised briefly as follows:

Historically, various commodities have functioned as money - that is, as a means of exchange. Some of these commodities have included unique items of special value to certain cultures and conditions, like salt or tobacco. However, historically, only two commodities stand out as having passed the test of time - gold and silver. The reason is quite simple. Both of these metals have intrinsic value and cannot be counterfeited or manufactured at will.

So throughout history both gold and silver have functioned as money.

As commerce became more sophisticated, various means of dealing with gold came into being. One such way was to pass on gold receipts as negotiable financial instruments.

The process was simple. You stored your gold with a goldsmith, who issued you with a receipt for the same. Now you could pass on that receipt to another - and pass on the claim to your gold

In this way gold became the backing for such receipts - allowing for the easy carrying and transferring of value - i.e. the value of gold as determined by the receipts.

Of course, gold coins were also common - like the cash of today.

This process of privately issuing gold receipts became the basis for what is known today as 'banking'. A bank became a repository for gold and issued bank notes which were redeemable in gold.

In the "good old days" a bank note was a promise to pay - a promise to pay a certain amount of gold (or silver) on demand.

Today we still have bank notes - but they are mostly issued by the state (not by private banks), and they have no redeemable value, other than in exchange for another, similar, bank note.

The link between gold and bank notes was broken with the abolition of the gold standard. The USA abolished it in 1933 and Great Britain abolished it in 1931.

The paper money we have today is a ghost of its former self. If you walk into a bank today and ask to exchange it for something other than another note, I'm sure you'll get a very strange look!

I have four different national fiat currency notes in my hand right now. One is a five pound note from the Bank of England and it says, "I promise to pay the bearer on demand the sum of five pounds". Another is a note for 20 Hong Kong dollars - which carries virtually the same phrase. I also have US and Australian dollars which don't even "promise to pay" anything, but carry the term "this note is legal tender .... etc.".

So, there you have it. The value of the notes you use every day is arbitrarily determined by the state, and by its capacity to disallow any monetary competition.

It is this monopoly on the issuance of what we use as money, and the state's ability to determine the value of it, which is at the heart of the state's power.

With this power, the state can literally manipulate the money supply for its own ends. It can "cook the books" in a way that a private company could never do. It can use this power to ensure it stays in power. And it can even steal the money you have saved, after it has already stolen the money you've earned (tax), by inflating the currency - i.e. by lowering its value over time.

It does this by creating money out of literally nothing, then using this money to bribe segments of the population - to buy their votes - by various welfare and money redistribution schemes.

How to break this monopoly?

Frederic Hayek, the great Austrian School economist, posited the idea of competing currencies. What he meant was that if each nation allowed for the free use and exchange of currencies from different nations within its own national borders - then this would act as a disincentive to debase currencies via inflation.

On a day-to-day basis this would mean you could go shopping and use the currency of your choice - USD, EUR, HKD, AUD, RMB etc. It may be a bit of a headache for your local shopkeeper - as he or she would have to deal with such multiple currencies at the cash register. But it's not impossible, and many duty free stores around the world already deal in at least the main globally accepted fiat currencies. All that would be needed is a smart cash register that can handle multiple currencies.

There is obviously some merit in this idea - as it would at least give notice to states who inflate their currencies with abandon.

In a free market of nationally-issued fiat currencies, as suggested, such inflating currencies would be marked down or discounted, on the grounds they were losing value. Some notes would rise in the customer's estimation, and others would fall.

This scenario would eliminate the "monopoly" nature of currency as it stands now. However, it would not address the nature of fiat money as such. It would not deal with the issue of value, and how it is determined.

There have been many suggestions as to how one could move forward to a free market money system - one where the government has no control over the money in circulation. Some of these are very interesting, and some have a look of quackery about them. But there is one way of achieving this which would be based on historical experience, on a proven track record. And that is a return to the use of gold in some form or another.

Gold is not created by the government. Gold is not inflated by the government. Gold has intrinsic value. Government fiat money has none.

And gold has stood the test of time as a trusted medium of exchange. What's more, the modern digital age has created the means to deal in gold, without actually having to cart it around in your pocket.

Since the arrival of the internet, there has been a surge of interest in gold as a medium of exchange - as money. Services like E-Gold, E-Bullion, GoldMoney and others, provide a means to both store and transact in gold in an everyday basis.

You can store gold and you can use an online interface to transfer gold to others - similar to online banking. The difference is you are literally owning gold, something of intrinsic value.

You can also own gold by holding a receipt for it - giving you ownership of real gold, without having to physically store it.

And of course you can own gold by purchasing bullion - either in bars or coins.

Naturally, gold is valued by comparison to various fiat currencies, primarily the US Dollar - and as such its value fluctuates day to day. Of recent times this fluctuation has been mostly up, as gold continues to increase in value, in comparison to the world's fiat currencies. This is another way of saying that fiat currencies are less trusted than gold.

Gold is also the financial haven of last resort. When the financial world starts to shake and jitter, people rush to gold. Why? Because they know that should paper currency plummet in value - even to zero - gold will hold its value.

But gold is more than a means of storing value. It's a way of removing the control the state has over money. Gold is an instrument of the free market. You can buy and sell gold freely. You can increasingly choose to conduct a wide range of financial transactions using gold. And you can increase your financial privacy by using in it.

One of the downsides of using any nation's fiat money is that each nation claim the right to determine how it is used, and enforces this via a myriad of regulations - like "know your customer", the "Patriot Act" and others - all designed to strip you of your financial privacy. Using gold allows you to step outside this control system to a large extent.

There are a number of savvy financial experts and investment newsletter writers who are pushing the case for gold - as a means of protecting yourself from a potential future economic meltdown. People such as Bill Bonner and Doug Casey come to mind. But there are many more. The common theme amongst these financial commentators is that fiat money is headed down - and gold is headed up.

However, the true benefit of gold is the freedom it grants. Gold is a form of money which is out of state control. The state cannot inflate the gold supply. It cannot make more gold. It cannot determine the value of gold. In this way gold is a true free market financial instrument - and as such is a present and existing means of increasing both your personal and financial freedom.

Yes, perhaps there are better and more innovative ways to achieve freedom from the state's control of the money system, but gold is here and now!

Yours in freedom

David MacGregor