May 232012
 
 May 23, 2012  Posted by at 9:59 pm Finance

This is a critique of the theory of Freegold (F-theory), which is part of an ongoing series entitled, Freegold: Perspectives and Critiques (FPC).

The following is a critique of FOFOA and F-theory by Reverse Engineer (RE) originally published at his blog, the Doomstead Diner. I am re-posting parts of the critique here because I believe RE hits on some key points of contention. Advocates of F-theory generally accept the foundational tenets of Austrian economic theory, even though they rarely claim to rely on it. One of these tenets comes from Carl Menger’s work, The Origins of Money, and Ludvig von Mises’ “Regression Theorem” – they posited that the use of money in human society spontaneously evolved from self-interested individuals engaged in barter, and that this form of commerce is fundamental to the very concept of human existence.

As anthropologists have pointed out for decades, though, the empirical evidence does not support that theory at all. In fact, it may have been centralized or quasi-centralized institutions which originally led to the internal use of money within societies – a fact that isn’t very kosher with those who believe in the undying power of the market system. RE also touches on another major problem with F-theory, in so far as it fails to deal with issues of energy scarcity in upcoming years – a vital consideration for any theory purporting to describe what global society can implement and sustain. So, without further introduction, here are excerpts from RE’s critique.


Hyperinflation vs. Deflation: Rebutting FOFOA

I’ve been over the fallacies in the thought process of what conventional economists of both the Austrian and Keynesian variety come up with many times already, but I haven’t really addressed specifically the work of FOFOA. So I will do that here and now.

Like Ashvin, I will also make my disclaimer. I don’t profess a complete knowledge of WTF the Freegold advocates are talking about, and frankly I have a whole lot of issues as far as wading through the stilted prose style FOFOA writes. I am just going to look at some underlying assumptions made in this most recent justification for Freegold and for a likely Hyperinflation of the Dollar in the near term, though FOFOA refuses to make any real timeline predictions.

(critique of Money concept)

Let us begin here first with a major fallacy underpinning FOFOA’s entire Worldview as far as Money is concerned:

FOFOA: “The answer is the concept of money. This is the ability, unique to humans, to use numbers, mental constructs, to relatively value the goods and services of barter in a way that enables economic activity and commerce. It is the enabler of economic activity and commerce. It is a primeval instinct.”

Emphasis there is mine of course. Primeval? It seems FOFOA believes that Homo Sapiens dropped down out of the trees with the innate ability to create and use money, and the subtext is that it goes back in ALL cultures into the great myst of Prehistory. He is cock sure that money in some form is an essential ingredient to the primeval Homo Sapiens mindset, but this is so untrue as to be completely laughable. It’s pretty clear that money only evolved around the time Agriculture did, and that is only around maybe 10,000 years old. This does not qualify as “Primeval” by any stretch of the imagination. There is a good 60,000 years here between the time Toba erupted and the beginnings of Ag and Money, and Homo Sapiens appears to have been quite successful through that whole period.

Moreover, its not some mythical Xanadu or Utopia in which large cultures flourished without the use of money, really only once the Europeans arrived on the West Coast of the Amerikas was any Money introduced to a very large culture of First Nations people who used a Potlatch or “Gift” Economy. FOFOA sweeps all that stuff under the rug, because it doesn’t fit the construct he wants to make regarding Money, and then more specifically Gold as Money.

(critique of Capital concept)

FOFOA: “I’m not going to go into great detail on the concept of capital, other than to give you a mental exercise. Because the term “capital” can be quite confusing in our modern paper/electronic world, I want you to imagine a much simpler human civilization. Imagine an ancient Greek city. All the buildings made of stone and mud, the horse carts and agricultural tools, the linens and skins worn as clothing, the knowledge base passed down through generations; all these creations of man’s intellect were the capital of the time.

 

Now imagine the destruction of capital. Imagine an earthquake or volcano that destroys the fruits of many generations. Or a plague or war, perhaps, that destroys the knowledge base. That’s the loss of real wealth you are imagining. And it is this cycle of capital creation and destruction that tells the story of mankind throughout many civilizations.”

The modern analogy to FOFOA’s Stone and Mud Huts and Horse Carts in the Ancient World are today’s McMansions and Carz. In his version of Capital destruction it takes an Earthquake or Volcano to destroy this “Capital”, but he doesn’t address the fact that Capital of this kind can become worthless even if it is still standing. The McMansions and the Carz are losing Value because the Energy is no longer there to use them. The “Capital” that was expended to build said infrastructure was the Oil burned, which now exists only as molecules of CO2 in the atmosphere. What “Capital Destruction” has been going on for the Age of Oil came in the form of the burning of that Oil. The OIL was the Capital here, not the stuff that was built with it.


DISCLAIMER: I am not an EXPERT on the writings of Another, his friend (FOA) or HIS friend (FOFOA), or on the theory of Freegold. Just like I am not an expert on the writings of any other economic theorist out there or their theories in general. There are a lot of economic works that I have not had the pleasure to read and a lot of ideas I have not considered in-depth, including those contained within the body of work that comprises F-theory. None of my descriptions of F-theory should automatically be taken as 100% accurate, and I welcome any and all challenges to my representations.

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  • #8521
    ashvin
    Participant

    This is a critique of the theory of Freegold (F-theory), which is part of an ongoing series entitled, Freegold: Perspectives and Critiques (FPC). The
    [See the full post at: FPC: The Concepts of Money and Capital]

    #3498

    Yay! The DNS is now locating TAE again for my Browser!

    This was a good opportunity for me to consolidate and flesh out my own perspectives on Gold, which I haven’t done recently. The problem I see here with the series though is that FOFOA isn’t here to defend his POV and rebut the arguments being made against Freegold.

    This goes back to a general complaint of mine regarding internet debate on Blogs and Forums, which is that it is spread out all over the place and you don’t get participation by the pundits whose articles you might be deconstructing at any given time. See the article Cacophany of Pundits and Commentariat for more on this subject.

    Any chance we could get FOFOA to make a Guest Cameo Appearance for a Round Table Debate? That would be fun.

    RE

    #3499

    From the cover of “Debt: The first 5000 years” by David Graeber. Every economic textbook says the same thing: Money money was invented to replace onerous and complicated barter systems – to relieve ancient people from having to haul their goods to market. The problem wi this version of history? There is not a shred of evidence to support it.

