Gold – A political metal

Political rulers throughout recorded history have asserted a monopoly over money. They have argued that the State possesses legitimate authority over the creation and distribution of money. Because gold and silver have been widely used as money metals, the State has asserted control over the monetary uses of these two metals.

This is the origin of the war against gold. Gold is widely recognized and desired as an investment. It is a highly marketable commodity. This was far more true in 1913 than it is today. Prior to the de-monetization of gold, which began in 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 a certain fineness -- but the face on the coin had merely a brand-name recognition effect. ...

Gold’s value is not independent of governments. This is because governments buy and sell gold. This activity affects its price. Gold’s value is also affected by laws against the circulation of gold coins. The Soviet Union had such laws. So did the United States, 1933-1974. But gold’s value as a money metal can exist independently of a government’s actions to subsidize or stigmatize gold’s use as money. Gold circulates as money precisely because it has a value independent of government policies. Or it did. It no longer does. Gold has been de-monetized by governments and their acolytes, the economists.

As with any scarce resource, gold moves to those holders who bid highest. The more widespread gold’s use as money becomes, the more likely that trade will accompany gold. Gold reduces risk by reducing the likelihood of default or fraud on the part of the State or its licensed agents, fractional reserve banks. A government can go bankrupt, but its gold coins will still circulate at gold’s market value. The same is true of any coin-issuing agency. The gold may be marginally more or less valuable in a particular form because of the degree of recognition of the producer, but a government that accurately certifies its gold coins will find that its coins circulate at full value even if the government itself faces bankruptcy or extinction.

Gold’s independence from the fate of governments points to a political truth that governments despise: governments are not the source of the value of gold. To the extent that gold is money, gold testifies against the sovereignty of the State in the realm of money. It testifies to the sovereignty of consumers in a free market. The free market, not the State, is the primary source of gold’s exchange value [emphasis added].

~ Gary North, The Gold Wars (free pdf book), pp. 44-45