Sunday, November 27, 2011

Guest Post: Why Poly-Metalism for Our Monetary Scheme?

Submitted by SD reader Pat Fields

Why Poly-Metalism for Our Monetary Scheme?
Regular readers here know that I advocate for 'Poly-Metalism' (copper, nickel, silver, gold, platinum, rhodium) as the ideal monetary scheme, in order to best distribute economic (and hence political) empowerment and mobility across social strata.
Nevertheless, I stipulate to gold as the naturally supreme money because of its 'stock-to-flow' feature. The matter is too seldom brought up in hard money circles, but ought to be broadly understood. This aspect of gold lay at the heart of the 'Mono-Metalism' argument and unless folks are more familiar with it, they stand a greater chance of falling prey to its over-emphasis by elitists, to retain their concentration of economic power, even as their paper-digital virtual 'money' paradigm self-implodes.

Put simply, 'stock' is the existing amount of smelted metal and 'flow' is the newly mined and smelted addition to the 'stock' that isn't diverted to secondary usage apart from 'store of wealth'. Whether in forms of jewelry, coin or bar, gold's principal purpose in people's minds is as a means to retain the value of their labor in excess of their expense for living. Consequently, gold’s ‘stock-to-flow’ is a nearly perfect 1:1 ratio (my own method, where application-to-purpose on new supply is measured), or 72:1 (the common method, where ‘stores’ in ratio to new supply is measured).

Gold's unique position as money stands due to its devotion to that purpose. Only very small amounts of gold are applied to utilitarian function (industrial) All the other money metals have relatively extensive industrial consumption effects on their 'stock-to-flow, rendering their current worth variously susceptible to supply-demand influences, little ameliorated by recycling because of present technical, energy and labor costs.

Average annual inflation of gold stocks (by mine recovery) is roughly 1.5%. That stands in relation to population growth of 1.9% (CIA World Factbook). Because of that disparity, a 'Population Demand Factor' naturally exists to augment gold's rational worth accordingly (more people = greater demand = higher value). Obviously, the 'paper-bug' myth, that 'gold is a dead asset which doesn't accrue gain in value' is therefore blatantly false. A naturally occurring 4/10s percent annual gain in the value of gold (in particular) attributable to the 'Population Demand Factor' has been ongoing since the earliest civilizations recognized the superiority of metals as trade media. One can also say that it's the natural base rate of 'interest', or time value of gold money.

Though the 'stock-to-flow' feature of gold is a compelling argument to allow 'Mono-Metalism' to prevail, it must be assessed against the concentration of economic power that it provides to an unscrupulous group, which such a condition inevitably produces. Even though other metals' 'Stock-to-flow' aspects make them more vulnerable to supply-demand variations, the effect is counter-weighted by arbitration opportunities inherent to a system of 'Poly-Metalism'. In other words, diversified savings in money of copper, nickel and silver under 'Poly-Metalism' will hold potential for fluctuating windfalls in value on a 'micro-level' because quantities involved will not be subject to gold's worth. Today's exchanges perfectly illustrate that, where 'lots' of one or another metal are limited to hundred-weights or tons. Participants are exclusively restricted, thereby, to industrial or mercantile 'players', whereas under a 'Poly-Metalism' monetary scheme, an ordinary laborer could have fluctuating opportunities to make equivalent gains at a neighborhood 'metals-bank' exchange window.

In summary, the importance of 'stock-to-flow' is a double edged sword that can injure or protect us depending on how comprehensively we think of it. And, like a sword too, by learning to be adept in wielding it, we'll covet its hanging from our own scabbard as much so as our economic adversaries.