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Wednesday
June 23, 2004

A Method of Transferring Fractional Ounces of Physical Gold, with Confidence, from Person to Person. by Paul Hibbert

Objectivists, libertarians and free market advocates are all strong believers in gold as a medium of exchange. Such luminaries as Alan Greenspan ("Gold and Economic Freedom", The Objectivist, July 1996 and "Capitalism: The Unknown Ideal"), Murray N. Rothbard, F.A. Hayek, Ludwig von Mises and many others have ... (Read more...)
Discuss this Article (20 messages)

Wednesday, June 23, 2004 - 2:16pm

Paul:

This is a very clever mechanism you have devised for transferring gold. I am impressed. However, is it really necessary now that the currency markets are truly instantaneous and global? After all money is not wealth; it is the measure of wealth. While gold once served well as a constraint upon governments fiddling with the yardstick for wealth, don't the currency markets do that much better?

While the units we use to keep track of our wealth -- dollars, sterling, yen, euros -- can fluctuate and so are not as convenient as immutable inches and grams are for what they measure, we have also put in place a myriad of mechanisms that automatically adjust for those fluctuations. So inflation really can't steal from us like it used to. By the same token, deflation can't suck all the liquidity out of an economy like it used to.

Granted, central banks remain a problem. Their mismanagement of currencies still causes inflation and deflation, but at least there now exist free markets in currencies that rapidly punish such hijinks and limit the damage. You gotta give the markets and not Greenspan the real credit for restraining inflation in the dollar over the past twenty years. So, as our fiat yardsticks of wealth trade more and more freely against each other, would gold do any better? Its commodification over the past quarter-century suggests not.

I ask all this as a former gold bug. I like gold. I like silver too, which is why I keep bags of the shiny stuff around. But I do that as a failsafe against a complete meltdown of the dollar. I am otherwise quite comfortable with my fiat money. After all, aren't inches and grams also established by fiat? While it might be nice to have dollars as staid as inches and grams as units of measure, I don't see how gold would be any better as a measure under the global currency market regime.

Regards,
Bill

Wednesday, June 23, 2004 - 2:57pm

Citizen Rat: You say that you are a former gold bug but that you still keep bags of silver around in case the dollar does a complete melt down. There seems to be some ambivalence here. So, what are your concerns about the soundness of the dollar? That the government might mismanage the currency? That a natural disaster might make it impossible for the government to honor its obligation, or at least destroy the confidence in it? I, personally, have no confidence that the US government, or any other government for that matter, has the ability or will to deal with such contingencies.

It has all been said before in the links I gave you and I don't have any more personal observations, however, you say:

After all money is not wealth; it is the measure of wealth.

I disagree. It's not a measure of wealth like inches are a measure of length. The wealth may remain constant but, depending on what currency you're using as a reference, it fluctuates. It's a means of transferring wealth.

After all, aren't inches and grams also established by fiat?

Yes, and some units of measurement are more rational than others such as the metre being based on the wave length of light rather than an inch being based on the length of some ancient English king's thumb. No government can arbitrarily change the wave length of light. But they are merely conventions and, if changed, wouldn't bring down the economy.

Sam

Wednesday, June 23, 2004 - 6:57pm

My apologies: The Greenspan article, Gold and Economic Freedom, was published in 1966, not 1996.

http://www.321gold.com/fed/greenspan/1966.html

Wednesday, June 23, 2004 - 8:26pm

Sam:

>>You say that you are a former gold bug but that you still keep bags of silver around in case the dollar does a complete melt down. There seems to be some ambivalence here. So, what are your concerns about the soundness of the dollar? That the government might mismanage the currency? That a natural disaster might make it impossible for the government to honor its obligation, or at least destroy the confidence in it? I, personally, have no confidence that the US government, or any other government for that matter, has the ability or will to deal with such contingencies.<<

I don't blame you. Every fiat currency prior to the establishment of today's currency markets has been inflated into oblivion. The Fed could certainly destroy the dollar the same way. So I'll hedge my bets against that with some hard money -- i.e., gold and silver -- in my physical possession. However, if I want to maximize the return of my capital, it is only sensible of me to assess the likelihood of such a meltdown of the currency. It's my observation that the currency markets do a good job of keeping central banks, like the Fed, fairly honest -- just as gold had done in the past.

