A charming story on the discovery of tiny amounts of gold in the leaves of the Eucalyptus tree recently received worldwide attention.
Seeds of the Eucalyptus Tree, photo by S. Hurst courtesy of Wikipedia
As summarized in the National Geographic's Daily News:
Eucalyptus tree roots can delve more than 130 feet (40 meters) deep underground in a thirsty search for water. (See "Koalas Climb a Eucalyptus Tree.")
The Nature Communications journal results, reported by a team led by Melvyn Lintern of Australia's CSIRO Earth Science and Resource Evaluation science agency, settle a long-running dispute. Researchers had disagreed over whether gold particles seen in eucalyptus leaves were merely wind-blown or truly represented ore traces transported by roots.
With gold costing more than $1,300 an ounce, miners might want to look hard at these eucalyptus tree findings, the team suggests. Gold discoveries have declined roughly 45 percent over the last decade. (Related: "Will Deep-sea Mining Yield an Underwater Gold Rush?")
Don't start stuffing eucalyptus leaves in your wallet, however. The average concentration of gold in the leaves was only about 46 parts per billion, less than 0.000005 percent of each leaf by weight.
The Koala need not, it appears, fear humans competing unduly for its staple food.
A report on this find by AFP states:
According to the World Gold Council, more than 174,000 tons of gold have been extracted from Earth since the dawn of civilization.
In 2011, the US Geological Survey estimated there were 51,000 tonnes of gold left in reserve in the world.
The reference to the 2011 USGS estimate appears to reference known reserves. That report estimates 51,000 tons of known gold reserves based on various governmental estimates. 3,000 of these reportedly are in the United States. A footnote to the report states: "An assessment of U.S. gold resources indicated 33,000 tons of gold in identified (15,000 tons) and undiscovered (18,000 tons) resources" -- an order of magnitude higher than "reserves."
If the same ratio applies worldwide it would imply that 510,000 tonnes of gold not yet extracted from the Earth. That is about three times the amount of refined gold extant in the world, as reported by the BBC: 171,300 tonnes.
For monetary purposes, the quantity of available gold, refined and awaiting extraction or even discovery, can only be characterized as ample. As previously noted here, Erste Bank states that "gold is money not because it is scarce but because it is abundant."
Those who claim that there "isn't enough gold" to support a gold standard, however, are collapsing a critical distinction. Under the classical gold standard gold acts as the calibrator by which currency is either injected into or withdrawn from the marketplace based on market demand.
Thus gold, under the classical gold standard, is akin to the thermostat rather than the furnace. It adjusts the liquidity to the precise balances desired by the marketplace -- rather than relying on convoluted equations by central planners.
Wild estimates of a $50,000/oz gold price under a gold standard are simply, and completely, unfounded. Such estimates -- and claims that there is not enough gold to support a gold standard -- betray a lack of understanding of the simple, elegant, and effective mechanism by which the classical gold standard organically regulates the supply of money.
Gold has proven an ideal instrumentality by which to define the dollar. This may be due, in part, to the demonstrated stability of its "stock to flow ratio" -- an argument elegantly outlined by the Gold Standard Institute's estimable president Philip Barton. Because little gold is consumed industrially, this, too, makes gold optimal as the operational factor in conducting monetary policy.
The Department of the Interior's U.S. Geological Survey offers a free booklet on gold, entitled Gold, by Harold Kirkemo, William L. Newman, and Roger P. Ashley. It's slightly dated but a fascinating trove of ... nuggets ... of art, science and history.
Gold was among the first metals to be mined
Nations of the world today use gold as a medium of
Gold in the Depository consists of bars about the
Gold is called a “noble” metal (an alchemistic term)
The basic unit of weight used in dealing with gold
Lode deposits are the targets for the “hardrock”
Gold: "beautiful and imperishable, and because exquisite objects can be made from it." When people ask why currency should be defined in gold as opposed to through the use of some abstract algorithm, a "basked of commodities," or some other concoction ... do not underestimate the value of these "elemental" qualities. As Jerry Bowyer recently observed, in Forbes.com,
I’m beginning to wonder if one could ever really have the moral force in the political arena around an equation like the Taylor Rule, which is an admirable equation, that one could have over something that’s got basically over 4000 years of recorded history behind it, which is a reliance on gold. I’ve come to see the gold standard as maybe the only real hope we’d have of getting some kind of price stability, given the fact that it’s so easy to manipulate theories and to manipulate equations, but it’s not easy to manipulate the supply of gold.
Or as Keynes wrote, in 1922:
[O]ne of the most subtle temptations to improvident national finance would be removed; for if a national currency had once been stabilized on gold basis, it would be harder (because so much more openly disgraceful) for a Finance Minister so to act as to destroy this gold basis.
And as Lewis E. Lehrman, founder and chairman of the Lehrman Institute, wrote in Bubbles for the Rich, Welfare for the Poor in the November 2013 issue of The American Spectator:
Such a system of hard currency—or of paper
The gold standard has been validated in "the reliable laboratory of economic research available to us: namely, the evidence of economic history."
Why, indeed, not?
The burden of proof lies with the opponents of the tried and true gold standard.
This blogger thought his $100 trillion Zimbabwe bank note was extreme.
Turns out, not.
Try 100 quintillion on for size.
It was worth -- in 1946 -- about 20 (American) cents.
