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Freegold - Better than a gold standard

Posted: 13 May 2013, 14:17
by Rasta
Freegold - Better than a gold standard

Why that gold standard?

When people bring up going back to a gold standard, many - including the hard money advocates - want to return to a gold standard because of the disciplinary function of gold within the monetary system. Physical gold has proven a very good instrument against government debasement in the monetary system. However, what the gold standard advocates overlook, is the actual effectiveness of the gold as money, and the way to get to a gold standard.

Apart from gold being a cumbersome medium of exchange, gold - when in the hands of governments and central banks - has never proven to be a hedge against ... that same government and central banks. For obvious reasons I might add, anyone should see the conflicting roles of "our" officials. Physical gold can only be a hedge against government and central banks when it is in private hands. Physical has a special meaning here too, as non-physical "paper" gold is just an IOU with counter-party risk, which might not function as a hedge, when push comes to shove.

Perhaps more importantly, actually getting to a gold standard will proof the most difficult goal for the hard money advocates. A gold standard is in every way the extreme opposite site of where we are standing today. You literally have to get rid of overspending governments, central banks backstopping everyone and everything, and the majority part of the global population addicted to cheap money. I ask you: where to start?

Wouldn't it be much easier to accomplish the same goal "bringing back the disciplinary function of gold to the monetary system", by leaving the ruling establishment in power, by leaving the current financial system in place? Everyone who likes to solve this global economic crisis, should answer this question with a definitive "yes". If it can be done without throwing the world into chaos because of changing monetary system, that should be the preferred route to a solution. So, how can this be done? Some readers may have already found the hints in the introduction above: getting physical gold to private hands .... this time for good.

Store of value to private hands

The idea is simple, and it has been this way from the early days of money. Money is just a means to do transactions, to exchange, which we refer to as the function "medium of exchange" within money. Whenever a transaction is closed, the medium "money" has no longer a function. Economists are now expected to be jumping up and down, screaming "store of value" and "unit of account". Well you see, the unit of account doesn't really need a medium. The prices on the counter of a shop, are just a communication method, to allow us to have a perception, whether something to be cheap, reasonable priced, or expensive. For that communication, you don't need the actual medium "money". (Note that this is true in a digital world anyway - you can't hold the money in your hands for it is an electronic abstraction in ones and zero's.) For store of value, we have been taught that this is one aspect of money, but it is certainly not an aspect of current day government issued currency. The truth is, anything can be a store of value, from farm land, real estate, stocks in well run companies, to gold and silver or private issued money. All of them have characteristics of store of value, one better than the other. And government issued money is not one of them.

By cutting the "store of value" out of the function money, we could allow central banks to print all the money they need, without seriously impacting the purchasing power of savers. That is, for future spending savers are not setting aside their purchasing power in the form of currency, and currency derivatives (which includes government bonds). Consequently, without a pool of savings stored in currency and currency derivatives, debasing the money supply to surreptitiously devalue government obligations doesn't work. There you have it: removing the function "store of value" from money is seriously disciplining the current day reckless borrowers, ranging from banks through fractional reserve banking, to central banks bailing out everyone and everything, to socialist governments spending the future tax revenue from unborn generations.


Traditionally, the best medium to store value long term has been physical gold. When physical gold was captured as function into the official money, governments had an incentive to demonize gold, to make it a barbarous relic of the past. Part of this strategy, is the depression of the gold price. Either through direct manipulation in the paper gold markets, or marketing propaganda. Up till today, people are discouraged to store their surplus of purchasing power in physical gold, but to rely on currency and currency derivatives, being "as good as gold".

By removing the function "store of value" from money, we can allow physical gold to discipline our money, while keeping our monetary system intact, keeping governments and central banks in place, and avoiding economic turmoil or social unrest. That is what freegold is all about, gold finally set free!

Re: Freegold - Better than a gold standard

Posted: 17 May 2013, 07:19
by ein-anderer
Hi Rasta,

I (and may be others too) found this text 1:1 on Jim Sinclair’s website too, under the author name "FOFOA".

Wondering what has happend here I contacted you und you cleared it up. If it’s ok for you I post your answer as follows, "for the protocoll" ;)
Answering your question: I am the author of that piece. I wrote it over a year ago for a seminar. When I did submit it to JsMineset, I though to have been clear not being Fofoa, why the confusion happened is unclear to me, but I suspect two things: Jim is extremely busy and may have misread, or more likely, he would have liked to write down something like "In honor of Fofoa". Obviously I did contact him to let him know the incorrect credits. Without so much words, his response came down to: It is not contributing to the discussion (on JsMineset) to make corrections to the piece though.
Ok, that’s fine so far; Mr. Sinclair has to decide by himself if *he* wants to be correct or not.

You commented further, quote:
For me, nor for the Fofoa readers it is either, as it should be pretty obvious I am not Fofoa. Don't want to be, nor pretend to be.
Well, I think with all respect, it is "contributing to the discussion" quite a bit: as far those are concerned who do *not* know FOFOA’s writings very well. They get from this piece a misleading picture what the thesis of FOFOA is all about. And not everybody is following FOFOA’s twitter stream.

So thanks for this "official" clarification at least here on your Forum.


Re: Freegold - Better than a gold standard

Posted: 17 May 2013, 07:43
by Rasta
Thanks for asking. The original text was for a seminar, a year ago. It was intended for an English speaking audience, but that was changed to Dutch to attract a bigger local audience. The Dutch translation is still on the seminar site.