By Keith Weiner – Re-Blogged From http://www.Gold-Eagle.com
A skeptic said to me recently, “The dollar is money and gold isn’t.”
I asked, “OK, how do you define money?”
He responded, “You use dollars to buy groceries, not gold.”
He defines money as the accepted medium of exchange. Let’s drill deeper into that.
The government forces gold out of circulation. Taxation is one way (there are others). If the price of gold rises, it’s taxed as a capital gain. The result is that gold cannot circulate, because no one wants the possibility of a tax bill on every transaction.
Let that sink in. The dollar is defined as money because it circulates. And it circulates because the government forces it. If the dollar is money, then might makes right.
It should go without saying that the government has no power to change the laws of physics such as altering the speed of light. King Canute couldn’t order back the tide. Nor can government change the laws of economics, such as transforming its paper into money.
The question of what is money is no moot academic debate. There is a real consequence to this question, which came up when I testified recently to support an Arizona bill that eliminates tax on gold. During the testimony, State Representative Rebecca Rios made a serious point. When mutual funds go up, investors are taxed on the gains. Why should gold be treated any differently?
It’s an excellent question.
If gold is just a commodity, then a tax exemption for this one investment is just like any other special privilege. And those who lobby for it are just like any other special interest group, seeking advantage through government favoritism. So Rep. Rios was right to vote against the bill, out of basic respect for the rule of law.
However, the free circulation of gold is not a special interest. Everyone gains by allowing gold to reenter commerce. Gold is not just a commodity. It’s money.
The dollar may circulate, but it’s not money. It’s just a small slice of the government’s debt. It’s an I.O.U., a promise to pay, though most have long forgotten what the government once paid—gold.
Money can’t be defined as whatever happens to circulate, regardless of why it does. We need a different approach. I frequently say that the length of a steel meter stick cannot be measured using a rubber band. The elevation of a lighthouse cannot be measured from a rowboat tossing in high seas. Similarly, the value of gold cannot be measured in dollars. Steel is an objective measure of length, the earth’s surface is an objective measure of height, and gold is an objective measure of value.
A measure of value is a better way of defining money than a medium of exchange.
Even dollar apologists acknowledge that the currency is losing value. Heck, the organization that manages the dollar has a stated policy of two percent annual devaluation. A falling unit of measure doesn’t work. Imagine dropping a ball off a cliff, then measuring the height of objects based on their distance from the ball.
I place the focus on measurement, because measuring economic value is essential to saving for your retirement, growing a business, and investing. Without a reliable way of measuring value