by Ben Hewitt
I left Helwig’s somewhat dispirited. I’d hoped he be able to show me how sound money might return prudence and stability to monetary policy, and therefore begin to shift our relationship to money in a way that would mitigate some of its dysfunction. Instead, what I’d seen felt like a mirror of the money system I already knew, and to an extent, Helwig didn’t dispute this. “There’s no such thing as ‘intrinsic value,’ ” he told me, when I pointed out that no matter how much gold or silver I held, it did me little good if no one would accept it as currency. “Intrinsic value is simply based on people’s historical relationship to an item.” In other words, like the dollar, gold and silver have value only because we agree they do. In a sense, they are themselves fiat, not by the law of government, but by the people’s decree.
About 2 miles up the road from Helwig’s apartment, I stopped to fill my Subaru with gas. To be sure, I was distracted, thinking as I was about gold and silver and money and intrinsic value, so perhaps it’s no surprise that when I reached into my wallet for my credit card, my fingers found the half-gram of Shire Silver, instead. Twice I jabbed it into the slot on the pump’s face, wondering why the stupid machine would not accept my Visa card, my nominal money, my feeble promise to pay.
But of course it wasn’t my Visa. It was a half-gram of real silver, imprisoned in a plastic cage the exact size, shape, and weight of a credit card. For a heartbeat and if only for the sake of the story that might result, I considered seeking out the manager, to see if I might convince him to accept my silver as partial payment. But it was late, and I was pretty sure I knew what the answer would be. So I tucked my sound money back into my wallet and whipped out the standard plastic with its raised numbers and magnetic strip. A minute later, having paid nothing but the promise of a payment, I was back on the road.
Is it presumptuous for me to declare that precious metals are not money? Or, at the very least, not sound money? Perhaps it is presumptuous, and I cannot deny the depth of their historical precedence as money. But to me, the gold-as-money ideology is riddled with flaws, some of which it shares with fiat currency, some of which it owns in whole.
The first, and to me most important, of these flaws is that the extraction of such metals is dependent on mining practices and an industrial supply chain that degrades the environment to an extent that is rarely rivaled in the modern world. And that’s sure as heck saying something. It’s estimated that about 20 percent of gold is mined illegally, and this gold, called “wildcat” gold, is extracted with the use of mercury, which readily binds to the metal and eliminates the onerous, time-honored practice of manual panning, which is fantastically boring (I know; I’ve done it). But this isn’t even the worst of it, because once the gold has been amalgamated, the mercury is burned off, at which point it becomes an airborne gas, capable of dispersing across thousands of miles. The average annual mercury release attributed to gold extraction is 1,400 tons; with the exception of coal burning, no other industry releases as much mercury into the environment. And this is just wildcat mining; the ramifications of legalized mining practices (which do not include mercury, but are somewhat less than benign) aren’t exactly pretty. In one Peruvian town, where a smelter produces gold bullion bars, 99 percent of the children suffer from severe lead poisoning due to the off-gassed lead by-product of the smelting process. And in 1996, Pik Botha, the South African minister for mineral and energy affairs at the time, estimated that each ton of gold mined cost one life and a dozen serious injuries. In 2010, there were 2,652 tons of gold mined globally; I’ll leave the depressing math to you. If gold were returned to its “rightful” place in our monetary system, demand would surely rise, and with it, the tremendous toll of human life and suffering. Each of Helwig’s strands of gold and silver, no matter how gossamer, carry the little acknowledged weight of human sacrifice.
To my mind, the deleterious environmental and humanitarian consequences inherent in gold mining are enough to disqualify it as an acceptable mechanism of exchange. To rely on a medium that so profoundly violates the very foundation of our health and wellbeing is nothing short of insanity, although it is a familiar type of insanity. Unsurprisingly, such insanity is conveniently overlooked by those advocating for gold’s return to monetary status and those who hold the metal as an investment, and I believe this oversight can be explained by two simple truths. One is that most gold mining (and therefore, the visible devastation) is conducted in faraway places; China, Australia, and South Africa are the leading gold-producing nations. The other is that money is a steadfast master, and we forgive ourselves much in our pursuit of it.