Of course, we only have about thirty years experience with floating currencies in the wake of the final collapse of Bretton Woods, so the free market in currencies may in the end fail to keep fiat currencies stable as measures of wealth. Gold, of course, has a track record going back to about 500 B.C. So, I'm not disagreeing with you that a fiat currency is made for mischief. My question is whether gold what do any better of stablizing the true value of the dollar as the free markets now do?

Regards,
Bill

Wednesday, June 23, 2004 - 9:20pm

Citizen Rat: We could go on here indefinitely with our opinions on whether governments would have the self discipline to regulate their activity, or to be able to engender confidence in their fiat money in times of political or civil upheaval, but the kernel of the issue is that gold is the only objective standard of value that man has discovered — to date. Gold has never failed to be the currency of last resort. The only reason that gold is not currently allowed as a medium of exchange is that politicians want to be able to manipulate and control for their personal gain. Why would you willingly submit to this even in ordinary times?

Sam

Thursday, June 24, 2004 - 5:43am

Sam:

>>We could go on here indefinitely with our opinions on whether governments would have the self discipline to regulate their activity, or to be able to engender confidence in their fiat money in times of political or civil upheaval, but the kernel of the issue is that gold is the only objective standard of value that man has discovered — to date.<<

Well, we could go on indefinitely except that we both agree that governments do NOT have the self-discipline. We also agree that gold has provided the discipline in the past. Apparently, we depart where I observe that the free market in fiat currencies has imposed a discipline upon central banks similar to that of gold.

>>Gold has never failed to be the currency of last resort. The only reason that gold is not currently allowed as a medium of exchange is that politicians want to be able to manipulate and control for their personal gain. Why would you willingly submit to this even in ordinary times?<<

Because I don't confuse money with wealth. My wealth remains the same whatever yardstick I use to measure it or whatever vehicle I use to transfer it. I agree that it is an injustice for government to manipulate these things to exact a hidden tax upon us. However, the money markets and other investments are generally indexed to inflation in some manner or another, so it is becoming increasingly difficult for the government to steal from us this way. Any prudent conservator of his wealth can these days prevent the government's theft through inflation of its fiat currency.

Should he have to? No. But then hard money has never been immune to inflation and deflation either. So gold isn't a perfect standard of value. Just look at its fluctuations in price since there has been a global free market in the stuff -- from $30 to $800 dollars an ounce. Over the past several years it has bounced from $200 to $400 an ounce, whereas other things priced in dollars have not had that volatility. Granted, if the U.S. were to return to the gold dollar, the increased demand for gold would probably stabilize it at high price, so it would be more reliable -- but it would still be a commodity subject to fluctuations in value due to supply and demand.

It seems to me now that huge free markets exist in currencies, gold would just get in the way. Let the market directly bet on which currency is the best yardstick of our wealth.

Regards,
Bill

Thursday, June 24, 2004 - 7:00am

Citizen Rat:

Just look at its fluctuations in price since there has been a global free market in the stuff -- from $30 to $800 dollars an ounce.

You've got it backwards. The gold price is a direct reflection of confidence in the underlying currency. It's not the value of gold that has been fluctuating, it's the currency.

As, well, you go on about you not confusing money and wealth. But you are regarding gold as something that you hoard, not something that you spend. If gold were the currency there'd be no propensity to hoard it, just as there's no propensity to hoard dollar bills now.

My question is whether gold what (sic) do any better of stablizing the true value of the dollar as the free markets now do?

I have no concept of wanting to stabilize the dollar. With respect to what? Which currency? All currencies? The dollar should just disappear, period — along with all other currencies. Then you'd have a stable currency.

You have broadened my proposal to the international scene. I'm OK with that but I was proposing a method for the residents of the Capitalistic Covenantry of Freeland to facilitate their financial transactions. The administration would not mandate any particular currency but they could, in their voluntary negotiations, require their subcontractors honor their commitments in gold. This would motivate them to also require their subcontractors to pay in gold. Thus the residents would be motivated to also transact in gold. When they become residents they would convert their home currencies to gold. This would be just the same as when migrating to Mexico, for instance, they would change their dollars for pesos.

Sam

Thursday, June 24, 2004 - 2:04pm

Hi, Sam.

>>You've got it backwards. The gold price is a direct reflection of confidence in the underlying currency. It's not the value of gold that has been fluctuating, it's the currency.<<

True. You can view the relationship reciprocally and say the currency is fluctuating, and I understand why you would as a hard money man. But the truth is that BOTH are fluctuating. The dollar fluctuates because of its (mis)management by the Fed and the international demand for it. Of course, gold fluctuates too because of supply and demand.

