Gold is fiat currency too; in fact all currency is fiat currency.

[eridani]

http://www.alternet.org/story/146150/have_you_caught_gold_fever_the_value_of_that_shiny_metal_is_as_artificial_as_paper_money?page=entire

Here's why: This isn't news. The Federal Reserve, along with investment banks, hedge funds, governments and even you (yes, you), have not been just manipulating the so-called real value of gold and other financial instruments for decades, you've also been manipulating reality itself for centuries. Because gold is just chemical element, or a precious metal as it is called in the business, which means you can't eat, grow or use it to power your house or car.

But what gold is good for, and admittedly has been since the beginning of recorded history, is storing notional value: It is simply an idea made shiny, attractive, and up until our recent Great Depression rerun, pretty lucrative. In other words, it is a hyperreality, a consensual hallucination to borrow a term from novelist William Gibson. It has value as a currency because we decide it does, just like the fiat currency system that replaced it, not because of anything it can actually do on its own.

And the determined devaluation of that notional value has some goldbugs angry.

"The price of gold is largely determined by what people who do not have trust in fiat money system want to use for an escape out of any currency," explained Adrian Douglas, publisher of Market Force Analysis and member of the Gold Anti-Trust Action (GATA) committee's board of directors, in an article titled "More Fed Minutes Document Gold Market Manipulation." "They want to gain security through owning gold."

But as the War on Terror and return of the Great Depression have both shown us, security is often an illusion masking the subtraction of further freedoms and values. It tends to make a small percentage of people very rich, at the expense of others less fortunate. That includes those who cannot afford to pay over $1,000 an ounce for gold futures. Or physical gold, which goldbugs are hoarding for the day they foresee Neil Young's aforementioned knights in armor coming to collect their riches for a king, lately President Obama, demanding their total obedience to what Douglas described as the more democratic fiat money system.

These issues will doubtlessly be discussed when the Commodities Futures and Trade Commission (CFTC) holds public hearings on March 25 examining futures and options trading in the metals markets. On the docket? A presentation from GATA chairman Bill Murphy explaining massively unsustainable short positions in gold and silver from the usual suspects like HSBC, JP Morgan Chase and more, including the hated Goldman Sachs, ex-employer of current CFTC chairman Gary Gensler. Sure, this probably doesn't come as a shock to anyone familiar with those banks, and their regular practice of naked shorting everything else in financial reach at the expense of trillions in taxpayer bailouts. But for its part, the CFTC is staying out of the gold conspiracy theory for now.

[On the Road]

1. I Can't Believe That Anyone Who Understands the Money Supply

would want to return to the gold standard. It would collapse the amount of money in circulation also make it inflexible, meaning there's no leeway during a downturn to prevent an all-out collapse. The gold standard is one reason among other there were so many crashes in the US during the 19th and early 20th century.

[Art_from_Ark]

7. Yeah, just keep churning out that paper

because that's REAL money. Just ask the people of Zimbabwe. Or Serbia. Or 1970s Argentina or Brazil. Or Mexico. Or the Weimar Republic. Or the Confederate States of America.

[Raineyb]

10. Money is merely a medium of exchange. You can take anything and use it to get goods and services

and if everyone takes it it will be money. There's nothing better per se about using precious metal rather than paper to do so. Actually using precious metal would make it impossible to do anything in a downturn and if you think this recession is bad now imagine how much worse it would be if the only money about were backed by a finite resource aka gold. Frankly, even precious metal as money is arbitrary in that someone somewhere a long time ago said "These metals will be used as the medium of exchanged." Tulip bulbs were used too at one time and equally arbitrary.

[Art_from_Ark]

14. That's a silly assertion about paper versus metals

Actually, it's a ridiculous assertion. The value of precious precious metals in world markets has never gone to zero-- NEVER! However, there are countless cases where the value of paper currencies around the world has gone to ZERO. I have a recent 100 trillion dollar note from Zimbabwe. Do you know how much that will buy in Zimbabwe, or anywhere else for that matter? Nothing. Zip. Zilch. It is completely worthless as money, having been demonetized shortly after its issuance. I also have several 500 billion dinar notes from Serbia. Take those to a grocery store in Serbia and see how much they will get you. The same holds true for my old Brazilian cruzeiros, 1970s Argentine pesos, 1970s Mexican pesos and a whole slew of other obsolete currencies. Heck, even British 1-pound notes have been demonetized, as well as several old currencies of EU countries.

[Raineyb]

15. No it's not. The gold is as arbitrary as the paper is.

And if you took a money and banking class you'd know this. The gold is only precious because we say it is. If people didn't covet it no one would care all that much about it. That's how it got to be the backing for money in the first place. And even then they had to be forced to accept it since they couldn't eat it or use it to farm or anything. Gold is just some hunk of metal in the ground. If we didn't say "Hey it's worth X" it wouldn't be worth anything. At one time tulip bulbs were used as currency. It's all arbitrary. There is nothing inherent about gold that makes it better for backing money than anything else we would assign.

Money is just that, a medium of exchange; otherwise, we'd go back to bartering.

[Art_from_Ark]

20. I have been studying money for 40+ years

Not just "money and banking", but the *history* of money. One medium is not "just as good as another". Learn about Gresham's Law -- there is "good" money", and there is "bad" money. When they circulate side-by-side as "legal tender", the "good" money disappears.