    #3500

    SecularAnimist post=3117 wrote: From the cover of “Debt: The first 5000 years” by David Graeber. Every economic textbook says the same thing: Money money was invented to replace onerous and complicated barter systems – to relieve ancient people from having to haul their goods to market. The problem wi this version of history? There is not a shred of evidence to support it.

    Not only is there no evidence to support that theory, it just doesn’t MAKE SENSE when you think about the Ag Paradigm, which Stores Food (Value) in Warehouses. Counting systems only become necessary once you have stuff to Store up this way.

    Once you start Counting, then you start making Abstract representations of the Count, and the Abacus is one means of doing that, the first “Computers”. If you then realize that Distribution of the Count can be done by issuing Tokens representing the Count, it makes much more sense to go with the concept that money did not evolve because of a convenience need of hauling goods to Market, but because Ownership of Goods was consolidated by a Political Entity (Pharoahs, Kings etc), who then create Money as a Distribution means for those now Centralized goods.

    IOW, Money is the PRODUCT of Goobermint, or at least it began that way. The great GENIUS of the Money Masters/Banksters over millenia was to take control over Money Creation while leaving the liabilities of Political management of a society to Goobermints. A whole body of law was created to Protect “Private Property” inside of a political superstructure of the Nation State, but this dichotomization is really quite mythical, because without the political power of Goobermints to organize up Armies and Police and so forth, no Private Property can really exist.

    Anyhow, Private creation of Money serves the purpose of Privatizing Profit while Socializing the Losses, this is not a new thing. Sadly at this point, even taking BACK the power of Money Creation out of private hands does not resolve the problems created, because the actual utility of any money at all in a world of Scarcity and Overshoot is highly questionable.

    Regardless of the inability to solve the overhang of problems already created, continuing on with this paradigm is clearly hurtful to most of the population and so must be STOPPED. It has been over the millenia impossible to stop it though, we had to wait for it to run into problems of mathematical law of exponents and physical constraints on the resources for it to stop itself, sorta like the transmission on your car locking up.

    So the opportunity will come here in due time to reconstruct a different paradigm, but it will not come before the monetary system consumes itself, happening now in real time as we speak.

    RE

    #3502
    FOFOFOA
    Member

    I thought I might learn a few new arguments against Freegold here, or at least rebut some of the ones I have heard before, but so far that has not happened. I haven’t seen a single concrete statement against freegold made; most of the argument seems to dance around freegold, dealing with abstruse topics like Hegel and the definition of capital. At least the authors are kind enough to admit they don’t know much about the topic of freegold, and this one admits he can’t be bothered to read about it.

    Some persistent deflationists do argue against freegold on FOFOAblog, and at least they make clear charges as to why it won’t work. I will continue to look for a real rebuttal to the topic here.

    #3504
    ashvin
    Participant

    RE,

    When I wrote my original critiques of Freegold last year, I spent a few months debating people on FOFOA’s forum. All of his regulars took some time out to engage me in discussion (without ever really addressing the substance of my arguments…), but FOFOA never would. He would respond to the rabid hard money gold bugs who showed up on his forum with weak arguments for gold-backed money, but never me. What he wants is EASY targets in a controlled environment, and neither I nor TAE are those. Therefore, he would never show up here to debate. He responded to my emails once, and told me I could not quote anything he wrote, because he was not writing in his official role as FOFOA. I respected that request.

    Our friend FOFOFOA reflects the same mentality. He responded on the first critique to pipefit and GO, because they are hard money gold bugs and he believed, perhaps correctly, that they are easy targets for a Freegold advocate to take aim with. However, he does not want to consider any critiques that do not involve all of the simplistic arguments for hard money or deflation, even if those critiques are based on concepts directly quoted from FOFOA himself and contained with the theory of Freegold.

    But don’t worry, friend, you will get plenty more opportunities, as will your friends, and the friends of your friends.

    #3505

    RE – It made sense if you were an Anglo-Saxon Enlightenment economic douche bag trying to prove antisocial market behavior as humans natural state of beng. When it appears to be behavior that different peoples did instead of bashing each other over each others heads. Graeber goes on say how Adam Smith completely fabricated stories about the first nation’s barter
    society as well.

    #3506
    FOFOFOA
    Member

    I’m not interested in off topic. If you have something freegold specific to talk about, fine. Honestly though an in-depth discussion would be pointless, because FOFOA has spent years discussing it, and his blog is the correct place for such discussion.

    I am willing to rebut specific anti-freegold argument, here in TAE, an unfriendly environment, as you say. I have an idea what those arguments are from listening to them repeatedly on FOFOAblog, and am just waiting for the deflationists to begin. En garde, deflationists!

    #3508
    FOFOFOA
    Member

    I’ll start; someone in the last thread said the government might confiscate his gold. This is not true; under freegold the highest value of gold is achieved through the widest distribution of gold. The government needs gold to flow from private holders in the currency zone, to other zones. Gold lubricates the trade balance, you see.

    At a high enough price gold flows to nations that have a trade surplus to save. If a deficit nation is shipping too much of its gold the price will rise in the deficit zone and fall in the surplus zone until they equalize. This will help balance trade flows.

    #3510
    pipefit
    Participant

    “I’ll start; someone in the last thread said the government might confiscate his gold.”

    Yes, the same fellows that are stealing your social security money, and are taking the remainder of your taxes and giving them to the military industrial complex, will also steal your gold. My guess is that, like 1933, they will set some relatively small ounce total they won’t touch, 5 to 25 ounces per person, and the rest they will confiscate.

    The easiest angle for them will be that terrorists are using gold to buy weapons and stay outside the world’s financial system. Therefore, all gold, above the token amounts mentioned above, will be confiscated, in the name of anti-terrorism. Of course there are many other angles they could take.

    To make matters worse, they will assume that you got your gold for free, unless you have purchase receipts that show otherwise, and all of your gains are subject to a special capital gains tax of 70% (or is it 90%).

    To make matters even worse, if you are posting about gold on the internet, they know who you are, how much gold you have (if it’s more than 100 ounces), and they probably have a pretty good idea where it is, and they know with 100% certainty who you are and where you are.

