In game theory, a focal point (also called Schelling point) is a
solution that people will tend to use in the absence of communication,
because it seems natural, special or relevant to them. The concept was
introduced by the Nobel Prize winning American economist Thomas Schelling in
his book The Strategy of Conflict (1960). In this book (at p. 57), Schelling
describes "focal point[s] for each person’s expectation of what
the other expects him to expect to be expected to do." This type of
focal point later was named after Schelling.
Consider a simple example: two people unable to communicate with each other
are each shown a panel of four squares and asked to select one; if and only
if they both select the same one, they will each receive a prize. Three of
the squares are blue and one is red. Assuming they each know nothing about
the other player, but that they each do want to win the prize, then they
will, reasonably, both choose the red square. Of course, the red square is
not in a sense a better square; they could win by both choosing any square.
And it is the "right" square to select only if a player can be sure
that the other player has selected it; but by hypothesis neither can. It is
the most salient, the most notable square, though, and lacking any other one
most people will choose it, and this will in fact (often) work.
Schelling himself illustrated this concept with the following problem:
Tomorrow you have to meet a stranger in NYC. Where and when do you meet them?
This is a Coordination game, where any place in time in the city could be an
equilibrium solution. Schelling asked a group of students this question, and
found the most common answer was "noon at (the information booth at)
Grand Central Station." There is nothing that makes "Grand Central
Station" a location with a higher payoff (you could just as easily meet
someone at a bar, or the public library reading room), but its tradition as a
meeting place raises its salience, and therefore makes it a natural "focal
Salience: the state or quality of an item that stands out relative to
There are two simple, but seemingly, apparently impossible-to-comprehend
concepts. The first concept is why money not only can be split into separate
units for separate roles, one as the store of value and the other to be used
as a medium of exchange and unit of account, but why it absolutely must and
WILL split at this point in the long evolution of the money concept. This
means no fixed gold standard, or any system that attempts to combine these
units/roles into one, making easy money "less easy" and hard money
"less hard." And by "must" I do not mean that we must do
this, I mean that it is happening today whether we recognize it or not.
And the second concept, once the first is understood, is how and why gold and
only gold will fill the monetary store of value role. Not gold and silver.
Not precious metals. Just gold. People often ask why I don't mention silver.
They assume that when I say gold I really must mean gold and silver, or
precious metals. So let me be clear. When I say
gold, I mean gold and only gold.
Money's most vital function in our modern world is lubricating commerce, or
more specifically, keeping the essential supply lines flowing – supply
lines that bring goods and services to where they are needed. Without it we
would be reduced to a barter economy, eternally facing the intractable
"double coincidence of wants." This is the problem whereby you must
coincidentally find someone that not only wants what you have to trade, but
also, coincidentally, has what you want in return. And in the modern world of
near-infinite division of labor, this would be a disaster. 
So we need money, and lots of it. In fact, we need money in unrestricted
amounts! (I'll bet you are surprised to see me write this!) Yes, I said it, we need unrestricted money in order to fulfill this
most vital function in our modern society – lubrication! But here's the
catch: we need the right money in order to perform this seemingly impossible
task. Let me try to explain.
Money is debt, by its very nature, whether it is gold, paper, sea shells,
tally sticks or lines drawn in the sand. (Another shocking statement?) Yes,
even gold used as money represents debt. More on this in a moment.
For this reason, the money used as a store of value must be something
completely separate and different from the medium of exchange. It must be so,
so that the store of value unit can expand in value while the medium of
exchange unit expands in quantity and/or velocity. You may be starting to
encounter my thrust. Expand… and expand. Unrestricted by artificial
Compare this concept to a gold standard in which you fix the value of gold to
the dollar at, say, $5,000 per ounce. The assumption is that this is where
the price of gold will stay for a long time, if you manage the system
properly. So what is the result? You artificially constrain the expansion of
the medium of exchange fiat currency while also restricting the value
expansion of the store of value. You are locking the two together. Do you
think this works and makes sense?