However, it must be noted the fluctuations in gold have been far greater than that of the dollar. As gold soared from its fixed price of $35 per ounce in '73 to $800 per ounce as a commodity in '80, there wasn't a twenty-fold increase in all dollar-denominated prices. Similarly dollar-denominated prices over the past several years haven't doubled and halved as gold has. Gold is now trading as a commodity; not as a store of value.

Certainly some of its demand is still for its store of value. And I'll agree that most of its demand would be for its store of value if it returned to its global role as THE standard of value. But even back then gold standard currencies inflated and deflated due to the vagaries of gold's supply and demand. What was Bryan's notorious "Cross of Gold" screed all about? Debt-laden farmers demanding silver inflation to end the severe gold deflation that was ruining the economy during the first half of the 1890's. And what took all the steam out of Bryan's silver movement? Gold inflation in the latter half of the 1890's when new huge strikes in South Africa and the Klondike and improved extraction techniques flooded the market with gold.

Inflation and deflation are just as nasty whether they're caused by government mismanagement of the currency or the natural variation in the supply and demand of gold. Yes, gold inflations and deflations have not been as severe as the worst fiat fiascos. Yet, gold economies have experienced swings in the value of money as great as 30-40%. So I don't see the practical advantages of a gold currency when the free market in currencies seems to be doing a better job of checking both inflation and deflation.

The question for me is whether we really need a physical medium of exchange anymore? Money, especially once it was minted in gold, was huge step up from bartar. Now that we have a global free market in currencies, I suspect we are ready to leave the physicality of gold behind for virtual money -- i.e., genuine yardsticks for measuring wealth.

I don't expect that you'll agree, Sam. However, I make these observations out of agreement with you as to the primacy of gold as the standard of value and all of the bad consequences that have flowed from abandoning that standard at least until the present era of floating currencies. We now have a situation unique in history in which all major currencies are fiat, yet Greham's Law is still as ruthless as ever because they all must compete against each other in a free market. That does make me speculate that perhaps we are on the brink of the next huge step up from barter with virtual money.

Regards,
Bill

P.S. Am I missing something here? Are you and the author of this article one and the same?

Thursday, June 24, 2004 - 2:24pm

Are you and the author of this article one and the same?

Yes.

Sam Erica (as in God Bless Sam Erica)

Tuesday, December 30, 2008 - 10:03pm

This article is really worth revisiting.

Wednesday, December 31, 2008 - 10:01am

This idea has undergone some transformation since it was published in 2004. It's not quite a dead parrot but is getting close to being one. Firstly, the electrical conductivity is not as easily measured as I had expected. The resistance of such a short length of gold is so small that most laboratory instruments can't measure it accurately. The probes cause a problem and Kelvin sensing is a phenomenon that has to be reckoned with. I suspect that this problem can be overcome but routine testing won't be possible except at special sites. I'm not a physicist or lab specialist so someone may have comments on this.

That being said, the concept doesn't revolve around that feature. The amplification on its viability is that of marketing the card as a greeting card such as Hallmark sells with the added feature that includes the gold as a gift. Buyers can go to the "Auric" web site, upload their photos, images, or sentiments and they will be printed on the card and encapsulated with the gram of gold. This product is then primarily a gift of sentiment rather than a method of transferring gold, although it could be used that way.

I have had difficulty getting quotes from mints for the supply of the gram of gold. I am still in the process but it appears that the premium over the bullion price may be prohibitive. I have had a potential partner and we gathered a lot of information but we decided that our expected roles in a partnership were quite different. I have a new potential partner and we will be pursuing this concept until it finally bites the dust (or not.)

Sam

Thursday, January 1, 2009 - 10:44am

Wouldn't the resistance and the cost per unit problem both be addressed by increasing the mass?

Thursday, January 1, 2009 - 11:58am

Yes, but then the affordability of of the product skyrockets and, in my view, the target group who would buy such gifts would be restricted. Kitco offers 1 gram chunks of gold in a blister pack but that isn't what I'm trying to promote. It can't fit in your wallet conveniently and has no sentiment associated with it at all ... just investment.

Thursday, January 1, 2009 - 3:23pm

Sam (Paul), I thought this was a brilliant idea when I first read a couple of years back, but any marketing effort must be an effort. An entrepreneur puts his own resources into the engine. It cannot be a part-time thing. I know other 1-gram and larger plastic slabs, I have a couple of these "Mozarts" and I gave my brother a 5-gram for his birthday, still laminated to about credit card size, at 5-grams a bit thicker, but manageable. The point is that this company's marketing went no where.