Why do you think there are no silver coins in circulation today in the US, or anywhere else for that matter? Because they contain silver, which is "good" money according to Gresham. For example, there were more than 2 billion silver dimes minted with a 1964 date, the last date for 90% silver coinage in the US-- and more than a billion 1964 quarters, and more than 400 million 1964 half dollars were made as well-- and yet, it is a big event to find even one of these in circulation today. For that matter, it was a big event to find one in circulation in 1971! In contrast, there were 2.7 billion 1964-dated nickels (containing a base metal alloy of 75% copper and 25% nickel) that were minted, and they are still plentiful today. You also would have little trouble finding 1965-dated quarters and dimes, which are made of basically the same alloy as nickels. By your assertion, however, silver coins should be still circulating with base metal coins, because they carry the same face value.

It is just plain ridiculous to assert that "gold is as arbitrary as paper is". The value of gold has NEVER gone to zero on the world market. NEVER. The same cannot be said for most of the world's paper currencies, which at one time or another have been replaced (demonetized) due to "monetary reform". And all of the world's fiat paper currencies, including the US dollar and the Swiss franc, have become severely debased in relation to gold. In 1970, for example, $35 in paper would have been enough to buy one ounce (31.1 grams) of gold. Today, it's not enough to buy even ONE GRAM.

[Raineyb]

29. And if you were in the middle of the desert and the only things available were gold and water

which would you do your trading in?

Exactly.

Gold is no less arbitrary than the bloody paper we use now.

[Art_from_Ark]

40. You are citing an extreme case which almost nobody has to face

Geez, if you were in the middle of the desert, and you were given the choice of getting a life-saving drink, if only you would kill your dog, what would you do?

[A HERETIC I AM]

77. Kill the guy giving me the choice and give both me and my dog a drink. n/t

[AtheistCrusader]

100. That's because IN THAT SITUATION water has greater intrinsic value.

To me, water has no such comparable value. Everywhere else, and at all times, Gold has intrisic value to people. That value varies. In Zimbabwe, righ now, .1 grams of gold will get you a loaf of bread. Making that loaf of bread about $3.80 US. Comparing starvation to your water in a desert, gold still comes out pretty valuable, compared to the paper currency of that nation. (and that's unrefined gold panned right out of a river)

Gold is more widely accepted as carrying value, than any paper currency, ever.


Now, is it a good INVESTMENT for us? No. Would it make for a better monetary system than what we have now? No.
But do not dismiss it's value as entirely arbitrary.

[Art_from_Ark]

23. Speaking of money and banking class

Perhaps you would like to tell me about the phrase "not worth a Continental". After that, you can explain about "wildcat banks", "shinplasters", "horseblankets", "greenbacks" (in the 19th century sense), fractional currency, the Panic of 1837, the Crime of 1873, "Silver Dick" Bland, Spanish (and Spanish colonial) pillar dollars (and their significance to the US monetary system), and the Coinage Act of 1965, for starters.

[roamer65]

41. In the Weimar Republic, mark notes were cheaper than wood.

People actually used bundles of mark notes, rather than wood in their early 1920's cooking stoves.

Another "fiat fun fact".

[johnlucas]

2. The value of money is an illusion

I'm glad someone touched on this subject.

All currency is in truth virtually worthless.
Value is often subjective & based on perception.

The only reason money is valuable is because most people agree that it has value.

Everything has worth in some aspect or another.
The artwork on U.S. coins is elaborate & interesting giving it some aesthetic artistic value.
It has mass or weight so it can be valuable for keeping your papers from flying off of your desk.
It has the value of teaching you geometric lessons like the properties of a circle.

But if a thirsty starving person in desert with no civilization in sight somehow ran across treasure chests full of money/gold/gems/etc. and Igloo coolers full of food & drink, which one should he choose?

The coolers full of food & drink of course!
You can't get sustenance from those worthless rocks & paper sheets. Food & water is always valuable because without it we cannot live. Breathable air is valuable for the same reason.

Money was invented for convenience of trade. It was designed to be the Universal Trading Piece since natural items like aren't the same size or style.
It has always been a mental game from the beginning.

In fact, it's imprisoning because the truly valuable things needed for life are put through the middleman called money.
It actually enslaves a society & takes away their freedom.

Money is only valuable because it is needed to access the truly valuable things needed for life. It is only valuable in the trading of its pieces.
And stored money is simply option power. It's just potential. If it's never used it's worthless.

The original poster is correct. ALL CURRENCY IS FIAT CURRENCY.
The difference between Federal Reserve Notes & Gold is that gold has some degree of being finite.
People forget about all the wars fought for control of gold. The Dollar Bill offset some of those problems while bringing others.
Our society got too big too fast quite honestly & a finite source of currency kept things closer to Earth in terms of debts.
It's too late to go back to a metal standard because it will collapse the development of the society in its current form.

All deficits & debts are easy to manage. Simply forgive them & reset to zero. It's all a mental game anyway.
All over an imaginary source of value.
John Lucas

[Art_from_Ark]

22. "Thirsty starving man in the desert" analogies are pretty silly

That is because almost no one will be in such a situation.

Sure, there have been times when people sacrificed much wealth to acquire things that would be relatively inexpensive under normal conditions, but under normal conditions, if you offered an adult a chest full of drinks or a chest full of gold, which one do you think they would accept? And what sort of response would you get if you said "but a thirsty starving man in the desert would choose the drinks!"