I said we need unrestricted money in order to ensure the lubrication of the
vital supply lines in our modern world. This is it. This is what really
matters. If we have a major monetary and financial breakdown, what do you
think will be the worst consequence? Do you grow all of your own food? Do you
make – or know someone who does – all of your own stuff? How long
could you survive without any stores? Do you trust your government to be
sufficiently prepared to take care of you with no supply lines flowing?
Have you ever stretched a rubber band until it breaks? You can feel the
resistance grow gradually and observe the smooth thinning of the band until
finally it loses its continuity and the two parts snap back stinging your
fingers. A tiny observer of this exercise, perhaps a flea resting on your
thumb (or an economist), one who doesn't really understand rubber bands,
might swear that it could be stretched forever. The smooth change in the
stretching rubber gives little warning of the abrupt (sometimes painful)
deformation that is coming.
This is where we are today. The dollar standard is like a stretched rubber
band. It has been stretched and stretched, but it cannot provide the
unrestricted money that we need today. They think it can. And that's why they
are spewing it out in quantitative easy money boatloads. But it's not the
right money. As I said above, we need the right money in order to perform
this seemingly impossible task.
That resistance you feel is the artificial restraint built into the dollar
system. It appears to be infinitely expandable, but it is not. It is just
like the rubber band. Oh sure, you can print all the dollars you can imagine,
to infinity and beyond! But it won't work. It won't do the most vital job,
beyond a certain point. And yes, we are beyond that point.
I want you to imagine a tiny micro economy. Just two guys stranded on a tiny
island. Let's call the guys Ben and Chen. They have divided the island in
half and each owns his half. They each have a tree which bears fruit and
three tools for fishing, a spear, a net and a fishing pole. For a while they
both fished often. Fish were the main trade item between Ben and Chen.
Sometimes Ben would take a vacation from fishing and Chen would provide him
with fish to eat. Other times Chen would take a break.
But after a while Ben got lazy, and Chen got tired of giving Ben free fish to
eat. At first they used sea shells as money to keep track of how many fish
Ben owed Chen. Then they switched to leaves from the tree. Finally they just
broke a stick off the tree and drew little lines in the sand. If Chen gave
Ben a fish, Ben drew (issued) a line in the sand on Chen's side of the
island. There were only two of them, so it was easy to avoid cheating.
These lines sort of became Chen's bank account. Each one represented the debt
of one fish that Ben owed to Chen. But after a while they started adding up,
and Chen worried that he would never get that many fish back from Lazy Ben.
So Chen cut a deal with Ben. Chen said he would keep accepting lines drawn in
the sand for fish, but he wanted to be able to use them to purchase some of
Ben's other stuff (since Ben didn't like to fish).
At first he used them to purchase fruit from Ben's tree. But after a while
the pile of fruit just rotted on Chen's beach. Next he started purchasing
Ben's tools. First the spear, then the net and lastly the fishing pole. But
at this point Chen realized that Ben would NEVER be able to repay those fish
without his fishing tools. So Chen rented them back to Lazy Ben.
Of course Ben was still lazy, and now he owed rent on top of the fish he
already owed. The lines in the sand grew even more rapidly as lines were
added to pay for rent even when Chen hadn't given Ben a fish. Then Ben had a
great idea. Why even go through the charade of selling the fishing pole and
then renting it? Ben could just sell Chen some "special lines"
which had a "yield." For ten one-fish lines, Chen could buy a special
"bond" that would mature into 11 lines in a year's time. They tried
this for a while, but all that happened were more lines in the sand. So many
lines! Nowhere to walk. Chen's "bank account" was taking up all of
his real estate!
Finally Chen had had enough. He called Ben over and said, "Okay, since
you refuse to fish for yourself, let alone to pay me back, I want to use
these lines to buy some of your gold coins." Oh, did I mention that Ben
had a treasure chest of gold coins that had washed ashore? Of course these
gold coins were the last thing that Chen wanted, because what good are gold
coins on a tiny island with only two inhabitants?
