Creature From Jekyll Island by G. Edward

THE CREATURE FROM JEKYLL ISLAND

cows; by melting and reforming they can be divided into smaller units and conveniently used for purchases of minor items, which is not possible with diamonds, for example; and, because they are not in great abundance, small quantities carry high value, which means they are more portable than such items as timber, for example.

Perhaps the most important monetary attribute of metals,

however, is their ability to be precisely measured. It is important to keep in mind that, in its fundamental form and function, money is both a storehouse and a measure of value. It is the reference by which all other things in the economy can be compared. It is essential, therefore, that the monetary unit itself be both measurable and constant. The ability to precisely assay metals in both purity and weight makes them ideally suited for this function, Experts may haggle over the precise quality of a gemstone, but an ingot of metal is either 99% pure or it isn't, and it either weighs 100

ounces or it doesn't. One's opinion has little to do with it. It is not without reason, therefore, that, on every continent and throughout history, man has chosen metals as the ideal storehouse and measure of value.

THE SUPREMACY OF GOLD

There is one metal, of course, that has been selected by

centuries of trial and error above all others. Even today, in a world where money can no longer be defined, the common man instinctively knows that gold will do just fine until something better comes along. We shall leave it to the sociologists to debate why gold has been chosen as the universal money. For our purposes, it is only important to know that it has been. But we should not overlook the possibility that it was an excellent choice. As for quantity, there seems to be just the right amount to keep its value high enough for useful coinage. It is less plentiful than silver

—which, incidentally, has run a close second in the monetary contest—and more abundant than platinum. Either could have served the purpose quite well, but gold has provided what appears to be the perfect compromise. Furthermore, it is a commodity in great demand for purposes other than money. It is sought for both industry and ornament, thus assuring its intrinsic value under all conditions. And, of course, its purity and weight can be precisely measured.

THE BARBARIC METAL

141

THE MISLEADING THEORY OF QUANTITY

It often is argued that gold is inappropriate as money because it is too limited in supply to satisfy the needs of modern commerce.

On the surface, that may sound logical—after all, we do need a lot of money out there to keep the wheels of the economy turning—

but, upon examination, this turns out to be one of the most childish ideas imaginable.

First of all, it is estimated that approximately 45% of all the gold mined throughout the world since the discovery of America is now in government or banking stockpiles.1 There undoubtedly is at least an additional 30% in jewelry, ornaments, and private hoards.

Any commodity which exists to the extent of 75% of its total world production since Columbus discovered America can hardly be described as in short supply.

The deeper reality, however, is that the supply is not even important. Remember that the primary function of money is to measure the value of the items for which it is exchanged. In this sense, it serves as a yardstick or ruler of value. It really makes no difference if we measure the length of our rug in inches, feet, yards, or meters. We could even manage it quite well in miles if we used decimals and expressed the result in millimiles. We could even use multiple rulers, but no matter what measurement we use, the reality of what we are measuring does not change. Our rug does not become larger just because we have increased the quantity of measurement units by painting additional markers onto our rulers.

If the supply of gold in relation to the supply of available goods is so small that a one-ounce coin would be too valuable for minor transactions, people simply would use half-ounce coins or tenth-ounce coins. The amount of gold in the world does not affect its ability to serve as money, it only affects the quantity that will be used to measure any given transaction.

Let us illustrate the point by imagining that we are playing a game of Monopoly. Each person has been given a starting supply of play money with which to transact business. It doesn't take long before we all begin to feel the shortage of cash. If we just had more money, we could really wheel and deal. Let us suppose further that someone discovers another game-box of Monopoly sitting in the L Elgin Groseclose, Money and Man: A survey of Monetary Experience, 4th ed.

Oklahoma: University of Oklahoma Press, 1976), p. 259.

142 THE CREATURE FROM JEKYLL ISLAND

closet and proposes that the currency from that be added to the game under progress. By general agreement, the little bills are distributed equally among all players. What would happen?

The money supply has now been doubled. We all have twice as much money as we did a moment before. But would we be any better off? There is no corresponding increase in the quantity 0f property, so everyone would bid up the prices of existing pieces until they became twice as expensive. In other words, the law of supply and demand would rapidly seek exactly the same equilibrium as existed with the more limited money supply. When the quantity of money expands without a corresponding increase in goods, the effect is a reduction in the purchasing power of each monetary unit. In other words, nothing really changes except that the quoted price of everything goes up. But that is merely the quoted price, the price as expressed in terms of the monetary unit. In truth, the real price, in terms of its relationship to all other prices, remains the same. It's merely that the relative value of the money supply has gone down. This, of course, is the classic mechanism of inflation. Prices do not go up. The value of the money goes down.

If Santa Claus were to visit everyone on Earth next Christmas and leave in our stockings an amount of money exactly equal to the amount we already had, there is no doubt that many would rejoice over the sudden increase in wealth. By New Year's day, however, prices would have doubled for everything, and the net result on the world's standard of living would be exactly zero.1