To put it in "Let's Make a Deal" terms, under normal, everyday conditions, the chest of gold would be the "top prize", while the cooler full of drinks would be the "zonk".

[Lucky Luciano]

3. I love this quote from Warren:

"Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

--Warren Buffet

I absolutely agree!

[Art_from_Ark]

8. Well, the same could be said for silver

but Warren sunk a huge amount of dollars into the metal.

http://www.wallstreetwindow.com/buffettbet.htm

[Art_from_Ark]

21. Another thing about Buffet

He does not understand metals. He bought a big position in silver, at a cheap price ($5/ounce or so), and by his own admission he sold it for little gain. If he had held it, he could have made 3X the price he paid. That quote appears to be of the "sour grapes" variety, rather than showing any real insight.

[dixiegrrrrl]

4. Actually, here is proof of what you say:

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion

WASHINGTON—The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world's largest economy.

"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."

"It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."


Calling it "basically no more than five rectangular strips of paper," Fed chairman Ben Bernanke illustrates how much "$200" is actually worth.

http://www.theonion.com/articles/us-economy-grinds-to-halt-as-nation-realizes-money,2912/

[eridani]

5. For most people, it's even less tangible than that

It's magnetic blips on a tape or hard drive someplace.

[roamer65]

6. Name one fiat currency from the present or past ...

that has not been severely devalued or outright inflated out of existence.

Name one instance where gold has been inflated out of existence.

Gold is HARD currency and is on its way to back as the world's reserve currency. Governments cannot control gold's issuance (like a fiat currency) and that is precisely why people trust it.

A nice $20 American gold piece really gives one an idea of the purchasing power the of the pre-fiat US dollar.

[Art_from_Ark]

9. That $20 gold piece represented more than a week's average pay in 1910

so it was a considerable amount of money.

[roamer65]

34. It shows just how bad inflation has been since 1910.

$20 is now small change.

[Art_from_Ark]

43. According to this web site, $20 in 1913

would have the equivalent purchasing power of $437.86 today. However, a $20 gold piece from 1913 (assuming it's not a special date or condition) would have the purchasing power of more than $1100 today.

http://www.usinflationcalculator.com/

[roamer65]

44. The rare ones have even more purchasing power.

My favorite from my collection is a 1852 New Orleans mint $20 in XF condition with an uncleaned, original surface.

[Art_from_Ark]

46. I would love to have a Type I $20 gold piece in that condition

And a New Orleans mint to boot.

[roamer65]

48. Took me 3 solid years of searching to find an "O" mint that I liked.

Most have been cleaned or mistreated over the years.

[Art_from_Ark]

50. Yeah, a lot of those coins look like they were "cleaned" with Comet

or even with a Brillo pad. Ouch.

How did you eventually locate your coin? through a dealer? At an auction? However you got it, it sounds like a great coin.

One of my favorites is an 1834 $2 1/2 "Classic". It has AU details, and might even grade AU if I sent it in. It has a greenish tint, which seems to have been not unusual for US gold coins of that era.

[roamer65]

51. Local large coin show...

where a dealer from the southeastern US showed up. He specializes in old Southern gold. I also bought a really nice looking 1882-O $10 Liberty from him.

[Art_from_Ark]

54. That is something I'm really interested in

Branch mint US gold. Of course, San Francisco mints are pretty common (sometimes more common than Philadelphia mints), and Denver mints are also fairly easy to locate, but any of those other branch mint old gold coins are real finds.
I've been especially looking for a nice Dahlonega or Charlotte piece, but with my budget, it would have to be one of those "Brillo specials"

[roamer65]

53. The greenish tint is from a slight iron content in the metal mix.

Some of mine also have the slight greenish toning. It really gives the coin character when it takes on that greenish tint, IMHO.

Often the "CC" mint gold coins have a more yellowish tint, as the "CC" mint would quite often mix Comstock Lode silver into the 10% base metal portion of the gold coins.

[Art_from_Ark]

55. I've got a $20 CC with a reddish sort of tint to it

I've also noticed that there are a lot of red spots, and even black streaks, on some of the $20th century gold coins, especially the St. Gaudens pieces.

[roamer65]

57. The black streaks are copper spots.

The mint quite often did not mix the copper into the gold completely and many coins ended up with copper streaks which toned brown/black over the years. The reddish spots are a lesser form of that incomplete metal mix, as it has been told to me.

[Art_from_Ark]

59. I've got a $20 St. Gaudens that has especially bad black streaking

especially on the reverse. At first, I thought it might be fake, but the weight checks out perfectly, and the design matches exactly with pictures of other St. Gaudens $20s from that date and mint that I've seen. I'm wondering what sort of non-destructive test could be made to determine definitively if it is genuine or not.

[roamer65]

60. Send it to PCGS or NGC for slabbing.

They will verify its authenticity without affecting the coin's surface.

[Art_from_Ark]

62. I've thought about that

Of course, ANACS will also do that, for a lower price, and they won't put it in a "body bag" unless it's fake. I was wondering, though, if there were some sort of non-destructive home test I could do to make a definitive diagnosis without going through a 3rd party.

[roamer65]

64. Leave it to the pros, IMHO.

PCGS won't bodybag it now unless its fake as well. They put them into "PCGS Genuine" holders for cleaned, but non-fake coins.

ANACS is fine as well...along with PCGS and NGC. ICG is ok, too. Other services I just ignore them when I go coin shopping.