But actually, they turned out to be an excellent record of the debt Lazy Ben
owed to Chen the fisherman. You see, at first, Chen bought half of Ben's gold
with the lines he had already accumulated, transferring his "bank
account" over to Ben's side of the island and consolidating his
"wealth" into gold. It worked out to 100 lines for one gold coin, or
100 fish per ounce.
But after a while, Ben realized that he was running out of gold. He knew it
would only be a short matter of time until he ran out, so he closed the gold
window. And once again, Chen started accumulating lines and special yielding
"bond" lines. Finally, they agreed that the value of the gold coins
had to be raised higher than 100 fish per ounce. Ben suggested 500/oz., but
Chen saw the short-sighted flaw in his thinking. So Chen said that the value
of ounces should float against the number of lines issued by Ben. This way,
Ben would never run out of gold, and his lines would always and forever be
exchangeable for gold coins. Finally, a sustainable accounting system!
Now I do realize the glaring flaws in this analogy I cobbled together. So
spare me the critique. It is far, FAR from perfect. But it does help with a
few good observations.
First, the lines in the sand and the gold coins are both money on this
island. One is the medium of exchange/unit of account and the other is the
store of value. The store of value is quoted at any given time in units of
lines, but its value floats, it is not fixed, so it never runs out. This
method of accounting forces Lazy Ben to part with something more substantial
than simply issuing more lines via line-yielding "special bond
In this case it was the accounting of transactions between a consumer and a
producer. But it works just as well between any two actors with unequal
levels of production and consumption. Some people just produce more while
others can't stop consuming. I'm sure you know a few of each type.
Also, notice that gold coins and lines in the sand both represent the debt
owed from Ben to Chen. And with gold, Chen can wait forever to be paid back
(which, on this island, is quite likely). The gold doesn't spoil, and Chen's
possession of it doesn't interfere with Ben's ability to fish or eat fruit.
But notice also that the more lines in the sand that Ben issues, the more the
value of the gold (representing a debt of fish) rises. So the longer Ben runs
his trade deficit, the more debt he owes for each ounce of gold that Chen
This is not so dissimilar to the special bond lines, with a few notable
differences. The bond values are not only quoted in lines, they are also
denominated in lines. So the principle amount paid for the bonds drops in
value as more lines are issued to lubricate the vital trade. To counteract
this "inflation," interest is paid by drawing more lines without
the reciprocal delivery of fresh fish. But these additional "free"
lines also dilute the value of lines, which leads ultimately to infinity (or
zero value) in a loop that feeds back on itself.
The more fish Chen supplies to Ben, the more lines he receives, the more
bonds he buys, and the more lines he receives in service to interest.
Eventually Chen will be receiving two lines for each fish, one for the fish
and one for the interest. And then three, and then four. And so on. Wouldn't
you rather just have one gold coin that floats in value? I know Chen would.
Another observation is that the medium of exchange on our island devolved
into the most insignificant and easy to produce item. A simple notation in
Chen's "account." Is that so different from what we have today? And
Ben could issue them with ease as long as Chen let him. Once Chen had so many
lines, he wasn't about to just abandon the system, was he? Wipe the (beach)
slate clean? No, Chen wanted to get something for his lines. Something
compact that didn't interfere with Ben's ability to work off his debt should
he ever decide to do so. Something durable. Something physical from Ben's
side of the island. Something… anything other than those damn-stupid
I hope that this little analogy helps you visualize the separation of
monetary roles, because those talking about a new gold standard are not
talking about this. I understand that sometimes you have to speak in terms
familiar to your audience in order to not be tuned out, but I also hope that
my readers come to understand how and why a new gold standard with a fixed
price of gold, no matter how high, will simply not work anymore.
The full explanation of why it will not work is quite involved, and I'm not
going to do it here. But the short answer is that the very act of defending a
fixed price of gold in your currency ensures the failure of your currency.
