The Gold Standard

When man first started to produce more than he could immediately consume, especially in agricultural societies, he is faced with a significant challenge. While he was very capable at producing valuable products, a part of which he would trade for the products he wanted from other producers, he needed to find a way to safely store his property: the result of his productive efforts, so that he can use the value he created, on a future day, when he may not be as effective at production.

This necessitated the use of some currency of Money: A substance, the worth of which can be established as a scalable equivalent to the worth of the products offered by the producers. A substance that doesn’t perish like vegetables or meat, a substance that is universally valued by all other producers similar to him, and a substance that must be available in a limited quantity, and hard to procure, so that even a small amount of that substance can be traded for large amounts of goods and services from others.

Gold fits the criteria better than any other substance. It doesn’t perish. Total quantity of gold on the planet is constant, hence limited. Mining and shaping of gold is a task that is tough enough to justify the worth of that effort as equivalent to the worth of the efforts that men put into producing some tons of crop or an equivalent amount of other products, as decided by the traders making a trade.

Soon after, gold became the universally recognised currency. Some men started mining and shaping gold, some men started to discover and establish the methods to check its purity and weight, and other producers around the world continued to produce what they are good at producing, without worrying too much about their limited storage capacity. Because now it is possible for them to sell their surplus production for gold. When they needed goods from other producers, they could easily buy it, with gold. Payment in gold is the most honest payment possible. That is the reason why men value gold even today. It is not a mystery that a fixed amount of gold can get you roughly the same amount of goods or services today, as it did some centuries ago. 

To solve the problem of security for the gold of producers and to facilitate long distance trade between producers, men developed banking system. Managers of important banks in an economy voluntarily associated with each other and agreed to issue gold certificates to the producers who deposit their gold in the banks. Particulars about the identity of a producer and the amount of gold he deposited in a bank will be made available to all the banks in the association, with an agreement that the gold certificate issued by a bank is exchangeable for the amount of gold it guarantees, in any bank recognised by the association. This is the beginning of paper currency backed by gold.

As long as it is explicitly agreed and strictly ensured by the managers of the association: that the certificates are of a similar shape and size, and cannot be printed at the will of any bank manager, without actual deposits of gold from a producer, the gold backed paper currency note is safe to use, and safe to exchange with other producers, since the currency note promises to “pay the bearer of this note, the goods or services that you judge are equivalent to the amount of gold stated here.” This method of issuing paper currency notes by the association of banks, with each currency note freely exchangeable for a fixed and stated amount of gold, is called the “gold standard”.

Gold standard was in practice across the world, and most widely practiced in the 19th century, until the statist governments all over the world took control of the banking associations, and decided to print the currency notes at their will, even if there were no actual gold deposits by the producers in the banks, and used those printed notes to obtain actual goods and services from the producers, many of who, still continued to trust the banking system.

In the regions where men panicked and started to take back their gold deposits from the banks, the government seized all the gold deposits into its own treasury, and forced the people to exchange the paper notes they possess, instead of gold, to obtain the goods and services from each other. The people who already took back their gold deposits were forced to submit them to the government, in exchange for the paper notes, which are now backed by nothing, and can be printed at will by the government. Refer to the Executive Order 6102 by US President Franklin D Roosevelt, issued in 1933.

This the biggest moral crime ever committed in the entire economic history of mankind. Nothing else can match it in scope or the sheer amount of wealth stolen. Since the original purpose of currency note was to guarantee the delivery of gold deposited by the producer, each currency note printed without an actual deposit of gold is equivalent to stealing that much amount of gold, which is equivalent to stealing that much amount of productive effort from the life of every producer in the economy. This reduces the producer, who once had a complete and rightful control over his produce, to a slave who produces, while some unknown parasite somewhere in the economy, consumes that unearned wealth, in a proportion that is subject to the whims of every changing government.

Avinash Kumar, 28 November 2020.

The meaning of political equality

Political equality means that the individual rights of all the citizens are equally recognised, and protected by the Government. It is the essential condition for existence of a free society, and the only kind of equality possible between individuals.

Remember that the concept, “rights” only pertain to the Freedom to take actions: the individual’s freedom to live, to think, and consequently take actions to produce and trade values, without compulsion or intrusion from other individuals, including and especially, the Government.

If a group of individuals is accorded any exclusive rights, that are denied to others, its meaning and unavoidable logical consequence is a state-sponsored monopoly on production and trade.

Observe that the violation of your freedom to produce and trade, by others(especially the government), essentially implies and requires the violation of all your rights: It implies the violation of your right to think(since the purpose of thinking is to take action, and your freedom to think is redundant if you are not free to act and produce values in accordance with your judgements), and the violation of your right to live(your life, ie., a life proper to man: a non-parasitic life, requires that you think and act to produce and trade values, in order to sustain your own life). This is the reason why a free mind and a free market necessitate each other.

In this context, economic equality may be understood only in the sense that all men must possess the same political-economic right: the right to free trade. ie., the freedom to produce and trade any values with other individuals, with the voluntary consent of both the parties involved in the trade.

This doesn’t mean that all the individuals should be equally wealthy. It only means that all the individuals must possess the same freedom to think and act, to produce and to trade: the same freedom to live. In a laissez faire capitalist society, —ie., a society where individual rights are absolutely protected, and the government is completely separated from trade: making the state-sponsored monopolies impossible— your wealth is a consequence of your competence in exercising your freedom to produce.

– Avinash Kumar, 7 June 2020.

Note: This article is originally my answer on Quora to the question: “What is the relationship between political equality and economic equality?”

Hatred of Capitalism

If you hate Capitalism, I assume that you do not understand what Capitalism is. Chances are that you are misinformed and no-one else precisely explained it you. So I will.

Capitalism is a Laissez Faire economy, where private individuals consensually trade the value they have for a value they want.

That is all. If your politician, teacher or your parent has fed you anything other than this, they are either ignorant sufferers themselves, or conscious cheats. Beware of them.

Just to make it clear,

Laissez Faire Economy is a system of economic activity that is completely free from any kind of interference by the Government.

Consensually means through your free non-coerced-will.

Value is anything that takes human effort to produce.

Now the things to remember.

If it is not Laissez Faire, it is not Capitalism.

Every kind of economic problem imaginable, which plagues the nation, is a blatantly direct consequence of Governmental interference in the economic activity of the individual. The result of the mixture of capitalism and communism is always communism and it breeds eventual bankruptcy.

Now a communist is someone you must hate. He is the extreme opposite of a capitalist.

A capitalist will always have something that you value, which he deliberately offers to get what he wants from you through trade. A communist will not offer anything that you value to get what he wants from you. Instead, he makes the Government to point a gun at you to extort it.

Observe that a capitalist can only reasonably want to trade with another capitalist. Because a communist cannot understand what a trade is. He can only have needs and demands to offer, not values. At a lower level, he constantly needs producers to suck them dry, and demands more and more welfare schemes from the Government. At the higher level, he plans ways to lobby the Government to pass regulations in his favour, so that he could force his competitors out of business.

If you are a capitalist, chances are you are continually struggling in a communist system, trying to deal with people who do not have anything that you value to offer you, but believe that they own anything you produce. The best course of action for you is to find a capitalist society and move there. Abandon communists. Don’t even try to prove it to them that you are right. Just don’t deal with them. Because a communist is always a parasitic organism. He cannot survive on his own. He always needs a capitalist to suck blood from. Abandon him and he will perish. Do not pity him. He is demanding your voluntary slavery. He is the most despicable creature on this planet.

The article is originally my answer on Quora to the query, “Why do people hate Capitalism?”