[Art_from_Ark]

66. That's the thing

I am considering becoming a "pro" myself some day, since my paltry pension probably won't begin to cover living expenses by the time I'm ready to retire, so I would like to supplement my income. I am usually pretty good at spotting fakes, but recently one slipped by, and those 3 grading services all said it was a fake, but neither I nor the dealer I bought it from could determine exactly how it was fake, since the weight was perfect and the coin matched pictures (including one in a PCGS holder) of the same type, same date and same mint.

[roamer65]

67. There were a lot of good counterfeit gold coins made over the years.

It is really an art to detect them...a skill beyond my abilities. It is a personal decision for one to make, but all of my pre-1933 gold coins are PCGS or NGC certified, with exception of one ANACS common date. i have no raw pre-1933 US gold coins due to all of the counterfeits.

[Art_from_Ark]

70. Other services

I have a Morgan dollar that I bought more as a curiosity piece than a coin. It is in a "World Coin Grading Service" holder and is graded MS-67. The problem is, there is a big gash on the cheek, and a scratch in the obverse field to boot.

[roamer65]

63. Here's a great book if you don't already have it.

"A Guide Book of Double Eagle Gold Coins" written by Q David Bowers from Whitman Books.
It is a great historical book and it lists all of the double eagles by date and mintmark with background information for each one. The pricing is obviously out of date, but the infomation far outweighs the pricing info.

My copy looks like it has been through a war zone...lol.

[Art_from_Ark]

65. Thanks, I'll check it out.

Like your Guidebook, my "Breen catalogue" has certainly seen better days

[OllieLotte]

11. Right you are. Still, I picked up another gold maple leaf Friday.

Seems to be a bit tougher to create than currency.

[eridani]

12. That is irrelevant. Its "value" is as dependent on human whimsy as any other currency n/t

[OllieLotte]

16. Yes....and throughout history people have coveted gold.

Of course, you could be right...and this time it really will be different. All the money that the US government and others is printing and the huge deficits won't cause inflation. I'm sure you are right.

[eridani]

19. Coveting gold is as irrational as coveting any other kind of currency

Good luck getting change when you try to buy a pound of hamburger with your gold coins.

[upi402]

13. Me too. It will increase in value for some time as currencies lose confidence

I will find someone behind me in this action who will give me a good or service, or the larger pile of dollars in exchange for what I want.

When the BushCo hid the M3 I went to gold. I'm still buying, FWIW. I don't plan to make highly conductive electrical bus with it either.

"According to Herodotus, and most modern scholars, the Lydians were the first people to introduce the use of gold and silver coin.<7> It is thought that these first stamped coins were minted around 650-600 BC."
http://en.wikipedia.org/wiki/Economic_history_of_the_world

The Incas didn't use it for currency, but valued it for artistic uses. But since pre history, gold has been the hand-off item of value -interrupted by sieges and catastrophe I suppose. We can now assay and weigh gold, and minted coins have some faith and confidence by people in general - people with airplane seats, land, seeds, and water.

I agree with the OP's assertion, and I disagree with the beliefs held by the people I will sell/trade my gold too in a while. But I'll take their stuff if they want my gold more.

[roamer65]

39. Follow a graph of the gold price and M1 money supply growth...

over the past 10 years. They run higher nearly in tandem. Your gold maple leaf purchase was a smart wealth preservation move.

[h9socialist]

17. I await that glorious day when . . .

. . . society inscribes on it's banner, "From each according to ability, to each according to need."

[Xenotime]

18. Agreed. Marx is great.

[h9socialist]

26. As long as you keep him in perspective

By the way, that quote Marx used in "Critique of the Gotha Programme" is attributed to Proudhon at a much earlier date, and Marx never claimed it as his own.

Be careful with Marx -- his biggest historical problems have tended to come from his supporters' misinterpretations. The most important thing to remember is that Marx cannot explain the condition of the world today. He died in 1883 . . . he could sometimes make vague speculations about the future, he could not foretell it. If you read the Grundrisse and the three volumes of Das Kapital you will be left with the feeling that he was definitely on to something, but his work was not complete because history had yet to play out.

Although somewhat dated I think the best interpretation of Marx' relevance to the modern world was captured by Michael Harrington in his book "The Twilight of Capitalism."

[Art_from_Ark]

24. For crying out loud. Gold is NOT a fiat currency

Gold is not even a currency. It is a monetary medium that has been used to back currencies. Fiat currency refers to unbacked (usually paper) money issued by a government, with a stated value, but nothing really to back that up except for confidence in the issuing authority. Fiat currencies may, or may not, have value outside of their country of issue. Gold, on the other hand, ALWAYS has a value on the world market.

[eridani]

25. "Confidence in the issuing authority" = "confidence in a human myth about value"

How widely shared the confidence is is not relevant.

[Art_from_Ark]

27. That's plain absurd

Gold is by definition NOT a fiat currency. It is not a currency, it is a monetary medium. It is not fiat, because it is not given an arbitrary value by an issuing government; that is, it has intrinsic value, meaning its value is based on the actual amount of the gold, rather than on the arbitrary assignment of numbers on an otherwise worthless medium. It has served as a monetary medium longer than anything else, because it meets the requirements for a monetary medium better than anything else, viz,

It is scarce, but not exceedingly rare, and gold deposits are scattered about on every continent.
It is virtually indestructible. It does not corrode, fall apart or decompose.
It is fungible, meaning that one ounce of pure (.999) gold is the same anywhere.
It represents considerable value in a small amount and is relatively easy to transport.
It cannot be created out of thin air, or grown, or otherwise artificially produced.