And it won't take 30 or 40 years this time. It'll happen fast. It wouldn't
matter if Ben decided to defend a price of $5,000 per ounce, $50,000 per
ounce or $5 million per ounce. It is the act of defending your currency against
gold that kills your currency.
You can defend your currency against other currencies… using gold! Yes!
This is the very essence of Freegold. But you
cannot defend it against gold. You will fail. Your currency will fail. Slowly
in the past, quickly today. If you set the price too high you will first hyperinflate your currency buying gold, but you won't get
much real gold in exchange for collapsing the global confidence in your
currency, and then you will have to empty your gold vaults selling gold (to defend
your price) as your currency heads to zero. And do you think the world trusts
the US to ever empty its vaults? Nope. Fool me once…
If you set the price too low, like, say, $5,000/ounce, you will first expose
your own currency folly with such an act and have little opportunity to buy any
of the real stuff as the world quickly understands what has gone wrong and
empties your gold vaults with all those easy dollars floating around. You
will sell, sell, sell trying to defend your price, but in the end, the price
will be higher and you'll be out of gold. Either that,
or you'll close the gold window (once again), sigh, and finally admit that Freegold it is.
Yes, the gold price must… WILL go much higher. The world needs MONEY!
And by that, I mean recapitalization. Unfortunately the dollar is not the
right money. And printing boatloads of it will no longer recapitalize
anything. Today we are getting a negative real return on every dollar
printed. That means, the more you print, the more you DEcapitalize
the very system you are trying to save. Less printing, decapitalized.
More printing, decapitalized. Freegold…
RECAPITALIZED. Yes, it's a Catch-22, until you understand Freegold.
There Can Only Be
A "focal point" is the obvious, salient champion. But for many
reasons, some things are not as obvious as we would think they should be.
Mish ended his recent post, Still More Hype
Regarding Silver; Just the Math Maam,
with the following disclosure:
As a deflationist who believes Gold is Money (see Misconceptions
about Gold for a discussion), I am long both silver and gold and
have been for years.
Now is it just me, or did he say that because gold is money, he is long both
silver and gold?
Here's another one from a recent article on Zero Hedge:
Part 3. People lie…..
“…I want to make it equally clear that this nation will maintain
the dollar as good as gold, freely interchangeable with gold at $35 an ounce,
the foundation-stone of the free world’s trade and payments
-John F. Kennedy, July 18, 1963
“That we stand ready to use our gold to meet our international
obligations–down to the last bar of gold, if that be
necessary–should be crystal clear to all.”
-William McChesney Martin, Jr. (Federal Reserve
Chairman) December 9, 1963
Lesson: When someone says you can exchange paper for precious metals –
make the swap before they change the rules.
Whoa. Wait. Did he just take two quotes about monetary gold and extend the
lesson to all precious metals? Is this right? Should we all be assuming that
"gold" always means "precious metals?"
According to Wikipedia:
precious metal is a rare, naturally occurring metallic chemical element of
high economic value, which is not radioactive… Historically, precious
metals were important as currency, but are now regarded mainly as investment
and industrial commodities…
best-known precious metals are the coinage metals gold and silver. While both
have industrial uses, they are better known for their uses in art, jewellery and coinage. Other precious metals include the
platinum group metals: ruthenium, rhodium, palladium, osmium, iridium, and
platinum, of which platinum is the most widely
demand for precious metals is driven not only by their practical use, but
also by their role as investments and a store of value. Historically,
precious metals have commanded much higher prices than common industrial
Here's how I read the above description. Precious metals have a high economic
value. But because of investment demand, they also tend to have a price
higher than it would be on its industrial merits alone. Gold and silver carry
some additional sentimentality for their past coinage. In other words,
precious metals are industrial commodities with an elevated price due to
levitation from investment demand. Fair enough?
