I am making this post as a placeholder for my thoughts on this subject. I may eventually expand it into a full essay.
It is a common feature of Internet discussions for people to bring up the gold standard as a measure that could make the world or their country a much better place. A “sound” currency will supposedly cure many economic ills. Due to what I call the risk-profit differential in interest-based economies, which I covered in a previous essay, a gold standard cannot be implemented without it quickly leading to economic distress for most citizens. The point of interest, or usury, is this (from the previous essay):
The usurer class gets guaranteed profits. The borrower class is forced to share its profits with the usurers, while also being made to keep its losses to itself.
The unbalanced arrangement in usury, which guarantees a steady profit rate (i.e. the interest rate) to the lender, while forcing the borrower to keep its losses to itself, guarantees that over time, most currency ends up in the hands of the lenders. This is a simple matter of mathematics.
Let’s imagine an interest-free island economy of one million citizens, each of which has a thousand gold coins, so that the entire economy possesses one billion gold coins. As the years pass, some people will be more successful than others in their businesses and dealings, so that some will end up with more gold coins and some with less. But due to the fact that there is no interest, the rich are forced to invest their gold in businesses and projects if they want to increase their wealth. Businesses and projects require hiring people, and many of them eventually fail to make a profit, so that the investment activities of the rich often end up spreading wealth around. Great wealth inequality cannot come about in such an economy because the rich are exposed to the realities of economics.
But let’s say one of the rich men of the island starts to practice usury. He has ten million gold coins and starts to lend them to others at 5% interest. What takes place now is that he drives a wedge through reality, he gets 5% profit regardless of economic circumstances. He is no longer exposed to risk, he gives his money to others to take risks with while getting guaranteed profits himself. Let’s say he lends his 10 million gold coins to another rich man who wants to start a great project. The lender will get 5% profit regardless of whether the project succeeds or fails, but due to the extreme complexity and randomness of economic reality, a large portion of all projects and businesses fail to make a profit. Let’s say the borrowing rich man spends the 10 million gold coins constructing a large building from which he expects to earn a great amount of rent. But after spending the money on the building, some shift happens in the economy of his city so that the area in which his new building is located is no longer attractive to renters. He ends up with a 10-million building that may no longer be worth even 5 million gold coins.
In such a situation, we have two alternative realities: The reality of the lender, in which he makes 5% annual profit from the project which is assumed to continue being worth 10 million, and the reality of the borrower, in which he has made a 50% loss and earns a 1% in returns on the present worth of the building.
At the end of the year, the lender gets 500,000 gold coins in profit, while also keeping his 10 million gold coins. The borrower, on the other hand, makes 50,000 gold coins from rent income and is only left with a building worth 5 million gold coins.
What usury has done in the above situation is that the lender gets to pretend the project was a great success and is exposed to zero risk. He makes 500,000 a year and still has his 10 million gold coins. But in the borrower’s cold and harsh reality, he lost half of what he borrowed and only made 50,000 on the half the remains to him. He is forced to spend of his other wealth to make up the difference so that he can make his interest payments to the lender.
Now, imagine the above situation repeating all over the place, which is what happens in the world of finance. Usury, by driving a wedge through reality that protects lenders from losses (they get fictitious guaranteed profits that have no connection with reality), ends up enabling the lenders to continually enlarge their wealth at the expense of the rest of the economy. Regardless of what is happening in the reality of the economy, with people making profits here and losses there, they get to always profit. It should not take a genius to realize that this unbalanced arrangement means that year after year more coins will end up in the hands of the lenders and fewer in the hands of everyone else.
We see this phenomenon repeated everywhere usury is practiced. The banks and the bankers are always the richest people in the country, because while ordinary mortals, the peasantry, are exposed to the realities of risk and profit, the banks only get guaranteed profits (when banks do make losses and get into trouble, it is due to the fact that in their constant greed for more wealth, they sometimes do extremely risky things, such as gambling on the prices of stocks in the futures market). Over time, this leads to increasing wealth inequality. The lender class becomes the new aristocracy, who own most of the country’s corporations, land, media and politicians.