[FBaggins]

28. "Better than anything else" isn't good enough.

The OP's point is that even gold has most of it's value caught up in the fact that people agree that it has value (just like a fiat currency). It is psychological as much as actual.

Gold does have intrinsic value, but that's largely because it's "pretty" and has some uses in electronics (etc). If the world economic system collapses (as all fiat currencies return to their inherent paper value), those uses aren't "useful" any longer.

At that point, a gold coin doesn't "buy" you much of anything.

You left off come of the key definitions for "money" - it holds it's value and is an accepted medium of exchange. In a world without fiat currencies, the monetary value of gold is as much "fiat" as any other. It only has value if people generally agree that it does.

[whatchamacallit]

30. Yes, but for it to lose it's perceived value

the world would have to fall into a barbaric state. Unless or until that happens, gold has value beyond fiat currencies.

[eridani]

32. What value? How do you get change if you want to buy a hamburger with it? n/t

[whatchamacallit]

33. Do art or music have value? As long as people want it, it has value.

And as long as it has "value" people will trade for it.

[eridani]

37. Value in that sense has nothing to do with trade whatsoever

Art and music flourished for millenia in the gift econcomy before they were ever made commodities. See the work of Lewis Hyde for a lot more on this.

http://www.lewishyde.com/pub/AfterwordGift.pdf

http://www.southerncrossreview.org/4/schwartz.html

In The Gift: Imagination and the Erotic Life of Property, Lewis Hyde uses anthropology, economics, psychology, art and fairy tales to examine the role gifts have played and continue to play in our emotional and spiritual life. By gifts, Hyde means both material objects and immaterial talents and inspirations, such as 'a gift for music' or 'a gift for mathematics.' Or, as Hyde himself so lyrically observes, "I have hoped . . . to speak of the inner gift that we accept as the object of our labor, and the outer gift that has become a vehicle of culture. I am not concerned with gifts given in spite or fear, nor those gifts we accept out of servility or obligation; my concern is the gift we long for, the gift that, when it comes, speaks commandingly to the soul and irresistibly moves us."

Above all, Hyde is interested in examining the effect our current immersion in the market economy and the myth of the free market has both on our view of gifts and on our ability to give and receive them. The market economy is deliberately impersonal, but the whole purpose of the 'gift economy' is to establish and strengthen the relationships between us, to connect us one to the other. "It is this element of relationship which leads to speak of gift exchange as 'erotic' commerce, opposing eros (the principle of attraction, union, involvement which binds together) to logos (reason and logic in general, the principle of differentiation in particular). A market economy is an emanation of logos."

[roamer65]

35. In silver.

That is why the US had a bimetallic monetary system for so many years. Gold was for large denominations, silver was to make small change.

One historical fact people are not aware of is that fiat currency was illegal in California in the mid to late 1800's. Easterners travelling to CA had to exchange their paper money for gold coin, usually at a considerable discount. Just another "fiat fun fact".

[eridani]

36. Not a single person at my farmers' market has silver n/t

[roamer65]

38. Yes...you are correct.

But at least a cupro-nickel coin has some value to it. I never mind getting 4 quarters rather than a fiat paper dollar.

[AtheistCrusader]

102. Have you ASKED?

[Art_from_Ark]

45. That was pretty much the case throughout the Old West

I always get a kick out of these old Westerns where someone pulls out a $10 bill to pay for something, and no one questions it. In real life, they would have been lucky to get that bill accepted at a discount. As you said, gold was for large purchases and silver was for smaller purchases, and paper money, which had left such a bitter taste in people's mouths after first the wildcat bank fiasco, and then the Civil War fiasco, was despised, particularly in the West.

[roamer65]

47. Yup. The California state constitution prohibited issuance of credit-based money (aka fiat)

Must have been quite a site to see...people using gold coin as everyday money. Gambling tables in Nevada full of REAL silver dollars.

[Art_from_Ark]

52. They were still using silver dollars at Nevada gambling tables

up through the 1960s. A lot of the really worn Morgan dollars probably spent a lot of time at gambling establishments.

[Art_from_Ark]

68. Speaking of Westerns and money

The Wild, Wild West, while it is one of my all-time favorite TV shows, missed the mark a few times when it came to historical fact and money.

For example, the series is supposed to be set during the Grant administration (1869-77). Yet in one episode, James West is shown holding an exploding silver dollar, which is a Morgan type. Morgans weren't made until 1878. No wonder Jim was holding his thumb over the date!

In another episode, James and Artemus Gordon visit the Denver Mint to discuss a paper money counterfeiting operation. The Director of the Denver Mint proclaims "We make a quality (paper money) product here." What he doesn't mention is that the Denver Mint, which didn't even open as a Mint until 1906, never made paper money.

[roamer65]

69. LOL on the Denver mint.

...and how times and things change. Back then, bags of Morgans were used as doorstops at eastern banks becuase they were so hated in the Eastern US. Now they are one of the most widely collected of US coins.

[Art_from_Ark]

71. I wonder why silver dollars were so hated in the East

I guess all the silver from the Comstock and subsequent lodes forced the price of silver down below the traditional 16-1 ratio, and it ticked the Eastern bankers off. But I wonder, did they complain when the bronze cent and two-cent piece, and copper nickel 3- and 5-cent pieces were introduced?