A long time ago, I approached Reason about an article on "libertarian science fiction." I think I actually talked to Virginia Postrel. She was keen on the idea because she reads it herself,but she begged off. She said, "You think your readers will be the union of the two sets, but you will only get the intersection."

So, too, with your wire. Gold coin people want gold coins. Cards for commerce people want cards. (I have lots of samples from different places. Like you can get AT&T or whoever to sell you a block of long distance time and they will make your cool cards for you. Other places will do these things, too.) But you are shopping for the intersection of those two sets.

Look at NORFED. They had good visibility within the movement, but never had a lot of places where you could do real hard money business. Same with egold. I sold some articles to a libertarian website for egold which I used to buy a facsimile edition of Webster's 1829 Dictionary of the American Language. But that was the extent of the buy and the sell for me witt that.

Now, I agree 100% -- your wire is cool. Way cool. But I am not a mainstream guy. So, you can't judge by me.

I have attended a few Libertarian Party events over the years. I seem to be the only one who shows up with hard money. I think it was back in 1978 that I saw one guy sell another guy a six-pack of homemade beer for an ounce of silver.

I'm just asking: Who is your market?

Thursday, January 1, 2009 - 4:01pm

Michael: The potential market, if I can get the prices down low enough, is the gift market ... those who wish to have a personalized gift with some monetized value. You want to give your grandchild a gift for her birthday? Then give her a photo of you on the card with a stripe of gold that is worth something like $30 or so that she can cherish after you have gone, or a Cadillac dealer who wants to try to get a former buyer to remember his purchase and return to the dealership for his next purchase, in which case he has his own picture with the background of the newest Cadillac. The reasons for making the purchase are virtually inexhaustible and unforeseeable. Employee of the month, special award for athletic excellence... what have you? And those who hope that the card will be in circulation to inculcate others into something like (gasp) Objectivism?

Sam

Thursday, January 1, 2009 - 4:34pm

Here are three of Sam's designs:

Photobucket

Photobucket

Photobucket

(Edited by Ted Keer on 1/01, 4:38pm)

Sunday, March 6, 2016 - 12:13pm

Michael Marotta has alerted me to a site that takes to the next level the concept of using physical gold as small denomination currency.

http://valaurum.com/news/

They deposit 1/10 gram of gold, atom by atom, and encapsulate it between layers of polyester. The product is the size of a normal bank note. A gram of gold is currently worth about $40 ($1250 per oz.) so the note has a value of about $4.

I have a physicist friend who is working on a device that plugs into a smart phone and will verify the authenticity of such notes and, indeed, even gold coins.

Perhaps this is just the first step in the process of having a universal standard of trade — gold.

Sam

Sunday, March 6, 2016 - 1:28pm

That would be awesome! I have no doubt that human creativity and today's technology could find a way to provide physical gold in convienient, verifiable forms. All we need is the political leadership to go in and boldly begin the process of converting todays Fed and Treasury into a system of private banks, and a gold currency. Intelligent, knowledgable people could create a gradual conversion where the two systems ran in tandem for a few years while the official support of the old system was gradually removed. Without access to the money, Progressivism can't function.

Sunday, March 6, 2016 - 1:42pm

In the argument (see the early posts in this thread) about paper money, or just digits in digital account activity being the measure of wealth, or the mechanism for the transfer and the storage of wealth, the thing that Sam's (Paul's) opponents missed was that gold, by having intrinsic worth, can't be inflated. It takes away from government a primary mechanism for spending, which is to say, for big government. Sam covered that by implication in post #4. The problem isn't just technology. It is making sure that a private currency is fully legal, and that government, which might start a gold-based currency, gets out of the currency business altogether after a transition from the paper dollar to the gold gram. Government has no more business being in the money business or the banking business than they do in the shoe business.

Sunday, March 6, 2016 - 2:22pm

Imagine how much simpler life would be.

No exchange rates.
Many businesses with international sales nowadays have to hedge themselves against currency fluctuations.
No tycoons like George Soros speculating on exchange rates and almost bankrupting the Bank of England.
There would be a perfectly level playing field for international competition.
Ease of comparing prices from various international sources.
No commissions for currency exchanges

and on and on.

Sam