The plot of the story: Lecturing to a group of gold investors with a libertarian bent can be a source of controversy and misunderstandings about gold and money.
A few Ideas & Some basic facts:
Globalization is also shaped by ignorance, human biases and outlandish ideas… We can see it in the past, and we can see it in the present. Some ideas about gold (and money) are a good illustration of it.
Bizarrely a blind faith in gold was instrumental in the first steps of globalization: it helped to build the first monetary webs.
The role of American silver and gold in the sixteenth century:
The Spaniards have found a mountain of silver in Potosi, in present-day Bolivia. In less than one hundred years, they have extracted 45,000 tons of silver.
This silver – and the gold and silver of other parts of the New World – paved the way to the economic globalization. It’s difficult to devise how globalization – including the Industrial Revolution – could have unfolded without these first monetary webs (based on silver and gold).
The American stock of money amounted to about $13 trillion in 2016; the amount of Euros in that same year was €10.6 trillion, while the amount of Chinese Yuan was 151 billion. Globalization rests on a huge stock of money. Worldwide, the total of bank notes, coins and short-term deposits is somewhere around $81 trillion (*).
This means that money is now mostly digital and made up of short-term deposits.
The value of gold varies with the ever changing prices and amounted to about 8 trillion dollars, in 2013. The gold in the possession of the central banks amounts to about $1.3 trillion.
Gold in contemporary societies
Gold remains a powerful financial asset and key store of value.
Middle-class and poor Indian and Chinese people have entered the gold game, and are buying tons of gold every year. Gold extraction has never been so high, which is a manifestation of globalization.
Globalization is in the background. Without globalization the scale of gold mining, the amount of gold transactions, and the overall importance of gold would be significantly lower.
The return to the gold standard is a fantasy
Full gold backing of broad money would require at least a tenfold rise in the prices of gold – a boon for speculators and gold mine companies, but a disaster for the world.
Realistically, gold backing of existing money is impossible.
Modern money is information
Banks can create money out of nothing, by lending money and creating new accounts, or by increasing the money in the accounts of their clients, when they make loans. And they do it by simple registers. There is no physical money, no special secrets or intricate operations. Just digital registers.
Most of modern money is digital and is created by commercial banks when they make new loans to people and companies. Money is mostly bank deposits.
Vampire bats and primitive economies
Our present monetary systems aren’t that original. They are a sophistication of the money-books in the minds of primitive people and the algorithms in the minds of a few animal species.
An example? See the vampire bats: they need to drink about an ounce of blood every night to survive. And if a bat doesn’t get it, one of its roost-mates will typically offer the much needed blood.
But bats do not do favors indiscriminately; they keep a close track of the favors they receive and do. If a bat doesn’t reciprocate, the others will refuse to reciprocate.
This means that the vampire bats have a kind of debit and credit records in their mind: the foundation of modern money…
(*) TradingEconomics data
Modern Money composition, worldwide, and the recent role of China:
Wikipedia: Money creation
How silver turned Potosí into ‘the first city of capitalism’ (The Guardian).
Definition of money
Financial Times: M0, M1, M2, M3, M4
The Shifts and The Shocks, Martin Wolf
Between debt and the devil, Adair Turner
The New Case for Gold, James Richards (The return to the Gold standard, from the standpoint of a supporter)
The Federal Reserve and the Financial Crisis, Ben Bernanke
The great wave: Price revolutions and the Rhythm of History (Amounts of silver and gold, 1500)
The Gold Bug Variations: The gold standard–and the men who love it, Paul Krugman