[roamer65]

78. Pretty much the same reason people today dislike a $1 coin.

Easterners preferred paper notes to the bulky coins. Even the gold coins did not circulate much in the East, as they preferred paper gold certificates. I read that to get gold coin from a bank, you had to specifically ask for it and the bank usually had a special wooden drawer in which they were kept. The banks would quite often refuse to pay out in gold coin at par, especially during the high inflation years of World War I.

[Art_from_Ark]

81. Of course, the gold certificates were a little sporadic

Some could be redeemed by the bearer (anyone), while others could only be redeemed by the person whose name appeared on the certificate. Why would anyone accept a gold certificate that they , themselves, could not redeem?

[Art_from_Ark]

115. Interesting thing about the World War I years

The US didn't make any gold coins in the period 1917-1919, so I'm not surprised that banks were reluctant to pay them out. It's also interesting that coinage of the 3 lowest denominations after that was very sporadic, but the largest denomination ($20) was produced in relatively large amounts for most years through 1928.

[AtheistCrusader]

101. Just because you cannot imagine how, doesn't mean it isn't done every day.

http://www.youtube.com/watch?v=7ubJp6rmUYM

[eridani]

31. There is no practical distinction between a "currency" and a "monetary medium"

They are used in exactly the same ways.

[Art_from_Ark]

42. They are NOT used in exactly the same way

Geez, do you know anything about this subject? Gold is not a currency. It is a monetary medium. Currency is used for daily purchases, paying taxes, etc., and these days it is generally whatever the government in power says it is, without any tangible asset to back it up. That makes it a fiat currency. Monetary media can expand beyond that, to include media that must usually be redeemed into currency in order to purchase daily goods. The US government no longer has any control over the price of gold. That is determined on the world market. On the other hand, the US government can arbitrarily assign numbers to pieces of paper to give them instant "value" as "currency", even though the medium itself has little if any intrinsic value.

[roamer65]

49. Art is correct.

Gold is still a currency. It is really a currency within the floating rate fiat currency system that cannot be created at governmental will. When Nixon closed the gold window in 1971, he only succeeded in breaking the dollar-gold peg. Gold never lost its monetary value after 1971, in fact, it has steadily gained value in the floating rate fiat currency structure.

[Art_from_Ark]

56. At one time, gold would have been a currency

but based on the definition of currency as being "legal tender in current circulation", then I would not call it a currency today.

[roamer65]

58. In Indonesia, people have gold link jewelry...

where they break off links to redeem in rupiah as needed. Very much like a reserve currency, IMHO. I think of gold as a anti-dollar reserve currency. In normal times, gold and the dollar have an inverse relationship.
However, right now gold and dollar are rising in tandem. That usually happens just before financial crises. Keep an eye on the Euro over the next few months, IMHO.

[Art_from_Ark]

61. Indonesia has been beset by currency problems

The rupiah has fallen on very hard times, and it's not surprising that some people would want to have some monetary instrument that wouldn't lose its value as money. In a sense, then, gold might be a local "reserve currency", but I would still consider it a "monetary medium" because it is not immediately exchangeable for goods and services.

I will be keeping my eye on the euro, and the Greece situation. If the euro collapses, then all my base metal euro coins will be worthless (he says, only half jokingly).

[eridani]

73. The "world market" is every bit as arbitrary as any government n/t

[Art_from_Ark]

80. Are you kidding?

Gold is a finite resource. That means its supply is limited by nature. There is X number of tons of gold ore reserves in the world, which can be divided, economically speaking, into minable reserves, marginal reserves, and uneconomic reserves. People knowledgeable in gold also have a rather good idea of the amount of gold that has been extracted and refined into usable form. The world price is based in part on this information. The chances of finding a gold strike, like the Sutter's Mill discovery, that is going to dump excess tons of gold on the world market are slim. These days, when a new deposit of gold ore is found, an old one is played out. It's basically zero-sum.

On the other hand, any government can print or otherwise fabricate any amount of "currency" it wants to. No restrictions. If you're a big, powerful country, you can get away with it, for a while at least. If you're not, then you get stuck with hyperinflation, and ultimately, currency devaluation and even demonetization.

[eridani]

82. Because it is a finite resource is exactly the reason why it is inadequate as money

What's wrong with fabricating money? If your material property base and knowledge and skill base grow, there has to be some way of reflecting that. Gold prices and currency values can both be disconnected from the realities of goods and services on the ground.

Reality is about what you eat, what you wear, what you burn to keep warm and what you use to build shelter.

[Art_from_Ark]

84. What's wrong with fabricating money?

Have you not been paying attention to the discussion? In countless countries around the world, fabricating money has led to monetary collapse, with paper money being worth ZERO. Gold has never gone to zero on the world market, and never will.

Question: What do all of the following fiat currencies have in common?













Answer: Their "values" have all gone to ZERO.

[eridani]

87. Irrational human decisions all, just like the "value" of gold.

All anyone needs to do to add value to a currency of any sort is to agree with other people to use it. You don't even have to be a government to set up such arrangements.

http://en.wikipedia.org/wiki/Local_currency

In economics, a local currency, in its common usage, is a currency not backed by a national government (and not necessarily legal tender), and intended to trade only in a small area. This amounts to a formalization of the barter system, a useful tool for raising awareness of the state of the local economy, especially among those who may be unfamiliar or uncomfortable with traditional bartering. These currencies are also referred to as community currency, and are a form of alternative currency or complementary currency. They encompass a wide range of forms, both physically and financially, and often are associated with a particular economic discourse.