    So, why do I own gold? Because it is part of a diverse portfolio of tangible assets that will do well in the coming hyperinflation. And (are you reading Ash?), it contains food and and water sources, so I will eat, if we get massive deflation, lol.

    And you sir, will you eat your gold if TAE is right and we get deflation, lol?

    #3511

    ashvin post=3122 wrote:

    Our friend FOFOFOA reflects the same mentality. He responded on the first critique to pipefit and GO, because they are hard money gold bugs and he believed, perhaps correctly, that they are easy targets for a Freegold advocate to take aim with. However, he does not want to consider any critiques that do not involve all of the simplistic arguments for hard money or deflation, even if those critiques are based on concepts directly quoted from FOFOA himself and contained with the theory of Freegold.

    I did notice that FOFOFOA did not actually rebut any arguments critiquing Freegold, he just Napalms them. “I’m looking for new stuff, but there is nothing new here worth my consideration.”

    As for FOFOA himself, I am not surprised he won’t step outside his own little piece of turf, he has too much to lose. The “Friends of Friends” community appears to have grown quite large, and you don’t want to risk getting pantsed in front of such a big crowd. LOL.

    Far as FOFOA’s website being the “right” place to be debating these questions, that is obviously horseshit. A commentariat like that is steeped in Group Think and you just mire down in hacking up the Grunts while the General smokes Cigars back at Headquarters.

    Anyhow, so far FOFOFOFOFOFOFOFOFOFOFOFOFOFOFOFOA here hasn’t made any arguments to convince me that Gold can hold its value against more necessary commodities in a time of real scarcity. So as a store of wealth to retain purchasing power in a hyperinflationary environment it may work for a while, but only until the trade system crashes along with the Black Market. At that point, Gold is worth Jack Shit.

    Besides not making any worthwhile arguments of his own, FOexp27A hasn’t rebutted your arguments or mine, so I’m not sure what he is doing here besides soft Napalming.

    RE

    #3512
    FOFOFOA
    Member

    If they confiscate your gold, they will have to ship their gold to balance trade. That’s no help to them. At $42 per oz they would run out of gold quickly. And there are all those pesky claims on gold from the prior defaults on promises to pay gold.

    At least we agree on hyperinflation.

    #3513
    FOFOFOA
    Member

    “arguments to convince me that Gold can hold its value against more necessary commodities in a time of real scarcity”

    Gold is the best store of value because it does not interfere with the economy. Its price is completely arbitrary so it can absorb as much inflationary pressure as necessary. Since time is infinite, so the value of stored purchasing power can be infinite if the storage medium is sufficient. Gold is infinite, therefore it is the perfect medium to store in, infinitely. There is a reason central banks don’t store lead, copper, or pork bellies.

    The crowd is rather larger at FOFOAblog, as far as I can see. But is the measure of an idea popularity? No.

    “So as a store of wealth to retain purchasing power in a hyperinflationary environment it may work for a while”

    Yes, that has been proven hasn’t it?

    “but only until the trade system crashes along with the Black Market. At that point, Gold is worth Jack Shit.”

    Tell us why, if you can.

    #3514

    FOFOFOA post=3131 wrote:

    Tell us why, if you can.

    Oh, I most certainly can, the explanation however is pretty long. I suggest you read

    Energy Money Equilibrium in the Age of Oil and Energy Money Equilibrium II: The Modern Era and the Jenga Paradox

    My prose is quite a bit more entertaining to read through than FOFOA’s, so hopefully you will do better wading through my shit than I do wading through FOFOAs. LOL.

    Excerpt

    RE wrote: …The money develops when the Counting begins in the Warehouse of Grain. Whatever is in there is represented in the Count by Credits, which can then be symbolized in a token. Only as many Tokens are produced as there is grain to cover them in redemption. Precious metal coinage works well for this in the beginning. All the precious metals the King has acquired by whatever means care coined up, and appropriately valued so that there are not more coins than Grian that can be redeemed. This is Hard Money in extremis. It has an absolute value measured in the Food it represents.

    The King can now hand out the Tokens to his Military protectors and also pay the oversears of slaves or serfs who work the land and grow the food. These folks are not paid in coinage, they merely get a small portion of the food they produce for subsistence living.

    Problems arise as the society grows. In the beginning, the surplus of food being produced exceeds the amount of precious metals available for coinage, so the food drops in price. A few things can happen here, one is that the King can stop paying out so much coinage to his Military and Overseer classes, raising the price of the food up again, allowing the King to keep more Precious metal in the treasury and more food in the warehouse. Everybody is still beign fed here, King has more in the Treasury, and besides that surplus in the grain warehouse grows. It keeps a pretty long while, but eventually will rot or simply become ridiculous to save any more of. Like putting up more than a few years of Preps, it gets ridiculous.

    So you start to Trade the surplus with others who don’t produce so much food and expansion begins of the system. Peripheral areas pay in more Gold and Silver and also begin to produce other things besides food which the Money becomes useful for paying for.

    At this point the system has become vastly more complex. The Tokens no longer represent an absolute amount of Grain in a warehouse, but rather the value of all Goods and Services being produced in this ever growing system. Bourses or Trading Markets develop which set relative values for everything being done in the society, which as it increases in size and velocity needs a rapidly increasing Money supply to handle. The Precious metal coinage does not increase at the same rate in most circumstances, so in order to have more “money” available, base metals are used to produce some coins, which pretty much can be produced at will. Money is getting softer during this period, but so long as Da Goobermint doesn’t go wild coining up the base metals, it doesn’t devalue while the system is expanding…

    #3515
    ashvin
    Participant

    FOFOFOA,

    You say that you want specific critiques of Freegold theory (there is a reason I like to refer to it as “F-theory”), but you refuse to respond to my first critique, which was aimed specifically at people such as you.

    Right now, here in this thread, you are using the classic method of argumentation that all Idealistic philosophers/thinkers have used – you are assuming that there are no impediments to Freegold becoming reality, and then arguing for why it will work well to balance trade, protect savers and what not.

    The problem for you is that a THEORY also makes predictions about what is likely to happen. And the first prediction of F-theory is that a system of Freegold will actually be put in place by a combination of market forces and central authorities. FOFOA repeatedly states that Freegold is not what he thinks SHOULD happen, but what he thinks WILL happen.

