Gold is not vital to human existence; it has, in fact, relatively few practical uses. Yet its chief virtues—its unusual density and malleability along with its imperishable shine—have made it one of the world's most coveted commodities, a transcendent symbol of beauty, wealth, and immortality. From pharaohs (who insisted on being buried in what they called the "flesh of the gods") to the forty-niners (whose mad rush for the mother lode built the American West) to the financiers (who, following Sir Isaac Newton's advice, made it the bedrock of the global economy): Nearly every society through the ages has invested gold with an almost mythological power.
Humankind's feverish attachment to gold shouldn't have survived the modern world. Few cultures still believe that gold can give eternal life, and every country in the world—the United States was last, in 1971—has done away with the gold standard, which John Maynard Keynes famously derided as 'a barbarous relic.' -- National Geographic
It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one fattens the usurers and the other helps the people. If the currency issued by the Government was no good, then the bonds would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold. -- Thomas Edison
Aside from going counter to the true nature of money as an abstract legal power, there is a very practical matter that supporters of Gold money can’t address: There is never enough supply of gold sufficient for such a money system. The Gold supply has not kept pace with the growth of population and commerce. This periodically increased the real value of gold.
Money systems usually solved this problem by cheating – pretending to be operating a gold based system but really mixing private bank paper into the money supply, pretending it was convertible; leveraging the amount of gold in the system through fractional reserves of one type or another. Because this bestowed great power and unearned wealth onto bankers, there has never been a shortage of apologists for such mixed systems - we call them 'economists!' -- Stephen Zarlenga, Director, The American Monetary Institute.
Overvaluation did not depend on coinage. Banking is one form of such representative money. In the ancient empires of Egypt, Babylon, India and China, the temples and palaces represented important centers of production and they quickly became the centers of storage of grains and the precious metals, typically under the control of palace administrators and the priesthood. When commodities were thus accepted in the centralized warehouses, it would have been natural for the stewards of the palaces to issue some kind of certificate of deposit that would certify the evidence of debt. Probably these certificates from the temple-banks would be readily accepted in generally payments and could circulate as a form of (overvalued) money. -- Columbia University (PDF)
The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented.
The goldsmith bankers quickly succumbed to the temptation to issue 'extra' notes, (unbacked by gold). Why? Because the 'extra' notes enriched the bankers by allowing them to buy property with notes for gold that they did not own, gold that did not even exist.
In other words, the goldsmith wrote receipts for people who were not depositing gold. These receipts too circulated as money. So receipts for more gold than the banker actually had in his vaults were circulating. The goldsmith had only a fraction of the amount of gold needed to meet the claims [receipts] against him. They were issuing $10 in receipts for each $1 in gold. This is the fractional reserve system...
A gold standard or silver standard or any other finite, alternate "standard" akin to a precious metal monetary standard therefore can only fail altogether to sustain commerce requiring a greater circulation, to endow the circulation with truly consistent value, and to avert catastrophic failure as an inevitable consequence of interest: The finite quantity of any honored such standard cannot sustain industry requiring a circulation greater than available monetary reserves;
Inevitable deficiencies regularly compromise/degenerate the purported standard into a fractional reserve.
There is no fixed linkage between circulation, the potential value of existent property or services, and the declared monetary value of currency;
Thus the purported standard imposes perpetual inflation and deflation in fluctuations of the ratio of circulation to wealth, much like the very improprieties it purports to address.
Alternate standards such as the gold standard have no power whatever to arrest multiplication of debt by interest.
As only eradication of interest arrests artificial multiplication of debt by interest, the gold standard is even wholly redundant to this purpose.
In the first two cases then, the gold standard is actually an obstruction to the very thesis of monetary propriety; and in the third it is wholly redundant.
Thus, not only is there no need or use for a gold standard whatever; in the first and second cases the gold standard is substantially damaging, and in the last it is nothing but a delusion that it can protect us from the worst calamity of all.
"When money is made useless and I have food and water while you have gold, come to me then and offer your gold in exchange. Unless I am feeling exceedingly benevolent, you will go your way hungry and thirsty" -- Richard William Posner, May, 2011