[Art_from_Ark]

89. Local currencies are worthless outside of their small territories

Local currencies were often used in the 1830s to 1850s in the United States. Often, they were pieces of paper denominated in dollars issued by fly-by-night banks called "wildcat banks" that were given to depositors in exchange for real money, gold and silver. While the local currency might be redeemed in the town it was issued for full face value, it might be accepted at a huge discount in the next town. In contrast, any coin containing a known amount of gold or silver (and that included foreign coins as well) was accepted at full intrinsic value. What's more, once the flim-flam wildcat banksters had cheated the locals out of enough gold and silver, they would often fold up shop and move out of the area, leaving their depositors holding completely worthless paper.

[eridani]

91. Ithaca dollars work very well. That they can be used only locally is an advantage

--not a disadvantage. If you want a candy bar from a vending machine, only sandwich coins have value. The old non-sandwich coins are too heavy to do anything for your blood sugar.

[Art_from_Ark]

92. I don't really understand what the advantage of Ithaca dollars is

unless you get some sort of discount. But even then, someone will eventually be left holding the bag, as it were. My experience has been that these local currency schemes don't seem to have a long shelf life, and I've never gotten my money's worth out of any I've participated in.

I also don't understand your reference to "sandwich coins" versus "non-sandwich coins". But it you are referring to "clad" (base metal coins) versus silver (non-base-metal coins made before 1965), then it wouldn't make any sense anyway to use the silver coins in a vending machine since the silver they contain is worth at least 10 times more than their face value.

[eridani]

93. If you are having a blood sugar headache, the silver is worth nothing.

Ithaca dollars have been in use for 20 or 30 years now.

[Art_from_Ark]

94. "Blood sugar headache"?

What's that? And what does it have to do with silver?

[eridani]

95. It can be fixed with a candy bar from a vending machine

But only if you have coins that work in the machine.

[Art_from_Ark]

96. Come on, be honest

When was the last time you found a dime, quarter or half from 1964 or before in circulation?
It was quite an exciting thing to find one even in 1971, right after Nixon completely went off the Gold Standard and the last vestiges of silver were removed from circulating US coins. The only time I have found one in circulation in the last 35 years was a couple of years ago in change from Wal-Mart, of all places-- a little silver dime from my birth year, worth about $1.00.

[eridani]

98. What I'm saying is that that doesn't matter, except to numismatists n/t

[Art_from_Ark]

103. It certainly mattered a lot to non-numismatists in the '70s

Nixon's and the Treasury's actions signaled a rush to grab the last silver coins in circulation. It's also no coincidence that inflation really started to rear its ugly head around that time, that is, when precious metals were completely removed from the monetary system.

[eridani]

105. Can't see the relevance of precious metals at all

Inflation had much more to do with ramping up military spending and refusing to pay for it by raising taxes.

[Art_from_Ark]

107. Let me ask you a couple of questions

Were you around in the 1970s? And if so, were you old enough to know what was happening?

I was. And it was no coincidence that inflation really started getting into high gear right after all vestiges of precious metal backing of US currency were removed, in 1971. It was the same all around the world: Once countries removed all precious metals from their currency, inflation set in. It didn't matter whether they were fighting a war or not-- and most weren't. Inflated money supply with nothing to back it up results in inflation.

[eridani]

109. Yes, I was around in the 70s

And I really miss the fantastic returns I used to get on money market accounts. We haven't had inflation over the past 10 years that is any different than what I remember from the 50s, and I think precious metals are as totally irrational as currecy of any sort.

[Art_from_Ark]

114. I think you're pulling my chain

If you have been around long enough to remember inflation in the '50s, then surely you remember the inflation that got into high gear around 1971. It wasn't just because of the war, although that played some role. But inflation was eating away at the value of practically every currency in the world at that time, and most countries were not involved in any war. But by that time, practically every country had eliminated precious metals from their monetary system and switched to completely fiat currencies.

[Art_from_Ark]

72. You are contradicting yourself

On the one hand, you claim that "currency" and "monetary media" are used in exactly the same ways, but at the same time, you acknowledge the difficulty in using a monetary medium (gold) in making purchases at a farmer's market. You would have the same problem at virtually any store, even moreso if you had simple bullion or "gold dust". Therefore, they are not "used in exactly the same ways".

[eridani]

74. So explain how the electronic blips certifying that you "own" gold

--are any different from the electronic blips that record how many dollars are in your bank account.

[Art_from_Ark]

79. Who said anything about electronic blips?

The gold I have is the hold-in-your-hand type. I don't trust any company to keep it for me in their vault, or in their electronic database. I've never been interested in trading paper gold, because there is too much potential for fraud, that is, paper gold is the same as imaginary gold. But that's beyond the point. I can't write a check for the gold I own. I can't go to the bank and withdraw X number of dollars based on the amount of gold I have on deposit. If I want to convert bullion gold to currency, usually I have to sell it to a dealer, who will give me a price based on the spot price at the time.

[Name removed]

75. Deleted message

Message removed by moderator. Click here to review the message board rules.