    Hence, my first critique comparing his hard money/soft money dialectic to Hegel’s. The philosophy of Hegel made a lot of theoretical sense, but practically it could never become a political economic reality in this world. So maybe you can explain to us why the Freegold Monetary Utopia will be any more likely to happen in this world than the Utopia envisioned by Hegel… or Marx, or anyone else for that matter.

    #3516
    FOFOFOA
    Member

    You are right, I’m not interested in wading through that.

    Another reason gold is a good store of value is that it has a very high stock to flow ratio. An increase in price doesn’t bring much new supply. What happens when the price of silver rises?

    #3517
    FOFOFOA
    Member

    Freegold will happen because superproducers need a way to save their excess value, in size, through time. If they don’t get it they have no incentive to produce more than they need, since their savings are diluted. If they don’t produce, consumers can’t consume. It is in the interests of both parties to make gold freely valued, and so it will happen. Simple, no?

    #3518
    FOFOFOA
    Member

    Because if consumers want to consume but not allow gold to flow, they will have to balance trade with goods (no trade deficit). Either way, they have to do work, to consume.

    Why are you trying to reframe freegold as theory? Of course it hasn’t happened yet. You also haven’t died yet, but it will happen at some point, won’t it? Or is your death a theory?

    Of course freegold doesn’t have to happen, but it is the best possible outcome for the debtors and savers that it happen, so it is most likely to happen.

    #3519

    FOFOFOA post=3135 wrote: Freegold will happen because superproducers need a way to save their excess value, in size, through time. If they don’t get it they have no incentive to produce more than they need, since their savings are diluted. If they don’t produce, consumers can’t consume. It is in the interests of both parties to make gold freely valued, and so it will happen. Simple, no?

    This argument presupposes the existence of “superproducers” who produce a large surplus will continue forward, but this is unlikely to be true. With diminishing per capita energy available, no nation state will be producing a surplus. The whole concept of “saving” in this situation becomes rather questionable on both the micro level of the individual and the macro level of the state.

    The most likely scenario is more one-to-many fractures like the Soviet Union as large interconnected system revert to smaller more local and self sufficient ones. The role of Gold or any form of money at all through this period is also open to conjecture.

    RE

    #3521
    FOFOFOA
    Member

    The former USSR are the largest gas supplier to Europe, and isn’t Russia the largest oil exporter in the world? Seems like they still have a surplus. I also don’t see how Saudi Arabia, for example, can split apart like the USSR.

    Freegold presupposes a world similar to the one we have now. Your argument, such as it is, presupposes radical changes (nations falling apart, international trade grinding to a halt, no energy available). Your idea is pure conjecture, and pretty outlandish at that.

    #3522
    Anonymous
    Guest

    Im trying to follow the discussion about gold as a monetary metal.

    @FOFOFOA
    “Gold is the best store of value because it does not interfere with the economy. Its price is completely arbitrary so it can absorb as much inflationary pressure as necessary.”

    But gold takes a non-arbitrary amount of labor to produce.
    I assume that refined gold is a byproduct of mining activity, and production is subject to constraints of large-scale capital investment, monetary and energy inputs of mining and refining industries, whereby the energy and labor-time invested in mining and refining of ore must necessitate a price or purchasing power parity of gold commensurate with the value of its labor costs.

    “Since time is infinite, so the value of stored purchasing power can be infinite if the storage medium is sufficient.”

    I don’t follow; the ‘value’ of stored purchasing power is the value of the goods/services actually purchased with said power, which cannot be infinite in any market medium. [Labor]Time is not infinite, nor infinitely compressible, because the cause of time is relativistic mass[!].

    “Gold is infinite, therefore it is the perfect medium to store in, infinitely.”

    Its definitely unperishable, but didn’t we reach global peak gold production some time ago? You know, drastically decling ore density and less viable mines?
    Doesn’t gold mining now require grinding twice the volume of rock to refine the same amount of gold as it did twenty years ago?
    If the stock cannot increase in proportion to economic activity, then what?

    As a product of labor, is gold a form of capital?
    The argument seems to be that for the purposes of a monetary metal, gold as a mineral resource is ideally economically inert, despite useful industrial applications, and is not produced as capital stock.
    The term ‘Freegold’ precludes gold being capital in the traditional sense, as capital isn’t free or frictionless.

    Is gold otherwise a form of monetized waste, like debt-derivative currency or depleted uranium? If so, there may be cheaper forms of unperishable waste to monetize, some forms of waste could be more economically inert than gold if massless or unassociated with industrial or mining activity.

    Gold does look precious, but the aesthetic price component shouldn’t influence the utility of a monetary metal.

    #3523

    FOFOFOA post=3139 wrote:
    Freegold presupposes a world similar to the one we have now. Your argument, such as it is, presupposes radical changes (nations falling apart, international trade grinding to a halt, no energy available). Your idea is pure conjecture, and pretty outlandish at that.

    A world similar to the one we have now is highly unlikely. The world I project is not based on conjecture, it is based on the written History of the fall of Babylon. Read Revelation 18 including the part about Gold and Silver (bolded for emphasis):

    Revelation18 wrote:
    18 And after these things I saw another angel come down from heaven, having great power; and the earth was lightened with his glory.

    2 And he cried mightily with a strong voice, saying, Babylon the great is fallen, is fallen, and is become the habitation of devils, and the hold of every foul spirit, and a cage of every unclean and hateful bird.

    3 For all nations have drunk of the wine of the wrath of her fornication, and the kings of the earth have committed fornication with her, and the merchants of the earth are waxed rich through the abundance of her delicacies.

    4 And I heard another voice from heaven, saying, Come out of her, my people, that ye be not partakers of her sins, and that ye receive not of her plagues.

    5 For her sins have reached unto heaven, and God hath remembered her iniquities.

    6 Reward her even as she rewarded you, and double unto her double according to her works: in the cup which she hath filled fill to her double.

    7 How much she hath glorified herself, and lived deliciously, so much torment and sorrow give her: for she saith in her heart, I sit a queen, and am no widow, and shall see no sorrow.

    8 Therefore shall her plagues come in one day, death, and mourning, and famine; and she shall be utterly burned with fire: for strong is the Lord God who judgeth her.