Precious metals fail from a strictly pragmatic standpoint, too. Like physical fiat currency, gold and silver are concentrated stores of value that are subject to confiscation, be it one imposed by government or by thievery. Neither is unprecedented, although those whose imaginations run toward an outright collapse of our printed currency, rather than a peaceful transition to something more durable, rarely acknowledge it. To them, metals are the only true safe haven, and no one should be without an Armageddon stash in preparation for the inevitable decline of the Federal Reserve Note.
That our currency will wither and eventually die, I have little doubt; every fiat currency in the history of humankind has done so, and there’s no reason to think the Federal Reserve Note is any different. That such a collapse could happen catastrophically seems at least plausible. But I have serious doubts in either case that a cache of gold will prove a viable antidote. In a scenario such as this, with the US dollar approaching the value inherent in the paper on which it is printed, is it really plausible that there will not be prying eyes, ears, and hands, all alert to the presence of the shiny stuff? It is possible—even likely—that physical metals (as opposed to metal stocks or exchange-traded funds) will retain and even gain value in such an environment, but what good is that if the metals cannot be used for fear of confiscation or theft? Gold is easy to hide, particularly if you have access to a patch of dirt and a shovel, but the notion that hidden gold is viable currency has an “if a tree falls in the forest, does it make a sound?” ring to it. In short, what good is money if you can’t use it?
Still, we needn’t entertain such extremes to uncover a fundamental flaw in the assumption that a metals-backed currency is somehow more “sound” or “real” than fiat. The argument that metals have intrinsic value (an argument that even Ron Helwig discounts) is easily disproven. Sure, it is true that both gold and silver hold certain value to industry, but even that value is framed by a complex web of arrangements that suggest what it should be relative to all other goods and services. In other words, nothing has value in a vacuum; everything is relative.
Admittedly, I find it unsettling to consider the inherent worthlessness of the Federal Reserve Notes in which I am paid and which I rely upon to support my family. Even a year’s worth of them—a full 35,000 dollar bills, give or take a few—is barely enough to do more than roast a woodchuck or two, should end times neuter their symbolic value. It is comforting to think they might be redeemable for something, though I’m at a loss to explain precisely why this idea comforts me, or why that something should be a product that wreaks such incredible havoc. Sure, gold is real, but then, so is a dog turd. If “real” is all we’re looking for, why not choose something that is at the very least benign? Why not choose something that might serve some purpose other than sitting like a lump and shining in the sun?
All of this was leading me down a path to a question I’ve thus far managed to skirt: What is money? Furthermore, does its physical form have any actual bearing on its value and our relationship to it? Sound money advocates claim it does; they believe that if our currency were backed by precious metals, we would be unable to readily dilute our monetary supply. But as we have seen, the history of metals-backed money is riddled with devaluations and “innovations”; there’s no quality inherent in gold or silver that makes it immune to such machinations.
Of course, money has been different
things to different peoples, at different times. Cowry shells, barley, beads, whale teeth, cows,26 even immobile rocks: On Yap, an island in the western Pacific Ocean, the currency is Rai, which consists of doughnutshaped disks of calcite, as big as 12 feet across.27 In other words, money doesn’t have to be green; it doesn’t have to be easily divisible. Nor must it provide milk or meat; hell, it doesn’t even have to be portable. The truth is, money can be anything. Its only requirement is that it be recognized as such.
The point I’m trying to make is that the concept of money as embodying a distinct physical form is a myth. Money is not a thing; indeed, it might not even be a noun. It seems to me that money is actually an aggregation of the cultural, financial, and social arrangements created around the exchange of goods and services. As such, it matters not what it looks, feels, or smells like (or, in the case of cows, tastes like). It needn’t embody any particular attribute, other than our collective faith in its veracity as a medium of exchange. But even this faith needn’t be national or even global; successful regional currencies like Ithaca Hours, in Ithaca, New York, or BNotes, in Baltimore, Maryland, demonstrate that there can and perhaps should be limits to money’s geographical scope.
