Originally Posted by
Steven Douglas
You know, I had a whole two paragraphs written to stipulate that $100 (not 100 ounces) was 'valued' by WEIGHT - not "worth" (in what?!), but I deleted them, assuming that you understood the concept of hard specie. I could have said ounces, but didn't. Now I see that I should have, because you see a dollar sign, and don't realize that under a gold standard and sound currency, a dollar sign IS A UNIT OF WEIGHT AND PURITY. Only. Not price, not exchange value, not "worth", unless you are talking strictly units of equivalent weight and purity.
My mistake.
Now you're off in la-la land, having not read or comprehended a thing I wrote. And you even identified YOUR problem, when you said:
Correct. But it's not only your confusion. It's the market's confusion, as when paper notes (fictitious, untenable, fraudulent claims) are conflated with physical gold, confused by the market as being of equal value. And the ONLY reason for that: the market does not test that value. If everyone suddenly demanded physical, the fraud would be uncovered. However, while the fraud may go undetected, the effects of the fraud on the value of all other physical is palpable and real. That you can't see it clearly is mind-boggling.
You're saying "bottom line" as an assertion, without actually critically examining any of the real bottom lines. What I am saying is not controversial. It is based on fundamentals that most any economist would agree with, and I'll prove it to you.
You're on an island in an economy that has 100 ounces of gold total (and I won't ever make the mistake of using $ signs with you again). So far it's all the known gold in existence. Part of its value ("purchasing power") is based on its scarcity. Indeed, if all sand in the world was pure gold, your gold would have very little "purchasing power". Maybe twice that of sand, because it's prettier and more useful. Why would anyone trade their goods or services with you for something they can go into their backyard, or the nearest beach or desert, and scoop up by the truckloads themselves? Do you understand that scarcity is not only a factor, but a requirement for market value?
Now here you are in an economy with 100 ounces of gold freely circulating. But now 900 ounces of newly mined, freshly minted gold arrives and makes its way into the economy. It is natural inflation. As this new gold freely circulates, it places downward pressure on the market value, or purchasing power of the original gold, which is diluted by upwards of 90%. You can see that, right? That's what happened during the Gold Rush. The market value, or purchasing power of gold on the whole in the economy dropped.
That's physical versus physical, no notes required.
When paper claims on the same existing gold are issued multiple times to multiple parties as redeemable bank notes, every one of them are valued no differently than the physical they misrepresent. They are fraudulent because not all of them can be redeemed at once, even though everyone has the same legal claim to the same existing gold. Meanwhile, the market does not distinguish (i.e., "is confused") between paper and physical. A merchant will make no distinction between a customer with an ounce of gold and another customer with a Demand Note that is fully and instantly redeemable in an ounce of gold. Both are treated as physical in the market place. The merchant can go to the bank and demand the ounce of gold based on the note, and he will receive it. He can do this because less than 10% of the market even does this. Most merchants will simply pass this note onto others, who will also accept the note without redemption, so the very real fraud is not detected. And because the 9 times the amount of fraudulent paper notes are passed off as ("confused for", or "conflated with") real physical gold, it is NO DIFFERENT than if nine times the amount of real physical gold had been circulated -- either of which can, AND DO, place downward pressure on the value, or purchasing power, of the original physical gold.
Again, this is elementary, and not controversial at all. Mainstream (and even some Austrian) economists may have their own reasons for defending fractional reserve lending, but the notion that it does not have an effect on the purchasing power of other like units - claims or physical - is not one of them.
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