    9 And the kings of the earth, who have committed fornication and lived deliciously with her, shall bewail her, and lament for her, when they shall see the smoke of her burning,

    10 Standing afar off for the fear of her torment, saying, Alas, alas that great city Babylon, that mighty city! for in one hour is thy judgment come.

    11 And the merchants of the earth shall weep and mourn over her; for no man buyeth their merchandise any more:

    12 The merchandise of gold, and silver, and precious stones, and of pearls, and fine linen, and purple, and silk, and scarlet, and all thyine wood, and all manner vessels of ivory, and all manner vessels of most precious wood, and of brass, and iron, and marble,

    13 And cinnamon, and odours, and ointments, and frankincense, and wine, and oil, and fine flour, and wheat, and beasts, and sheep, and horses, and chariots, and slaves, and souls of men.

    14 And the fruits that thy soul lusted after are departed from thee, and all things which were dainty and goodly are departed from thee, and thou shalt find them no more at all.

    15 The merchants of these things, which were made rich by her, shall stand afar off for the fear of her torment, weeping and wailing,

    16 And saying, Alas, alas that great city, that was clothed in fine linen, and purple, and scarlet, and decked with gold, and precious stones, and pearls!

    17 For in one hour so great riches is come to nought. And every shipmaster, and all the company in ships, and sailors, and as many as trade by sea, stood afar off,

    18 And cried when they saw the smoke of her burning, saying, What city is like unto this great city!

    19 And they cast dust on their heads, and cried, weeping and wailing, saying, Alas, alas that great city, wherein were made rich all that had ships in the sea by reason of her costliness! for in one hour is she made desolate.

    20 Rejoice over her, thou heaven, and ye holy apostles and prophets; for God hath avenged you on her.

    21 And a mighty angel took up a stone like a great millstone, and cast it into the sea, saying, Thus with violence shall that great city Babylon be thrown down, and shall be found no more at all.

    22 And the voice of harpers, and musicians, and of pipers, and trumpeters, shall be heard no more at all in thee; and no craftsman, of whatsoever craft he be, shall be found any more in thee; and the sound of a millstone shall be heard no more at all in thee;

    23 And the light of a candle shall shine no more at all in thee; and the voice of the bridegroom and of the bride shall be heard no more at all in thee: for thy merchants were the great men of the earth; for by thy sorceries were all nations deceived.

    24 And in her was found the blood of prophets, and of saints, and of all that were slain upon the earth.

    The only real difference between this Collapse and that of Babylon is one of scale. This go round is a lot BIGGER.

    RE

    #3524
    FOFOFOA
    Member

    Gravity,

    You are exactly right about mining. Mining only adds a small amount of supply annually. Compared to the existing stock this ‘flow’ of new gold is very small and cannot be easily increased, for example, due to a higher price. This is another reason gold is a very good store of value. You do not want to store value in something that is easily produced.

    You are wrong when you try to correlate cost and stored purchasing power. you store purchasing power in debt, there is a maximum limit due to the flawed nature of the storage medium, because a saver recoginzes that the medium will eventually fail, so he deploys wealth he would rather save. That limit is roughly the aggregate size of everything that exists at that time. But gold stores for a time of ‘infinity’, therefore I can store unlimited value in it. This is not a 1:1 ratio; when paper value is destroyed it doesn’t flee into the entire stock of all gold; it only flees into gold that ‘flows’, driving the price higher and higher. How high, Gravity?

    #3529

    FOFOFOA wrote:
    Gold is the best store of value because it does not interfere with the economy. Its price is completely arbitrary so it can absorb as much inflationary pressure as necessary.

    This is completely false.

    The price is not “completely arbitrary”, it depends on many variables extant in the society at large. A few of these variables are:

    1-Quantity of Gold available
    2-Quantity of Available resources to trade the Gold for
    3-Perceived value of the Gold relative to the Resources
    4-Hoarding and Distribution of either Gold or Resources
    5-Arbitrage across societies in deficit of either Gold or Resources
    6-Arbitrage of Gold against Silver in a bimetallic Money Standard
    7-Political factors such as War and Environmental issues such as Natural Disasters
    8-Population issues

    Gold cannot “store value” in a vacuum that does not account for how Value gets set on anything depending on availability and distribution. It is as subject to price manipulation as anything else is, in fact based on History probably even moreso than most other commodities. it’s final price is not “arbitrary” in any sense of the word.

    Anyhow, I note here that you just ignore any arguments I make and choose not to even make an attempt to read and understand them, but I will continue to troll and pick off your arguments as I encounter the ones which are egregiously wrong. This is one of them. You cannot GET more wrong than this. The Value of Gold is “arbitrary”? That is just ridiculous.

    RE

    #3530
    davefairtex
    Participant

    FOFOFOA –

    Looking at the Exeter pyramid, gold is placed at the bottom because (under the old Gold standard, where gold had a fixed price enforced by the US Treasury) it is the ultimate zero risk investment. No interest, but no counterparty risk at all. Borrow $100, buy $100 in gold, and you can ALWAYS liquidate that $100 debt with the gold you own. Gold as a savings vehicle under a gold standard is the safest investment possible. But that safety is based entirely on the US treasury’s enforcement of the price of gold. Lose that enforcement, and gold is no longer the safest savings vehicle.

    In the freegold system, the price of gold floats. Therefore, to put your savings into gold means you are taking risk. If you borrow $100, buy $100 in gold, and the gold price drops, you can no longer liquidate that debt.

    Under freegold, gold is not “zero-risk savings” – it is a speculation. It no longer belongs at the bottom of the Exeter pyramid. That place now falls to the physical currency note, which will always liquidate an equal amount of debt.

    Will gold have all the other effects you claim on trade, money flows, and the like? I haven’t thought that far, so I don’t have an opinion. But I do question regular people’s willingness to rely entirely on freegold as a store of value, solely because the price of gold is a speculation, and many people who want to store value focus primarily on safety – and specifically on the ability to reliably liquidate debt incurred under their national currency.

    Anyone who bought gold at $1900 can attest to its imperfections as a store of value, at least recently. And of course those who bought at $300 can say what a good speculation it was for them. Neither things are characteristics of a good “store of value”. High reward is just the other side of the coin from high risk.