[ixion]

76. Gold is not a currency, it's a metal.

and therefore not 'fiat'

[eridani]

83. Any human decisions about what "value" is, is by definition fiat n/t

[Art_from_Ark]

85. Wrong

By definition, "fiat" is government proclamation. A "fiat currency" is "money" that only has value because a government (or in some cases, local authorities, revolutionaries, etc.) says it has value. It has no intrinsic value. When confidence in an issuing authority collapses, fiat currency becomes worthless, or nearly worthless. IN STARK CONTRAST, gold has intrinsic value that is not fixed by any open-society government, and can be converted into any freely traded currency in the world, regardless of what happens to the local currency.

[eridani]

86. Conversion rates depend on imaginary "value"

In both cases, people act according to what they decide has "value".

[Art_from_Ark]

88. A fiat currency is by definition, NOT backed by precious metal

Its value is arbitrarily set by the issuing authority. A gram of one piece of paper can be "worth" $10, while another gram of paper can be "worth" $100, or 10 cents, depending on what its issuing authority says it is worth, and the confidence that the world has in the issuing authority.

Look at all of those past currencies I posted. That's just a small sampling of all the currencies that have been rendered completely worthless over the ages.. Their "value" was based on a fiat by their respective governments, and had nothing at all to do with their intrinsic value. On the other hand, a gram of bullion gold certified by Johnson Mathey is the same as a gram of gold certified by Credit Suisse, Mitsubishi, or any other recognized smelter/refiner. In the thousands of years since money became an established world medium of exchange, the world price of gold has NEVER gone to ZERO. NEVER.

[eridani]

90. And the "value" of gold is set by irrational bubble believers

I'll take governments, thankyewverymuch.

[Art_from_Ark]

97. You'll take governments?

Please refer back to post #84. And here are some more worthless government notes and related pics for your enjoyment:

[eridani]

99. Irrrelevant. We don't even do transactions with paper money anymore

It's all electronic blips.

[Art_from_Ark]

104. You don't do transactions with paper anymore?

So what are "Ithaca dollars" then? And your candy machine doesn't take silver but takes credit cards?

[eridani]

106. Seattle doesn't have a local currency. About 2% of my financial transactions involve cash

Vending machines, espresso shots, bus fare, raffle tickets, panhandler donations, grocery and farmers market if purchase is less than $10. That's pretty much it. Everything else by check or credit card.

[Art_from_Ark]

108. So let me sum up your argument

Gold is a "fiat currency", even though the definition of a fiat currency is one that is not backed by precious metals.

Government paper money can be trusted, even though governments around the world have had to demonetize (that is, render totally worthless) their currencies to deal with hyperinflation. Or if their currencies survived, they have far less buying power than they did a generation ago.

But electronic blips are even more trustworthy than paper currency, because they aren't even tangible and thus have even less intrinsic value. And local currency is even better, because you can only spend it in a limited area and it may or may not have an expiration date.

Gold, despite its role as a monetary medium during the entire modern history of money , is just like a currency except that you can't spend it like a currency, and it has no value, even though an ounce of pure gold on the world market will bring more than $1100 as of this writing.

US silver coins don't have any special value (even though dealers will pay 8 times face value or more for the pre-1965 dimes, quarters and halves), because there might be a time when you really, really, really have to buy a Snickers bar from a machine that probably only accepts base metal coins, and the candy bar costs a dollar (10 times its 1968 price) and you only have 85 cents in base metal coins and just happen to have one silver quarter in your pocket (that hasn't circulated in 40 years and is worth $2 or more at a coin shop) as well, but somehow the machine won't take it, and there you are,
getting a "blood sugar headache" because you can't get your candy fix.

[eridani]

110. The definition of a fiat currency is one whose value is determined by human belief systems

That is to say, all currency. Governments can be trusted to the extent that their policies benefit the public. Sometimes this happens, and sometimes not The irrational flux of markets in gold or anything else has no relationship at all to use value, which is the only real world value that exists.

There no currency that transcends meaning attached to it by human relationships, none at all. Human capital and natural capital are represented by gold or any other currency only by social agreements that can be altered or rescinded at any time.

[whatchamacallit]

111. So... what's the takeaway from all this?

Gold < cash, gold > cash, gold = cash? Or is it academic?

[eridani]

112. The take-away is that every single bit of it is a human social arrangement n/t

[Art_from_Ark]

113. I think you really should look up the definition of "fiat currency"

instead of just relying on your own image of it. Here's a place to start.

http://www.investorwords.com/1928/fiat_money.html

[eridani]

116. Any distinction between precious metals and other currency is nonsense

Their "value" depends on social agreements and upon nothing else.

[Art_from_Ark]

117. No, what's nonsense is your argument

You are trying to equate precious metals, which have been part of the world's monetary system for millennia and which have never completely lost their value during that time, to paper currencies which have, time and again, become totally worthless due to mismanagement. Your argument flies in the face of logic and history. Time and again, people in countries where the paper currency has been demonetized have lost when all they had was their government's paper, whereas those who had precious metals came out much, much better, everything else being equal.

[eridani]

118. When society breaks down, its agreements break down

That would include agreements about what counts as currency. The notion that metal makes you invulnerable to such breakdown is bullshit.

[Art_from_Ark]

119. Tell you what, I'll make you an offer

I will trade you wampum for gold. One ounce of my wampum shells (which were officially sanctioned as money in the Massachusetts Bay Colony), for one ounce of gold, since in your opinion, one is just as good as the other.

I will also offer you this bridge I have in my database for, oh, 10 ounces of pure gold. A fair trade, I would say, because they should have at least equal value, since by your argument the intangible bridge in my database has as much right to be a monetary medium, sorry, currency, as gold.