“But square-cut or pear-shaped, these rocks won’t lose their shape; diamonds are a girl’s best friend.” So sang Marilyn Monroe, provocatively, in the 1953 hit movie-“Gentlemen Prefer Blondes.” I believe she was also accompanied by Jane Russell, another one of Hollywood’s sexiest bombshells. And it’s true, not only for girls, but for guys too, if you’re among the fortunate ones to have been able to acquire and hold on to diamonds through the years. Priced in the thousands, tens of thousands, hundreds of thousands, or millions of dollars depending on the size of these carbon-based stones, diamonds have produced extraordinary monetary value throughout the centuries. But what makes these stones so valuable when compared to other stones that are more readily available. As I’ve said, diamonds are almost exclusively carbon-based, and carbon is one of the is one of the most common elements on the planet. Coal is also exclusively carbon-based, but no one pays comparable prices for coal as they do for diamonds.
It’s often the assignment of of arbitrary values by mankind that prove to be durable throughout the ages, that determines value. In the case of diamonds, it’s based on the fact that they are the hardest, most imperishable, and brilliant of what are considered precious stones. They’re formed when carbon deposits begin to harden deep within the Earth’s surface and under enormous pressure. This pressure results in diamonds being thousands of times harder than corundum, the next hardest substance, and from which rubies and sapphires are formed. Their hardness is often valuable in certain commercial enterprises, when cutting through other hardened materials can only be accomplished by diamonds. And diamonds can also be made in factories. But these have only a fraction of the value of those dug out of the ground. In the end, what determines the monetary value of diamonds versus any other stone dug out of the ground, or made in a laboratory, is whatever mankind is willing to pay for these items. A totally arbitrary process.
The same is true with gold, another element dug out of earth. Throughout mankind’s history, gold has been put on a very high monetary pedestal by virtually all societies. Being more durable, and perhaps considered more beautiful than other minerals, gold has been often used as currency from before ancient Roman times, by almost all civilized societies, or what have been considered civilized societies by various historians. It could just as well have been copper, or nickel, or bronze, or any other metal. But gold was the chosen one, (to a lesser degree, silver also.) There go those arbitrary values again. Adding more to the value of diamonds or gold and silver was the prestige factor of ownership. Having lots of gold and diamonds has meant that you own membership in the most elite, privileged, and powerful sectors in any society. Membership based on stones and metals dug out of the earth. How arbitrary.
Which brings to the usefulness of gold as a currency in the U.S. Since 1879, the U.S. had been on a monetary gold standard, which meant that gold coins could be used interchangeably with paper currency. Supposedly, paper bills could be exchanged at any bank for gold coinage, and there had to be a fixed amount of gold held by the Government to support the entire supply of paper money. But in 1933, with the Great Depression in full swing, Franklin Roosevelt, on becoming President, declared a bank moratorium to prevent further bank failures. As part of this moratorium, banks were to end the practice of issuing gold coinage in exchange for paper fiat, and everyone was required to turn in all the gold coinage they owned (except for a nominal amount), and receive paper bills in return. The price of gold, then at $21 per ounce, slowly rose to about $35 an ounce over the next several decades. But as Government budgets kept expanding with the expansion of the welfare state, it became more and more impossible to tether the amount of paper currency in circulation to the amount of gold held at Fort Knox.
Thus, in a stunning reversal of previous history, and having no other choice, President Richard Nixon, in August, 1971, announced this would no longer be U.S.policy. That the U.S. would no longer convert dollars to gold at a fixed value, and big banks, foreign governments or any other holder of U.S. debt, could not ask to be repaid in gold. Since then, the amount of paper money in circulation has expanded dramatically. The price of gold has rocketed from $35 an ounce to about $1600 an ounce (and an ounce is an awfully small quantity.) The price of gasoline has gone from about a quarter a gallon, to near $4 a gallon. Indeed, the dollar today will buy only one-sixth of what it could buy in 1971. And the amount of Government debt, which totaled $1 trillion from the beginning of George Washington’s administration to the early days of Ronald Reagan’s administration, (1981), now totals almost $17 trillion. Add to this, the fact that we are accumulating debt of nearly $1 trillion a year, and the fiscal picture looks none too rosy in the coming years.
Also to be considered is the fact that the Federal Reserve is currently “buying” most of the newly issued Government debt. While the Fed is supposedly quasi-autonomous, it really is an arm of the Government. Thus, you have one portion of Government (the Fed) “buying” the debt issued by another portion of the Government, the Treasury Department. Talk about an incestuous relationship. The Fed really doesn’t have money of its own, so it, in effect, just “prints” money to buy all this debt. The money supply keeps expanding and the value of this money keeps decreasing. Maybe those old-fashioned arbitrary values like the gold standard weren’t so bad after all.
So how do we get out of this mess. We start by raising the eligibility age for Social Security and Medicare to 70, dramatically cutting the Defense budget so we are no longer the world’s policeman, raising taxes on the wealthy who can well afford such increases, and eliminating the considerable amount of Government waste that currently exists. Know any politicians that have the “stones” to make that happen?