Now to understand Freegold, I think there are two
issues that need to be addressed. The first is the difference between money,
or a monetary store of value, and an industrial commodity levitated by
investment demand. And the second, once the first is understood, is whether
silver belongs in category with gold as money, or with platinum as an elevated
commodity. You see, the very key to understanding Freegold
may actually lie in understanding the difference between gold and silver with
regard to their commodity versus monetary wealth reserve functions.
So from here, I will explore the valuation fundamentals of money versus
levitated commodities. And then I will explore the history of silver as money
and ask the question: Is silver money today?
First, money. Money is always an overvalued something. Usually a commodity of
some sort. But it can be as simple as an overvalued line in the sand, or a
digital entry in a computer database. But the key is,
it is always overvalued relative to its industrial uses! That's what makes it
money! If it was undervalued as money, it would go into hiding, just like
Gresham's law says, be melted down, and sold for whatever use valued it
higher than its monetary use.
It is fair to also say that commodities levitated by investment demand are
overvalued in a similar way. But there are a couple of important differences.
First is that all of our experience with commodity markets during currency
turmoil happened while the two naturally-divergent monetary functions (the
spur and the brake) were rolled into one unit, namely the dollar. This left
only the commodity markets as an escape. Second is that monetary
overvaluation usually has official support while commodity overvaluation
often has government disdain.
There is this idea out there that if you have a paper investment market for a
commodity that is larger than the physical units backing it (fractionally
reserved, so to speak), that the commodity's price must automatically be
suppressed by the market. This is simply not true unless we are talking about
money masquerading as a commodity.
A paper market brings in investment demand and leverage (borrowed money), two
levitating factors that would simply not be present if the paper market
disappeared. And these two factors, "the speculators," can take a
commodity's price well into overvalued territory. Just look at oil for an
example. Even the sellers of the physical stuff say they prefer a lower price
than right now, not to mention during the all-time high in 2008.
You'd think the sellers of a physical commodity would love a higher price
driven by speculators. But they don't, because it is only a real price if all
the investment participants have a real use for, and ability to take
possession of, your physical commodity. Otherwise it's just a casino.
Back to the Zero Hedge piece:
At today’s prices, a million dollars in gold weighs less than
fifty pounds, but a million dollars in silver weighs more than 2,300 pounds!
So ask yourself, how many rich people are storing their own
silver? How many hedge funds hold physical silver in their
own storage facility?
Cool! So a million in gold only weighs 50 lbs.?
Sounds like low storage fees and easy delivery! 2,300 lbs. for silver? Wow,
that sucks. How many rich people are taking possession of their silver? Not
many, I'd guess.
To be honest, I really don't know if silver is overvalued or undervalued
today at $30/ounce. But if you are counting on the industrial fundamentals of
silver for your moonshot like the Zero Hedge
article is, or on a busted paper market like the "vigilantes," you
may be in for an unpleasant surprise. The same fundamental arguments that are
used today were also used back in 1982.  In gold, at least, we know that
jewelry demand rises and falls opposite the price of gold.  But then
again, gold is money, right? So, is silver still money?
Silver was certainly used as money in the past. So why not again today? Maybe
the people will rise up and demand silver money! Maybe China, or somebody
else, will remonetize silver and start a new silver
standard, right? After all, China was the last to use a silver standard.
I don't mean to pick a fight with silver. In fact, I write this post with a
heavy heart. But there is so much silver hype right now that I feel I owe it
to my readers to at least try to spell out Another perspective. And China is
certainly on the minds of the silverbugs these
days. How often have we heard about China encouraging its citizens to buy
gold and silver lately? (There's that "gold and silver" again.)
But did you know that China was practically dumping its silver a decade ago?
And to this day it is still a large exporter of silver. Not gold. Just
silver. In 2009 China exported 3,500 tonnes of
silver. That amount will probably be cut in half for 2010. The drop is due to
increases in both industrial and investor demand, but also due to China's
recent move to stem the shipment of all natural resources leaving its shores.
I'm sure many of you know that China was the last country on Earth to end its
silver standard back in 1935, in the middle of the Great Depression. But do
you know why? And would China ever want to start a new silver standard? Does
it make any sense now that they've sold most of their silver? And what has
changed since 1935 that would make them want to go back?