    At best, I would see a composite system where gold is involved as just one international currency admidst a competing sea of other fiat currencies. I think that’s a fine thing, I’m fully in support, but – I don’t think its the quite the same environment you’re suggesting will arise.

    Perhaps its just a matter of degree. I imagine some savings will be in gold, others will be in the national currency. At least, that’s what I’d do, especially since I have obligations in my national currency, and I would want a guarantee I could meet these obligations regardless of what the price of gold did.

    The inevitability issue also bothers me. I’ve always wondered why big debtor nations (the US) would want a competing currency that would seem to work against their interests. A huge military power with the ability to self-inflate their debts away would not seem to be a likely candidate for espousing sound money. And other powers, less militarily capable, would not seem to be in a position to make sound money demands.

    Please forgive me if these are arguments you’ve heard before, they’re just the first things that come to mind when I read about freegold.

    #3531

    davefairtex post=3148 wrote: FOFOFOA –

    Looking at the Exeter pyramid, gold is placed at the bottom because (under the old Gold standard, where gold had a fixed price enforced by the US Treasury) it is the ultimate zero risk investment. No interest, but no counterparty risk at all. Borrow $100, buy $100 in gold, and you can ALWAYS liquidate that $100 debt with the gold you own. Gold as a savings vehicle under a gold standard is the safest investment possible. But that safety is based entirely on the US treasury’s enforcement of the price of gold. Lose that enforcement, and gold is no longer the safest savings vehicle.

    I realize you are projecting an argument here you do not necessarily believe is true, I am just going to add to it.

    You CAN’T ALWAYS liguidate Gold into some equivalent of a Paper Currency, because the paper currency can disappear on you. Take the case of Confederate Dollars. You might take $100 Confederate Dollars and buy Gold with it before the War of Southern Secession was completed and the South LOST, then after that you can’t get back the $100 Confederate Dollars, since they no longer exist. You can get back say $50 in Northern Greenbacks, which still buy something though, so you did better holding Gold than Confederate Dollars. You might have done better though if you bought $100 worth of Cotton, which after the War was in scarce supply and perhaps got back $150 Greenbacks for it.

    So basically, you speculate in a Commodity and its perceived value given a whole bunch of parameters when you buy Gold. Its actual fungibility into a National Currency also faces numerous hurdles, not the least of which is Taxation when you liquidate the Gold for the Currency. it could be very unprofitable indeed to invest in a lot of Gold, if as is likely a large Capital Gains tax is imposed for converting it back into a more fungible currency. Given current parameters, a 90% Taxation on this conversion is not outta da question, particularly over in Eurotrashland. I could easily see the Greek Goobermint after shifting to Drachma taking a 90% Tax on people who want to convert Gold to Drachma. Make it illegal to do direct commerce in Gold, if anybody wants to participate in the local Greek Economy (locals mostly of course), they only get 10% of the value, Da Goobermint takes the rest of it.

    Gold HOLDERS of course would be very unhappy with this, but not most of the Greek Population, since they have no Gold to convert this way anyhow. Its a “Tax the Rich” methodology, which generally plays very well on a popular level with the destitute (most of the population).

    Will gold have all the other effects you claim on trade, money flows, and the like? I haven’t thought that far, so I don’t have an opinion. But I do question regular people’s willingness to rely entirely on freegold as a store of value, solely because the price of gold is a speculation, and many people who want to store value focus primarily on safety – and specifically on the ability to reliably liquidate debt incurred under their national currency.

    I can’t predict absolutely how free floating gold would impact overall trade, but I suspect it wouldn’t make that big a splash. Its a pebble in a very large pond now, and overall Gold represents only a tiny fraction of world trade in anything. It might rise in value, it might decrease. It is unlikely to remain very stable though.

    Anyone who bought gold at $1900 can attest to its imperfections as a store of value, at least recently. And of course those who bought at $300 can say what a good speculation it was for them. Neither things are characteristics of a good “store of value”. High reward is just the other side of the coin from high risk.

    Agreed.

    The inevitability issue also bothers me. I’ve always wondered why big debtor nations (the US) would want a competing currency that would seem to work against their interests. A huge military power with the ability to self-inflate their debts away would not seem to be a likely candidate for espousing sound money. And other powers, less militarily capable, would not seem to be in a position to make sound money demands.

    Its really a canard that debts can be self inflated out of existence, really that is only possible for internally held debt. Inflation by conventional means expands the internatinally held debt. Weimar Germany wasn’t able to pay off international debts by hyperinflating. They just defaulted on those debts.

    In the end game, the Military power does determine who gets to wash their debt and who has to pay off theirs. Problem here is that it can become too energy consumptive for the Military to keep the flow of resources moving back into the center, at which point it goes negative EROEI and the Military fractures. That is what happenned to Rome.

    Coming Soon also to a Big Ass Military near You.

    RE

    #3532
    davefairtex
    Participant

    RE –

    Under a traditional gold standard (fixed price of gold to currency) you can always liquidate gold for currency. That guarantee is provided to you by the national Treasury, who stands ready to run off and print some notes for you in exchange for your gold.

    And in an international gold standard, you can always take your gold to another country that is operating on the gold standard, and exchange it there. Stored value is preserved – which is the point of the exercise.

    Under the old-style gold standard, conversion of gold into notes is not a taxable event.

    Regarding Greece, I’m not so sure official taxation of gold exchanges into currency (certainly something that could happen) would be as effective there as it would be here in the US. I’d guess the black market for gold in Greece would be pretty lively, given how off-the-books so much of the economy is there. But I do agree, taxation is one very good weapon the government can use to maintain their monopoly on currency. At the very least, it will introduce some serious “friction” in the currency exchange.

    My point to FOFOFOA had to do with savings, and why people save, and what sort of behavior they expect from their store of value. One thing they expect from a savings vehicle is price stability – and importantly, price stability with respect to their debts in their national currency. This stability WAS present under the old gold standard. Speaking from my own decision making, with a floating price of gold I would be very loath to take on debt, and buy gold, in the expectation I could pay down that debt with gold. (That’s the essence of a gold futures contract, minus some details about counterparties and delivery risk). Even absent any tax consequences, it still feels like holding gold is a speculative position.