As seductive as it might be to blame our multitudinous woes—inequality, environmental degradation, excessive national debt, and so forth—on the physical characteristics of our monetary system, to do so would be to ignore the core truth that money is so much more than a thing. What is “real” and “sound” about money cannot be found in a symbolic totem; it can only be found in our actions and intent. Changing our monetary system for the better will require more than merely swapping one symbol for another; it will require nothing less than the resetting of our associations, expectations, and habits, on both societal and individual levels.
In one sense, this is immensely more difficult because it demands that we change more than a simple medium of exchange. In another sense, it is immensely easier, for there is no need to reimagine and revalue our currency, nor live through the chaos that would inevitably result.
It’s simple, really: We need only reimagine and revalue ourselves.
* * *
21 What the United States feared, of course, was a “bank run” on its meager gold holdings. It’s interesting to realize that in the context of modern banking, reserve holdings of 22 percent would be considered the pinnacle of responsibility. Indeed, this is why the banking industry is so fearful of bank runs: The money simply doesn’t exist to pay out the account balances of more than a small percentage of depositors at any one time.
22 For example, let’s say you want to buy a loaf of rye bread, which your neighbor will happily sell you for a half-gram of gold. But shoot: All you have is a 2-gram nugget. What to do? Simply break out a pair of jeweler’s scissors and a gram scale, and the deal will get done.
23 Objectivism is a philosophy created by Ayn Rand; it is largely based on the belief that pursuit of one’s own happiness is the highest calling, and that the only social system that can allow for the full expression of individual happiness is one that embraces individual rights via laissez-faire capitalism.
24 Sound money policy is often linked to libertarian politics; this has been most famously expressed via the presidential campaign of Ron Paul, who has repeatedly called for the abolition of the Federal Reserve and a return to a metal-based currency. Depending on one’s political viewpoint, the connection between sound money and libertarianism could be seen as either a blessing or a curse. In either case, it’s worth pointing out that the two are not mutually exclusive, though they do seem to enjoy each other’s company in a pizza-and-beer sort of way.
25 To be clear, Ron Helwig does not actually deal drugs; at least, not to my knowledge. He’s merely analogizing the decentralization of money creation to the decentralization of the drug trade.
26 The term “pecuniary,” which means “related to money,” is derived from the Latin percuniarius, which is defined as “wealth in cattle.”
27 Islanders have adopted the US dollar for everyday transactions, but Rai is still utilized for ceremonial exchange.
[ CHAPTER EIGHT ]
IN WHICH I GRAPPLE WITH THE DIFFERENCE BETWEEN “VALUE” AND “WORTH” AND LEARN ABOUT THE CURRENCY OF TRUST.
I DID NOT see much of Erik over the summer. Partly, this was because he wasn’t around very much; he’d embarked on a trip to Montana, traveling with an environmental activists’ group to an annual gathering. They’d taken to the road in a small bus, and I amused myself by imaging the shaggy group of them rolling down America’s highways on their quest for eco-justice. Every so often, a postcard would arrive, bearing Erik’s handwriting, which was surprisingly precise and recounted his experiences in graceful, almost poetic detail: “Uncle Bob who lives out here took me to Eagle Creek (where there was indeed an eagle, probably the tenth I’ve seen out here!) where we hiked in 6.5 miles, sometimes holding on to metal cables as we scaled cliff walls, to a 100+ foot waterfall! With a tunnel fifty feet up that walked through behind the raging water! It was crazy and beautiful on epic perportions [sic]. Big bright rainbows rose off the mist of the pool below.” And: “It’s hot here where the valleys are wide and the mountains so high, snow covered peaks and magical spots like the wild undeveloped hot springs where I went and took a nice long soak with some friends this mornin’ at dawn. The spring was surrounded by giant old cedar at least four feet wide! Before the bath I was awoken in the twilight by haunting howls of western kinds of coyotes.”
