It is time we understood the relationship between gold, inflation and government.
And how they affect you!
ON August 15, 1971, President Nixon dropped a bombshell that rocked the entire world financial system to its foundations. By executive decree, he cut the dollar loose from gold. He invited foreign banks, governments and private markets to "float" the dollar's value. No longer would the dollar be redeemable in gold by foreign governments as previously, nor would gold be tied to its former price of U.S. $35 per ounce.
Look at what has happened since.
The price of the precious metal skyrocketed, especially during the invasion of Afghanistan in January and February of 1980. Inflation has jumped to double figures in most industrial countries. The average working man has been caught in a vicious wage-price spiral. A serious sickness in this world's financial systems has set in.
Why Gold?
What does uncertainty in the world's financial system portend for the future? How will it affect you? And what about the value of gold?
Gold has been the most sought after form of money for thousands of years. By universally accepted definition, money is anything that serves as a store of value and as a medium of exchange. Historically, gold has fit that description better than anything else. Because it is relatively scarce, virtually indestructible and possesses a wide range of artistic and functional uses, gold became the standard in most economies. It was easily coined, highly portable and universally recognized for its value. Even though the supply of gold is limited, demand for the metal seems to be infinite.
Commodities such as food crops or industrial output can have price swings based on demand, weather, poor economic policies or disasters. None of these affects the total supply of gold. It maintains its value in relation to other commodities regardless. Thus it has acted as a financial constraint and stabilizing factor. People trust gold because it has been an instrument of monetary discipline and a standard of measure by which to measure other commodities.
Gold acts as a check on governments and politicians. Paper money came into use because it was more convenient to use than gold. However, historically the amount of paper money in circulation was tied to the amount of gold a nation possessed. When people knew that gold backed up their currency, they trusted their money. But even though people may trust gold, they don't necessarily trust their leaders. In the words of George Bernard Shaw: "The most important thing about money is to maintain its stability. . . . With paper money this stability has to be maintained by the government. With a gold currency, it tends to maintain itself. . . . You have to choose as a voter between trusting the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."
The goal of every political leader is to remain in power. In a democracy, he must retain his popularity to be reelected. Extravagant social welfare schemes and public works help to perpetuate the government's power, even though the country may not be able to afford the expense. If a political leader can get rid of the gold standard, then there is no restraint on the amount of paper money the government can print. The deficit between collected taxes and government spending can be made up through printing extra money. But the effect of these shortsighted policies soon becomes apparent. More and more paper money chases the available goods and services — the result is inflation.
Witness the situation in the United States today. Since 1971 the dollar has had no relationship to gold. Multibillion dollar deficits in government spending have been covered by printing extra dollars. Because the dollar is not convertible to gold, there is no check on government spending and the citizens suffer from consequent inflation.
Inflation becomes a vicious circle with everyone eventually losing. As Voltaire concluded, "All paper eventually returns to its intrinsic value — zero." In 1871 the British economist David Ricardo noted, "Experience has shown that neither a state nor a bank ever had the unrestricted power of issuing paper money without abusing that power."
The United States, blessed with staggering wealth, vast natural resources, and phenomenal industrial and agricultural output, is in a serious financial situation. It makes no sense — except for the fact that national leaders were quite prepared to dilute the value of the nation's money supply. The decision defrauded the citizens by stealing the purchasing power of wages and savings. This sinister aspect of inflation was explained by the British economist John Maynard Keyes in 1919: "By a continuing process of inflation, governments can secretly and unobserved, confiscate an important part of the wealth of their citizens." Mr. Keynes himself advocated this form of government policy.
But as people begin to experience inflation and see their wealth quickly disappearing, they try to protect themselves through investing and speculating in more stable commodities, including gold. Speculation in gold is a symptom, and a warning, of a distorted government-ravished economy. It is a sign of loss of trust and faith by men in their own system and political leaders.
Ideally, the best world monetary system would involve one world government, with one national treasury, one currency and one monetary system. The questions of gold currency exchange and balances (overvalued, undervalued or "floating") would be largely irrelevant. But such a world government today is out of the question. Who would decide the power structure in such a man-devised world government? Leaders and nations each jealously guard their power and sovereignty.
But a supreme world government is prophesied in the pages of your Bible, and in the very near future. Yet this world government will not come about through the efforts of man, but in spite of him. It will have to be established by the Creator God. And be based upon his law of love, the Ten Commandments. More than 2,500 years ago, the prophet Daniel, in captivity in Babylon, interpreted a vision of King Nebuchadnezzar, which outlined the rule of men up until the "last days." "And in the days of these kings shall the God of heaven set up a kingdom which shall never be destroyed, and the kingdom shall not be left to other people, but it shall break in pieces and consume all these kingdoms, and it shall stand for ever" (Daniel 2:44). This supreme event in world history is as sure as the rising of the sun!
At that time there will be one supreme world government: "And the Lord shall be king over all the earth: in that day shall there be one Lord, and his name one" (Zechariah 14:9). No longer will people be ruled over by power-hungry mortal and very human political leaders. Nor will the citizens of this divine Kingdom live in grinding poverty as the majority of people do today. "For brass I will bring gold, and for iron I will bring silver, and for stones iron: I will also make thy officers peace, and thine exactors righteousness" (Isaiah 60:17). What a change from today's world! True freedom, prosperity for all people, with justice pervading everywhere.
Then — Gold's True Value
In spite of its luster and its important stabilizing role in the world's financial system, gold is just a yellow metal. Its only monetary significance is what man attributes to it. When the Spaniards arrived in the New World, they found the native Indians placed little value in the metal because of its relative abundance. In some of the islands of the South Seas, sharks teeth served just as adequately as the medium of exchange. Gold has no intrinsic value, only what men think it's worth.
At the close of this age, when men will be face to face with the threat of annihilation, gold will become worthless in men's eyes. It will be enough just to be able to survive. The prophet Ezekiel wrote, "They shall cast their silver in the streets, and their gold shall be removed: their silver and their gold shall not be able to deliver them in the day of the wrath of the Lord . . ." (Ezekiel 7:19) — the time when an angry God must step in to save mankind from itself.
God's judgment against the sins of this modern day and age will begin by giving man unrestrained opportunity to use the evil inventions of his mind. Man has always used the weapons he has invented. So we read in Zephaniah 1:13, 1718: "Therefore their goods shall become a booty, and their houses a desolation: they shall also build houses, but not inhabit them, and they shall plant vineyards, but not drink the wine thereof. And I will bring distress upon men, that they shall walk like blind men, because they have sinned against the Lord: and their blood shall be poured out as dust, and their flesh as dung. Neither their silver nor their gold shall be able to deliver them in the day of the Lord's wrath: but the whole land shall be devoured by the fire of his jealousy: for he shall make even a speedy riddance of all them that dwell in the land."
Only when gold becomes worthless in human eyes will men realize that "riches profit not in the day of wrath, but righteousness delivers from death" (Proverbs 11:4).
What God wants is the building of true character — "that the trial of your faith, being more precious than gold that perisheth, though it be tried with fire, might be found unto praise and honor and glory at the appearing of Jesus Christ" (I Peter 1:7).
Only when that character is manifest in human beings as our first priority, will we have the good sense to put proper value on gold — and any other precious and useful commodity. God created all natural wealth to be used for good — not abused, coveted or lusted after as an instrument of power.