    I’m the first to admit the Fed over the long term has trashed the USD as a store of value. But people don’t live in the long term, they live month by month. And apparently, a 3% annual devaluation is something people seem to be able to live with – for the past 100 years anyway.

    Your comment about national governments being unable to inflate debts away via the standard methods of inflation is quite a good observation I think. Standard inflation comes via debt creation. Direct monetization is still possible, but its the non-standard option.

    However, imagine this situation. A nation heavily in debt, with foreigners deciding not to buy any more has the central bank monetize a whole bunch of debt. Then when that plan runs its course and the CB owns a huge chunk of the debt, the government nationalizes the central bank. At that point, all the monetized government debt owned by central bank is now owed by the government! Government debt has thus been “inflated away”. Its a trick that will only work once, of course. Then again, its kind of what Nixon did when he closed the gold window in 1972.

    But I think your main point is still valid. Standard inflation doesn’t result in a decreased debt burden!

    #3535

    davefairtex post=3150 wrote: RE –

    Under a traditional gold standard (fixed price of gold to currency) you can always liquidate gold for currency. That guarantee is provided to you by the national Treasury, who stands ready to run off and print some notes for you in exchange for your gold.

    And in an international gold standard, you can always take your gold to another country that is operating on the gold standard, and exchange it there. Stored value is preserved – which is the point of the exercise.

    Under the old-style gold standard, conversion of gold into notes is not a taxable event.

    First off, its ulikely that an “old-style” Gold standard would be undertaken by any Goobermint, for reasons you already mentioned. So you have to look at adaptations that Goobermints might try to make here in a conversion to maintain their own solvency. FDR did it through Confiscation of gold followed by revaluation of the Dollar price of Gold. However, a taxation scheme works well also, and has a high likelihood of being undertaken if in fact a mass flight into gold occurs and the Gold Price is pushed past a certain limit, which is difficult to predict, but IMHO I cannot see how the system could stand up to valuations past about the $5K mark. It skews too many other valuations if that occurs.

    Far as the rest of your points go, I mostly agree. I’ll just say at this point I think Naked Printing is unlikely in the major currencies, aka Dollar, Euro, Yen, Renminby. They will continue to try to justify with a debt liability placed on the other side of the CB. True Naked Printing DEFINITELY causes a confidence collapse in the currency at the top level. this will be avoided at all costs.

    RE

    #3536
    FOFOFOA
    Member

    RE, I cannot engage you in a religious argument. I will note that I said the price of gold is arbitrary, not that the value of gold is arbitrary. Mull that over.

    Hello Dave,

    The reason a gold standard always fails is that sooner or later, gold credit is created by the bank, and it trades on par with physical gold. This has the effect of suppressing the price of physical gold, creating an arbitrage opportunity for smart money. Gresham’s law kicks in, people hoard phsyical gold and the system is inevitably doomed. Sooner or later there is a run on physical gold. For a lengthy explanation I suggest you read ‘How Credit Suppresses the Price of Gold’ on Victorthecleaner’s blog. I am not Victor.

    Freegold solves this problem by floating the price of gold. Under a gold standard the price of gold will always be too high or too low. Too high and people hoard currency, too low and they hoard gold.

    I don’t understand your statement that I cannot always convert gold to currency. Why would I want to convert it to confederate money? I can always convert it to functioning currency, with no need to deal directly with the government. Excessive taxation would be foolish on the governments part. As I said, the government will need gold to flow from private hands to balance trade. Excessive taxes mean gold would flow ‘underground’ to currency zones where taxation is less burdensome. The high tax zone would lose the benefit of gold, and the higher tax.

    Gold is not a commodity. It trades OTC as a currency between large institutions.

    #3537
    davefairtex
    Participant

    FOFOFOA –

    Thanks for the reference about credit suppressing the price of gold. I’ll go look at it a little bit later. What you say about old-style gold standards makes sense. It seems unlikely the price for something could be frozen forever and that this would actually work out well.

    Regarding confederate currencies – I think in all the posts you might have lost who said what. It was RE who wrote about conversion from confederate currency to gold and back again, not I.

    Now then, to my main question.

    Might I ask, did you read my question/statement about gold and stores of value? I’ll summarize here in case you missed it.

    I claim that regular people want something relatively stable (with respect to their debts and/or local currency) as a store of value. This is a key assumption of mine.

    Gold, with a floating price, is not stable. The simple thought experiment about the uncertainty of outcome were you to borrow money, buy gold, and then try to repay the loan a few years later using that gold reveals that holding gold is a trade with risk, rather than a store of value.

    And ultimately, I claim that people don’t really want to execute a trade with risk for the bulk of their savings. 10%, sure. But maybe not much more.

    Certainly if their local currency is debased beyond a certain annual rate or if there is the prospect of some dramatic default or devaluation people will accept the gold price volatility, but absent that, I claim gold’s volatility will keep it a small part of normal people’s “stores of value”.

    So that’s my statement. And a question too – how do you rationalize the risk trade that free-floating gold is in actuality, with the goal of a stable store of value that (I claim) is what people are really looking for?

    #3538
    FOFOFOA
    Member

    Hi Dave,

    Sorry for confusing you with RE.

    Most people don’t have much that they need to save for a long time. For them saving in the currency is fine. It isn’t fine for superproducers who have a lot to save, for a long time. Think intergenerationally. They need a savings medium with the advantages I have already listed. Freegold is really about meeting their needs, but you and I can ride along for the revaluation we will experience when freegold occurs. Of course, if you and I want to save for retirement, we can save in gold also.

    You say gold with a floating price is not stable. I say we don’t have freegold yet. Currently the price of gold is suppressed by the paper gold market; once free of that market gold will reveal its true value, and become very stable. I am not saying the dollar price can’t fluctuate, based on currency management of the dollar. I am saying that as a trade settlement basis for very large savers, it will be stable. So the price can fluctuate, but the value is stable. Instead of currency pricing gold, in freegold it is the other way around. Gold prices currency! This is a huge difference.

    #3541
    davefairtex
    Participant

    FOFOFOA –

    Ok, I understand better who your target saver is – not the regular guy, but someone who we would classify probably as top 0.01%. Certainly such a person would have a longer term timeframe, and they would feel less compunction about simply leaving a country or moving money when taxes became onerous. So I can buy them being more insulated from price-of-gold volatility – and relatively unconcerned about meeting debt obligations denominated in local currency with saved wealth.

