By Vivek Kaul

Mumbai: “If I were to write a report called The Copper Wars, it would not attract many subscribers, even for free. The Silver Wars might attract a few more, but not many. But The Gold Wars has been read by tens of thousands. Why?” is a question that Gary North asks towards the middle of his ebook The Gold Wars.

In the very next paragraph of the book he provides an answer to the question he asks. “When I say that gold is a political metal, I mean more than the obvious fact that gold has political ramifications. I mean something more significant. I mean that gold has always been intertwined with politics, that gold, alone among metals until the success of the Manhattan Project added uranium to the list, has been the uniquely political metal,” he writes.

Gold as money

Till around one hundred years back gold was money. As North writes “Prior to 1914, a person could take a gold coin anywhere where international trade was common and buy just about anything. It did not matter which ruler’s image was on the coin. The coin was valuable because of its gold content. The image may have helped to convey information about the coin — so much gold of certain fineness — but the face on the coin had merely a brand-name recognition effect.”

The power of gold was characterised by the fact that in the initial James Bond movies, the spy used to carry British gold sovereigns with him. As North writes, “The British gold sovereign was so widely recognised that James Bond carried sovereigns as late as the mid-1960s. In From Russia With Love, the coins were in the booby-trapped briefcase.”

How it worked

Till July 1914, all the major economies of the world were on what is known as the gold standard. Central banks around the world had gold in their coffers which was essentially used to back the paper currency being issued. In the US, the value of one ounce of gold was fixed at $20. What this meant was that citizens essentially held gold as money and at any point of time could convert their paper currency into gold. It worked the same way in Europe. It also ensured that governments could only print a fixed amount of currency, depending on the amount of gold they had in their coffers, unless of course they managed to dig up new gold. So the government increasing money supply just like that, like is the case these days, was difficult.

How kings and governments tried to increase money supply

In the olden days, before the advent of the paper currency, when the kings and queens wanted to increase money spending, they tried to debase their currency by adding metals of lower value to gold coins. “The king wanted to increase his spending, so he would call in the old coins, melt them, add cheap metal, and try to spend them into circulation at the old rate for coins with higher gold content. The plan never worked. The new coins would always fall in value,” writes North.

People obviously figured out that the new coins had lower amount of gold and hence were not worth as much as the older coins. As North writes, “This enraged the government. It made theft through deception less effective. The citizens who spotted the fraud early would buy gold by exchanging the debased new coins for old gold coins, leaving the less perceptive, more trusting citizens holding depreciated new coins. Private citizens did what the king was trying to do, and this invasion of the king’s asserted prerogative to steal enraged kings for centuries.”

The campaign against gold

In the second half of 1914, the First World War started. Governments did not want to continue working with the limitations of the gold standard, which did not allow them to print as much currency as they wanted to. Banks in Europe suspended the conversion of paper money into gold. The US government confiscated the gold held by its citizens in 1933. It forbade its citizens from owning gold till the end of 1974.

As North writes, “No, gold is not money. It has not been money for Europeans since 1914, when the commercial banks stole it from depositors at the outbreak of World War I, and central banks then stole it from commercial banks before the war was over. Gold has not been money for Americans since 1933, when Roosevelt unilaterally by executive order stole it from the public.”

On August 15, 1971, Richard Nixon, the then President of United States, decided to do away with the last prevailing gold standard.

Why governments hate gold

The lack of a gold standard allows governments to print as much money they want to. And that is why they hate gold. As North writes “Why do they hate gold? Because gold represents the public. More than this: gold is a powerful tool of control by the public. A gold coin standard places in the hands of consumers a means of controlling the national money supply. A gold coin standard transfers monetary policy-making from central bankers and government officials to the common man, who can walk into a bank and demand payment for paper or digital currency in gold coins. This is the ultimate form of democracy, and the Establishment hates it. The Establishment can and does control political affairs. They make democracy work for them…They hate gold because they hate the sovereignty of consumers.”

The present day

Today governments and central banks across the world do not need to back their paper currency with gold reserves. This gives them the freedom to print any amount of money they want to, which is what they are currently busy doing. But when an item is available in abundance its value tends to go down and vice versa. All this printing of currencies, will lead to a situation wherein the purchasing power of currencies will continue to come down. Given this, concerned investors the world over, those who understand their financial history, would want to move their investments into gold, leading to the price of gold going up. But the governments clearly do not want that. As North wrote in a recent column, “Gold’s price is a test of political legitimacy: the value of a national currency. A rising gold price is a vote of reduced confidence in the State’s money. This is why governments since World War I have done everything they could to remove gold coins from circulation. ..This is why governments sell off gold. It de-legitimises gold and legitimises government currency.

Original Article

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