Something very interesting happened after Jan. 30, 1934 when Roosevelt
devalued the dollar against gold. The price of gold went up 70%. What do you
think happened to silver? Did it go up more than gold? Did it shoot the moon?
Was it leveraged to gold? No, it dropped like an unwanted rock.
In response to the falling price of silver, on June 19, 1934 (four and a half
months later) the U.S. Congress approved the Silver Purchase Act of 1934
which authorized President Roosevelt to nationalize silver holdings (to buy
silver). This decision resulted in an increase in the world price of silver,
which forced China to abandon the silver standard in November 1935.
The US Silver Purchase Act created an intolerable demand on China's silver
coins, and so in the end the silver standard was officially abandoned in 1935
in favor of the four Chinese national banks "legal note" issues.
Remember what Mundell wrote (See Mundell in The Value of Gold).
The use of a commodity as money is the overvaluing of that commodity for profit
by the monetary authority. When the US started buying commodity silver on the
open market (to prop up the price artificially) the Chinese people found it
was better to sell their silver coins for melt value than to use them in
commerce for face value (which was lower than melt).
This effect to China's base money (silver) in 1934 was similar to what the US
felt in 1933 and 1971 with gold. The main difference being that the demand
for silver in 1934 was artificial (from one single entity, the US govt.) while
the demand for gold has always been real, global and market-driven. This
price supporting move (not unlike the Agriculture Adjustment Act and other
destructive price control measures) by the US caused the "Shanghai
Financial Crisis" which lasted from June 1934 until November 1935,
finally ending in Currency Reform on Nov. 4, 1935.
So, in 1934, the US govt. wanted to devalue (set the price of) the dollar
against gold and silver. In order to do so, it had to influence the market of
each. For gold, it had to inflict capital controls internally and sell gold
externally at the new higher price. For silver, it had to BUY silver at the
new higher price. Sell gold, buy silver. The same exact thing that happened
45 years earlier with the Sherman Silver Purchase act of 1890.
Pushed by the Silverites, the Sherman Silver
Purchase act of 1890 increased the amount of silver the government was
required to purchase every month. It was passed in response to the growing
complaints of farmers and mining interests. Farmers had immense debts that
could not be paid off due to deflation caused by overproduction, and they
urged the government to pass the Sherman Silver Purchase Act in order to
boost the economy and cause inflation, allowing them to pay their debts with
cheaper dollars. Mining companies, meanwhile, had extracted vast quantities
of silver from western mines; the resulting oversupply drove down the price
of their product, often to below the point where it was profitable to mine
it. They hoped to enlist the government to artificially increase demand for,
and thus the price of, silver.
Under the Act, the federal government purchased millions of ounces of silver,
with issues of paper currency; it became the second-largest buyer in the
world. In addition to the $2 million to $4 million that had been required by
the Bland-Allison Act of 1878, the U.S. government was now required to
purchase an additional 4.5 million ounces of silver bullion every month. The
law required the Treasury to buy the silver with a special issue of Treasury
Notes that could be redeemed for either silver or gold.
That plan backfired, as people turned in the new coin notes for gold dollars,
thus depleting the government's gold reserves. After the Panic of 1893 broke,
President Grover Cleveland repealed the Act in 1893 to prevent the depletion
of the country's gold reserves. 
To "set the price" of anything, you must either buy or sell that
thing. Governments cannot just "set" prices. Whenever they try, the
items just disappear or go into hiding. If the price you set is lower than
the value, then you will have to sell. If the price is too high, you will
have to buy. More from Mundell:
"[In the 1870s] France pondered the idea of returning to a
bimetallic monetary standard, but with American production of silver going up
and Germany dumping silver as the new German Empire shifted to gold, France
realized it would have to buy up all the excess silver in the world on its
So... if your standard is going to overvalue something, you must buy it. If
you undervalue something, you must sell it. And what was the US doing with
gold throughout the entire Bretton Woods system?
That's right, it was SELLING gold through the gold
window. So it wasn't the gold that the US monetary authority was overvaluing
for profit. It was the cotton-pulp paper in the FRNs! Cotton pulp! That's the
overvalued commodity today!
Remember what Another wrote? "Any nation/state can put its
economy/currency on a gold standard. They only have two requirements. Own a
stockpile of gold and raise the price very high!"
Why do you think you need a stockpile of gold to start a gold standard? In
the case of France in 1870 above, they realized they would have to buy
all the excess silver in the world to keep a silver monetary standard. You
don't need a stockpile to do that! Yet you don't need to worry about buying
all the gold to have a gold standard. You need to be prepared to SELL! That's
why you need a stockpile. So what's the difference?
Could it be that silver is only a commodity today (and for the last 150 years
at least) and because of this, any monetary use is not backed by the free
market? Any silver standard is an unnatural levitation requiring BUYING of
silver by the monetary authority. While a gold standard gives the free market
what it really wants, gold, requiring SELLING of gold by the monetary
Can you find an example where the opposite occurred? Can you show me where a
government ever had to buy gold and sell silver (at whatever price or ratio)
in order to maintain its system?
The US quit bimetallism during the Civil War, prior to the Silverite movement.  This ended the government's
"overvaluing" of all silver for use in money. After the Civil War,
there was a difference between commodity silver (what the miners dug up) and
monetary silver (overvalued silver in US coins) because in order for the US
to sustain bimetallism (or a silver standard) it would have had to value
(buy) ALL the excess silver in the world at the overvalued price of the
This meant it would have to BUY any and all commodity silver that was offered
for sale (to prop up the price). You see, silver needs its price propped up
(huh? why?) while gold appears to need its price suppressed (see: The London
Gold Pool). So rather than actually "valuing" silver, the
government compromised with the Silverites and
agreed to buy a specified quota of commodity silver. At least it did until it
ran out of gold in 1893. Something must have been wrong with that 16:1 ratio
in the 1800s, huh?
70 years later, when the price of commodity silver finally overran the
value of the coins in 1964, it was because of cotton-pulp printing
(inflation) only, not global monetary demand! This is exactly how commodities
act. They respond directly to monetary inflation until the commodity value
overruns the face value.
So it seems that the free market wants to exchange its "money" for
gold. But "the people" (at least in the late 1800s) wanted silver
to be money. They wanted to SELL their silver to the government while the
government SOLD its gold to the market. This is a one-way flow that tends to
end in a vault full of silver with no gold. So why did the US Government
intervene in the silver market and support this folly?
The government caved primarily because of politics (pressure from the Silverites – the farmers and miners out west), and
tradition secondarily (past use of silver as money, the US Constitution,
etc.). Politically, "the people" will always want easy money. And
silver was their easy money of the day.
Price deflation in the late 1800s was hurting the farmers. The farmer
business cycle is seasonal. Borrow money for equipment and seeds to plant in
the spring. Then grow your product. Then harvest and sell in the fall and pay
off your debt with the proceeds.
The effect of causing an inflationary environment through "easy
money" means that it is A) easier to pay off your debt in the fall than
it was in the spring (or the year before), and B) you get more money for your
crop than you did last year. The effect of a deflationary environment is the
opposite. Your debt gets harder to pay and you get less money for your crop.
It's the same for all businesses actually. But farmers were a big political
group in the 1800s that were all roughly on the same business cycle.
This bears repeating: "The people" wanted silver back then (late
1800s) because it was the "easy money" of the time. "The
people" NEVER want harder money. Today silver would be harder
money, so it will never have the support of "the people" (other
than the silverbugs). 16:1 was quite obviously an
artificial monetary ratio, because whenever they maintained it, there
was a run on the gold. The market wanted to push the ratio much wider, and
the government, in service to "the people," fought that market
Today silver would be "harder" money than cotton-pulp. This is why
there will NEVER be a big enough political movement of the people that
will bring back a silver standard. We have now discovered easier money than
If you want harder money, it's gold. If you want easier money, it's
cotton-pulp. So where does silver fit in? Well, it's just another industrial
commodity with a lingering sentimental mystique as the old "easy
And where does gold fit in? Freegold of course! The
monetary wealth reserve as demonstrated by the Central Banks of the world!
So what if gold really is the wealth reserve of choice for the giants that
A/FOA said it was? That means silver is nothing but an industrial commodity
today, being somewhat levitated by the lingering hype. What if silver is just
a commodity, like copper or oil?
Monetary value is a self-supporting, self-sustaining levitation. Money is the
bubble that doesn't pop. The price of money is arbitrary. Not so with commodities.
So... is silver really money today? I know gold is. Here's the evidence:
Does anyone have any evidence that silver is still money today?
Yes, I am aware that the stock of silver is disappearing into our landfills.
These "properties" of silver have been with the metal since the
early 80s, through decades of single-digit prices.  So, is jacking the raw
materials from industry and holding them hostage for ransom at a higher price
the real play today? (Hint: this tactic often ends badly for the speculator.)
Or is the real play front running the new global monetary wealth reserve
during a transition in our international monetary system?
Here's one silverbug who is starting to put two and
two together! I think he might also be reading FOFOA. ;) (Hi Joe. I think you
are confusing me with FOA in your video. But that's okay,
it's a wonderful compliment to me! Tip to others: If you mention me in a
video include a link in the description and I might just find your video.)
Did you hear him at 6:35? "Only one metal in the world that fits the
bill for money, and that's gold!" That's right Joe! Good job from the
"Silverfuturist". There can be only one!
Did you see my subheading? And please read the description of a "Focal
Point" again. It's the first thing in this post. Can you put two and two
together like Joe?
I don't write about silver very much. Just like I don't write about copper or
pork bellies. But, in fact, I have addressed many of the standard arguments
for silver over gold in various comments on this blog and others. I'm sure
someone will dig them out again and post links as people pose these arguments
once again in the comments. But here's a new one.
One of the argument for silver that we hear often is that it is "the
poor man's gold." So I guess gold is "the rich man's gold."
Well, what is the main difference between rich men and poor men? Is it that
the rich have an excess of wealth beyond their daily expenses? In fact, the
really rich have "inter-generational wealth," that is, wealth that
lies very still through generations. The poor do not have this.
So what do you think is going to come of all that "poor man's gold"
that the silverbugs have hoarded up? Is it going to
lie very still for generations? Or will it circulate, to meet daily needs?
Note that circulation velocity is the market's way of controlling the value
of any currency. Faster circulation = lower value. Lying still for
generations = very slow circulation.
So as you contemplate which commodity will be the monetary focal point of the
future, I'll leave you, as I often do, with a little music.
I've paid my dues
Time after time
I've done my sentence
But committed no crime
And bad mistakes
I've made a few
I've had my share of sand kicked in my face
But I've come through
We are the champions, my friends
And we'll keep on fighting - till the end
We are the champions
We are the champions
No time for losers
Cause we are the champions - of the world
I've taken my bows
And my curtain calls
You brought me fame and fortune and everything that goes with it
I thank you all
But it's been no bed of roses
No pleasure cruise -
I consider it a challenge before the whole human race
And I aint gonna lose -
We are the champions - my friends
And we'll keep on fighting - till the end
We are the champions
We are the champions
No time for losers
Cause we are the champions - of the world
 Focal Point – Wikipedia
 A brilliant piece on the complexity of today's division of labor and
supply chains: A Capital Paradox by John Butler
 Silver Bulls, Silver Bulls: It's
Celebrating Time In Precious Metals
Bob Prechter reveals how today's silver boom is
similar to that of 1980
 Gold Jewelry Demand
 Sherman Silver Purchase Act
 Congratulations to King's Highway!
FOFOA is A
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