With Erik out of town gazing at eagles and rainbows and soaking his bones in wilderness hot springs like some bohemian spa master, I passed much of my free time wandering the woods, considering both his and my relationship to money and wealth. The more I walked, the more aware I became of how my perceptions had shifted since I’d met Erik. At first, I’d regarded him primarily as someone who did without, and, as such, I’d unconsciously ascribed to him a monkish quality. In my mind, he was an ascetic, an abstainer, a man driven by principle to live in this particular way. To be sure, I was cognizant of the benefit of his chosen path, and at times, as previously noted, deeply envious. It wasn’t so much that I envied his life’s pragmatic qualities or quotidian moments but rather the emotional and perhaps spiritual benefits that enabled him to survive and even thrive in the absence of monetary abundance. Of course, I was also struck by the exceptional freedom he had forged for himself, and, equally, I was impressed by—and hoped to find within myself—the equanimity that he seemed to embody day in, day out.
There were two problems intrinsic to this line of thinking, and the more time I spent with Erik, the more glaring they became. The first was that, to be candid, I wasn’t sure I wanted to do without. Rather, what I desired was the serene contentment that emanated from Erik; he was like a fire on a cold day, radiating warmth and comfort, and I basked in it. This felt good and right, but it was not enough to warm myself at his side. In short, I wanted to be a producer of serene contentment, not merely its consumer.
Fair enough, I suppose. After all, who wouldn’t want to be a source of such a thing? Who wouldn’t want to be able to find great happiness and gratitude against a backdrop of such simple means? Even in our consumption-addled culture, such qualities are imbued with honor and nobility: We admire those who embody them, even as we quietly acknowledge our own inability to adopt these tenets for ourselves. And in this regard, it pains me to say, I am no different. To be sure, I’d made sound choices regarding money and affluence long before I met Erik, and these choices had done much to spring me from the debt trap and bestow upon me a certain degree of the very freedom I so envied. And to be sure, my family and I had long before set our expectations for our standard of living somewhat lower than is generally assumed in contemporary America. But these standards had been in large part set by the fiscal realities of my chosen occupation. In other words, they didn’t arise through some conscious act of my own, but rather were the default response to my modest income and debt-related
phobia.
I worried that achieving Erik’s serene contentment and equanimity would by necessity demand a voluntary reduction in my family’s standard of living, from a level that hovered at heights Erik had never realized in his adult life. There is a widely accepted phenomenon in behavioral science circles known as “myopic loss aversion.” In short, myopic loss aversion describes humans’ innate tendency to be more affected by losses than gains. In other words, the pain of a loss is more affecting and impactful than the pleasure of a gain. The phenomena is most often associated with investing and gambling, which of course have more in common than not. Studies of both gamblers and investors have repeatedly shown that people tend to cash in on winning positions for relatively little gain,28 while holding losing positions until they’ve been nearly wiped out. Both behaviors are explicit examples of an innate aversion to loss; the gain is capped for fear that it will turn sour, and the loss is extended because it’s simply too emotionally devastating to close the position and take the hit.29
Of course, the notion that Erik might invest in the markets or be found hunched over a blackjack table in the presence of gambling chips, a Scotch on the rocks, and the sour smell of desperation was beyond absurd. And I wasn’t too keen on these things myself. But then, gains and losses frequently occur beyond the monetary realm; myopic loss aversion might be most frequently associated with money or other assets, but it requires neither. As such, both Erik and I were as susceptible as the next fellow, although it occurred to me that perhaps Erik was somewhat advantaged in this regard, if only because he’d never achieved a particularly high standard of living. Here was a man whose definition of upward mobility could be found inside the confines of a 96-square-foot cabin, precariously perched on borrowed land. It struck me that it would be pretty damn hard to experience myopic loss aversion if you had nothing to lose, and I felt strangely jealous of the fact that having lived so much of his life without many of the assumed comforts and conveniences of contemporary American life, Erik could never know the pain of losing these things. Was my thinking convoluted? Perhaps. Probably. But if so, my skewed perspective only underscores the power of myopic loss aversion: Here I was, so afraid of facing a declining standard of living that I was jealous of a man who would never know this fear, if only because he had never derived pleasure from that which a higher standard of living would supposedly have bestowed on him.