    A funny question emerges though. Do they have enough money to matter? Lets do a back of the envelope calculation.

    Top 0.01% – estimate perhaps 60k people in the world, controlling 5% of total world wealth; income of maybe 25M/year; avg net worth 170M. Lets say they slosh 20% into gold, with the rest in real estate, businesses, stocks, and bonds. That’s $2 trillion. Seems like enough to move the needle. At today’s prices, thats about a ton of gold each. And their army of financial functionaries would take care of all the details as necessary.

    I have to point out though, the whole thing fizzles if this small group decides not to embrace the concept.

    I do get that gold prices currency, and this is much more apparent over the long term, even with the paper gold system we have today. And if you’re top 0.01% the daily (or yearly) fluctuations get lost in your overall portfolio’s value. That’s not at all true for the little guy however, who only seems to become upset when inflation exceeds perhaps 5% p/a.

    One more question. What does “trade settlement” have to do with freegold? I thought freegold was primarily about wealth management and storing value via gold.

    I must confess that my understanding of freegold is limited to a few readings a few years back and yesterday’s refresher reading of the freegold wiki page. Do you find the wiki page an accurate summary of freegold thinking? Is there a better resource I should look at?

    #3542
    OilIsSlick
    Member

    “It seems FOFOA believes that Homo Sapiens dropped down out of the trees with the innate ability to create and use money, and the subtext is that it goes back in ALL cultures into the great myst of Prehistory.”

    FOFOA thinks this:

    Well, there you have it! The pure concept of money is our shared use of some thing as a reference point for expressing the relative value of all other things. Money is the referencing of the thing, not the thing itself. As FOA said, money is “a value stored in your head!” Money is not something you save. “Money in its purest form is a mental association of values in trade; a concept in memory not a real item… the value is in your association abilities. This is the money concept, my friends.”

    https://fofoa.blogspot.com/2011/11/moneyness.html

    #3543

    FOFOFOA post=3154 wrote: RE, I cannot engage you in a religious argument.

    I didn’t make a religious argument. I used the Bible as a historical reference. Strip away all the flowery stuff, and you have a clear description of a monetary system collapse. The Tower of Babel was BTW a Counting House.

    I will note that I said the price of gold is arbitrary, not that the value of gold is arbitrary. Mull that over.

    I mulled it over. My conclusion is that you are evasive and unresponsive. You have a faith based belief in Gold as a store of infinite value, and a limited to nonexistent understanding of monetary theory of any sort. You contribute little worthwhile, and it is a waste of time debating you. Have a nice day.

    RE

    #3544
    FOFOFOA
    Member

    Hi Dave,

    The 1% might have some gold, but think bigger. Think oil producing nations, sovereign wealth funds, people who buy multiple tonnes at a time.

    If superproducers can save with confidence, they will trade with confidence. They will accept your currency. It’s good for everyone.

    If you want to learn about freegold, skip the wiki and read FOFOAblog. You can read as much or as little as you want.

    #3545
    FOFOFOA
    Member

    Hi RE,

    Value is, of course, subjective. What if the people who hold a lot of physical gold value it higher than those that don’t? What if price and value converge due to the holders withdrawing the flow of gold? Then it will start to flow again when price equals value, correct?

    I’m definitely no monetary theorist; just a shrimp who is interested in not losing (and possibly gaining) from what is coming. I know just enough to follow my understanding with actions. That’s better than knowing a whole lot, and getting the action wrong, isn’t it?

    #3546
    ashvin
    Participant

    FOFOFOA post=3135 wrote: Freegold will happen because superproducers need a way to save their excess value, in size, through time. If they don’t get it they have no incentive to produce more than they need, since their savings are diluted. If they don’t produce, consumers can’t consume. It is in the interests of both parties to make gold freely valued, and so it will happen.

    It is also in the interest of all human societies (including superproducers and consumers and everyone in between) to completely decommission their nuclear arsenals and transition to a renewable energy economy very quickly. Do you think either of those things are destined to happen because they are in our interest? Surely the idealism inherent in the logic cannot be lost on you…

    Contrary to what you have been indoctrinated to believe, markets don’t exist to solve every problem in complex human society, and usually create many more than they mitigate or resolve.

    Simple, no?

    No, unfortunately for F-theory advocates, the world is not so simple.

    #3547
    FOFOFOA
    Member

    Hi Ash,

    I’m familiar with your argument style; I remember it from FOFOAblog. Of course you are using a strawman; if a nation believes it is in its interest to decomission nukes, it does so. Libya did. If it does not decomission nukes, it does not believe the act is in its’ interest. Israel does not.

    Freegold is in the interest of superproducers. So why hasn’t it happened yet? Because currently those superproducers are still getting some amount of gold at very suppressed prices. When they determine it is no longer worth getting that flow vis a vis the increased value of their current holdings, they have the capability to force the transition.

    Again I ask, simple, no?

    #3549
    ashvin
    Participant

    Wrong, there is no straw man. I am using the exact same logic that you used in your response to me explaining why Freegold WILL occur.

    When you say “super producers” and “consumers”, you are admittedly referencing nations and corporations, along with individuals (to a much lesser extent). This was your argument:

    “The super producers believe it is in their interest to replace the current system with a global freegold system, and it will also benefit consumers, so therefore Freegold will occur”.

    Do you not agree that the super producers (nations/corporations) believe it is in their interest to avoid thermonuclear war, environmental destruction and/or climate change? Of course they do! If any of those things (continue to) happen, they won’t be producing squat and other nations/people won’t be consuming squat.

    But getting from point A to end point Z is not quite that simple – the coordinated international agreements, monitoring and enforcement required to establish a nuclear-free, fossil fuel-independent, environmentally-friendly global economy, and the long-term psychology and cooperative will power on the part of everyone involved, are things that will require a hell of a lot more than the super producers pursuing what they believe to be in their best interests.

    Now that’s pretty simple, no?

    #3550

    Of course it’s SIMPLE. Anyone with a Bachelor of Simplicity Degree from Simpleton University knows that! The simple truth is that it is simply incredible that some people can be simply clueless.

    RE

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