A gold standard means that there will be a limited amount of currency available in the economy. And since the lender class enjoys a far greater rate of profit compared to everyone else, their lending constantly drains coins from the economy and places it in their hands, so that there is less currency left for everyone else. Within a few decades this gets out of hand; the usurers end up having unimaginable wealth, the middle class disappears, and a large underclass of peasants is created, many of whom are enslaved to debt one way or another.
We already see this happening in the developed world. What a gold standard would do would be to simply accelerate this process. Today, by printing money, the United States government is able to continuously inject more cash into the economy. While the bankers drain hundreds of billions of dollars from the economy annually (American taxpayers pay over $200 billion USD to the lenders in interest alone on their national debt), the government prints money and spends it, such as in wages to its employees or on various projects. This ensures that the economy will continue functioning.
The phenomenon of peasant uprisings in the past happened due to the operation of usury in economies that had gold-backed currencies. Money-printing can be thought of as a new invention meant to prevent peasant uprisings. While the usurers suck up vast quantities of cash annually, the government prints more and throws slivers of it to the peasantry. In this way the economy continues to lurch along and disaster is prevented. Today’s usurers are mostly happy because they are rich and powerful beyond the wildest dreams of the usurers of the past. The peasants are mostly happy because they continue to get along. They know that things are more difficult than they were thirty or forty years ago, but peasants are not generally wise enough to understand why.
A gold standard would only make sense in an economy that bans usury. Implementing it in a usurious economy like all of today’s economies would be suicidal, because the government would lose its power to mollify the peasantry through printing money and giving a little of it to them. The economy would quickly run out of money, since usury is designed to continually drain money from the population and put it in the bank accounts of the usurers, who quickly run out of people who can borrow from them, so that they only open their purses to other members of the usurer aristocracy. Billion-dollar deals among the banker class becomes an everyday thing while the peasantry can barely pay for groceries.
Therefore those wishing for economic reform should forget the gold standard and focus on usury. An unsound, printable currency is far sounder in a usurious economy than a sound currency. It helps keep things functioning and prevents extreme hardship and uprisings. The usurers continue to be in charge, but they are prevented from starving the peasantry bleed them to death so slowly that they can barely feel it.
Fractional Reserve Banking: Usury on Steroids
Above, I have argued that a gold standard is unsustainable in an interest-based economy. That only refers to ordinary usury. But as Dumbledore said:
...Lord Voldemort has seemed to grow less human with the passing years, and the transformation he has undergone seemed to me to be only explicable if his soul was mutilated beyond the realms of what we might call ‘usual evil’ …”
Today’s usury has gone beyond usual evil through fractional reserves. Fractional reserve banking means that a usurer is allowed to lend out four or five times as much money as they have, earning four to five times more interest annual than the interest rate implies. A bank that offers a $200,000 mortgage at 5% is actually earning 20% on its money, because legally, if it has $200,000 in its reserves (actually held at the central bank), it is allowed to lend out $800,000 or more. If a bank has $200,000, it can finance four $200,000 mortgages, earning 5% on each mortgage. This means that the wealth of the usurer aristocracy is unlike the wealth of the peasantry; it has four times as much power to make profit, and those profits in turn are protected by usury from loss, since the burden of losses is legally forced on the borrowers.
Fractional reserve banking makes a gold standard four to five times more unsustainable as it would be under normal usury, because usurers drain wealth from the economy four to five times faster than normal. A usurer who has one million dollars can double his wealth every year (lending it five times at 20%, for an annual profit of 100%), as long as he can find peasants to lend to. This is a good illustration of the “parallel reality” nature of usury; there is no such thing as an ordinary business that allows you to double your wealth every year. But fractional reserve usury does just that, and it is the peasantry that has to make the difference for them. A peasant who borrows $1000 through a credit card will almost certainly not be able to make a 20% profit on this money over the next year, but the usurer pretends that that is just what happens. What ends up taking place is that the peasant has to lay aside part of his or her income to subsidize the usurer’s imaginary 20% profit. Credit cards, in fact, can be thought of as nothing but a way for enabling usurers to legally take money out of people’s wallets and paychecks.