Courtesy of Tom Chao's Paper Money Gallery
From The Smithsonian's Past Imperfect:
The great German hyperinflation of 1923 is passing out of living memory now, but it has not been entirely forgotten. Indeed, you don’t have to go too far to hear it cited as a terrible example of what can happen when a government lets the economy spin out of control. At its peak in the autumn of that year, inflation in the Weimar Republic hit 325,000,000 percent, while the exchange rate plummeted from 9 marks to 4.2 billion marks to the dollar; when thieves robbed one worker who had used a wheelbarrow to cart off the billions of marks that were his week’s wages, they stole the wheelbarrow but left the useless wads of cash piled on the curb. A famous photo taken in this period shows a German housewife firing her boiler with an imposing pile of worthless notes.
Easy though it is to think of 1923 as a uniquely terrible episode, though, the truth is that it was not. It was not even the worst of the 20th century; during its Hungarian equivalent, in 1945-46, prices doubled every 15 hours, and at the peak of this crisis, the Hungarian government was forced to announce the latest inflation rate via radio each morning–so workers could negotiate a new pay scale with their bosses—and issue the largest-denomination bank note ever to be legal tender: the 100 quintillion (1020) pengo note.
Although the pengo's time ran out before the next denomination could be issued, the Hungarian monetary authorities had a 100 sextillion note printed, on hand, and ready to go:
To paraphrase the late, great, Senator Dirkson:
"A quintillion here. A sextillion there.
"Pretty soon you are talking about real money."
(Except, of course, you're not.)
Jerry Bowyer: "My Friendly Debate On the Gold Standard With Allan Meltzer, The World's Leading Monetarist.
“I’ve softened in my view towards the gold standard." -- Jerry Bowyer
Public intellectual and Forbes.com columnist Jerry Bowyer recently published a fascinating interview with Allan Meltzer, entitled My Friendly Debate On the Gold Standard With Allan Meltzer, The World's Leading Monetarist.
Prof. Allan Meltzer
Prof. Meltzer states:
You’re never going to see the gold standard. The only way the gold standard would work would be as a multinational standard -- There isn’t the slightest chance in the world that you’ll get the Europeans, the Japanese, and the Chinese to agree to a gold standard.
To which Bowyer replies:
Well, it depends on what their paper currencies do and how sick their own populations eventually get of the decline of paper currencies. But I’ve heard you make this argument before, and it seems to me that there’s something different about the notion that you’ll never get it and the notion that it’s wrong.
Prof. Meltzer responds:
I don’t say it’s wrong. I say it’s possible. I mean, it’s a plausible system. ... There are a lot of things that are better than our fiat system. I’m hardly the person to defend what we’re doing, certainly not what we’re doing at the present time.
It is noteworthy when "the world's leading monetarist" -- without imputing to him a preference for the gold standard -- admits that the gold standard is neither wrong nor implausible. It is further evidence, were any needed, that the classical gold standard is fully recovered as a respectable -- and, as in the case of Bowyer, respected -- policy proposition.
And kudos to Jerry Bowyer for bringing the sentiments of the great college president, and one of the founders of America, John Witherspoon into the contemporary debate.
This blogger has referenced Witherspoon's writings here, previously:
"How absurd and contemptible then is the reasoning which we of late have seen frequently in print, viz, the gold and silver is going away from us, therefore we must have paper to supply its place. If the gold and silver is indeed going away from us, that is to say, if the balance of trade is much against us, the paper medium has a direct tendency to increase the evil, and send it away by a quicker pace."
Concluding: "How absurd and contemptible would Witherspoon have found it that the greatest contemporary apologist for paper money, Prof. Paul Krugman, is a Princeton professor, and the greatest generator of fiduciary currency, Federal Reserve chairman Ben Bernanke, preceded his federal service in an academic career at Princeton?
As previously posted, the monetary crisis of 1619-23 was caused by the debasement, by the authorities, of the coin.
"A German mint hard at work producing debased coinage designed to be palmed off on the nearest neighboring state, c.1620"
Courtesy of the Smithsonian Institution
The blog of the Smithsonian Magazine provides an even more vivid look into this event, “Kipper und Wipper”: Rogue Traders, Rogue Princes, Rogue Bishops and the German Financial Meltdown of 1621-23:
What made the kipper- und wipperzeit so incredible was that it was the product not only of slipshod economic management, but also of deliberate attempts by a large number of German states to systematically defraud their neighbors. This monetary terrorism had its roots in the economic problems of the late 16th century and lasted long enough to merge into the general crisis of the 1620s caused by the outbreak of the Thirty Years’ War, which killed roughly 20 percent of the population of Germany. While it lasted, the madness infected large swaths of German-speaking Europe, from the Swiss Alps to the Baltic coast, and it resulted in some surreal scenes: Bishops took over nunneries and turned them into makeshift mints, the better to pump out debased coinage; princes indulged in the tit-for-tat unleashing of hordes of crooked money-changers, who crossed into neighboring territories equipped with mobile bureaux de change, bags full of dodgy money, and a roving commission to seek out gullible peasants who would swap their good money for bad. By the time it stuttered to a halt, the kipper- und wipperzeit had undermined economies as far apart as Britain and Muscovy, and—just as in 1923—it was possible to tell how badly things were going from the sight of children playing in the streets with piles of worthless currency.
The evidence is persuasive that things today, notwithstanding recurring anxiety in the maverick financial press, are a long way from again going so seriously wrong. And yet, in these days of high political angst, it is well to bear in mind the concluding observation by The Smithsonian:
Kindleberger concludes his study (upon which the author of the blog draws) with a quotation from Macaulay’s History of England that may be allowed to stand for the Kipper- und Wipperzeit—and indeed for all hyperinflations. Writing of a similar English wave of coin-clipping that occurred in 1696, the great historian observed: