The Central Bank Dilemma

Jay Zawatsky

undefined, United States

Referring to gold and all physical money as a “barbarous relic” (a phrase “coined” … please excuse the misuse of the term … by Lord Keynes, see Monetary Reform (1924), p. 172) is the favorite pastime of gold-bashers and fiat currency worshippers everywhere. In attempting to convince the public that real, hard money should be an object of derision, fiat fanatics, some wittingly and some unwittingly, are advancing the cause of “statism” (socialism and fascism) and its American analogue “cronyism”.

There is, indeed, a barbarous relic, but it is NOT gold.  The real barbarous relic is central banking, and it is central banking, especially as practiced by the U.S. Federal Reserve (“Fed”), the European Central Bank (“ECB”), the Bank of Japan (“BOJ”) and the Peoples Bank of China (“PBOC”), that deserves the public’s derision. Sooner rather than later, the practices of central bankers are sure to incur the public’s wrath.

Money (gold and silver used as currency) was conceived to be both a “battery” and a “time machine”.  As a battery, real money stored an individual’s labor and allowed that individual to trade that stored labor for a good or service provided by an individual who neither needed nor desired the laborer’s specific output.  A man who built barrels and who wanted fish did not have to seek out a fisherman who wanted a barrel.  As a time machine, money preserved the value of the individual’s labor over his lifetime, so that it could be “spent” when that laborer was no longer able to produce (either efficiently or at all). Because of its function as both a short term and long term labor storage device, real money was a fundamental building block of a free society.  (This is not to suggest that real money was a sufficient condition for a free society, but real money is necessary to preserve the freedom of a society.)

Real money performed its dual function perfectly for thousands of years, whenever governments and central banks did not control it. Now, under the complete control of central banks, money, i.e., its modern analogue, fiat money, no longer is an efficient battery. Given the loss of fiat currency’s purchasing power (96% loss since 1913 - see this) since the advent of the Fed, money no longer is a time machine.