What do I think of the World Bank President's call for discussion of a new gold standard?

[Chris Coles]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

For a long time, my own view has been that if you could invent a way to put 1,000 barrels of crude oil in your pocket (as you can do with a kilo bar), and save it there indefinitely, then redeem it for its energy value any time you like... If that were possible, I contend that gold would immediately lose almost all its value.

Could not disagree more. There are several aspects of an oil backed currency that make the whole idea totally unworkable.

1. The oil represents the potential for use; but if ever used, the value completely disappears.

On the other hand, Gold, never disappears. We constantly see reports of Gold that has been stashed away more than a thousand years ago, but the moment it is dug out of the ground, its value is immediately recognised.

2. What happens to the value of the oil when, (note the use of the word "when"), another energy source is discovered?

There is every possibility that someone will open the door to a new form of energy technology that costs much less to create and use. Once that moment arrives, your oil value drops to that of the new form of energy.


3. Accidental loss? What are you going to say to your creditors when the oil store catches fire and you suffer a total loss? You will never receive the full value via insurance.

Golds' real strength is the simple fact of its immutability; you cannot degrade the value by use, replacement, (has not occurred for thousands of years), nor accident. The one thing you can utterly rely upon is that Gold retains all it physical properties and cannot be replaced. That is the great strength of holding Gold.

[xPat]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

1. The oil represents the potential for use; but if ever used, the value completely disappears.

Yes, that's exactly the point. Gold provides a theoretical standard measure against something whose supply remains approximately constant. Oil provides a standard measure against something that, once depleted, spells the end of modern civilization.

I would be tempted to contend that this is the whole point, because once energy is gone, economic growth is gone. Tempted, that is, if not for your other point:

2. What happens to the value of the oil when, (note the use of the word "when"), another energy source is discovered?

Indeed, that argument wins out over mine. But I contend that if you could somehow have a proxy for the amount of usable energy left on the planet, it would make a sensible store of value, and the function of the currency depleting along with the power to fuel economic growth also depleting would be perfect. It would mean that the money supply equals the energy supply equals the remaining future of economic growth.

Each time new sources of energy were discovered, that would increase the money supply which makes sense because the fuel to drive more economic growth would have been brought into existence. But if you use up the money supply (oil) without finding a replacement, the result is indefinite contraction commensurate with decay of the energy needed to fuel economic growth.

I'm not smart enough to propose a currency system that achieves a money supply equal to the aggregate of all energy sources still available to mankind that can effectively be exploited to fuel economic growth, but I do contend that if that were possible, it would be the best system. In an ideal scenario, money would be destroyed as energy is consumed, and money would be created as new energy sources are harnessed and made available to society as fuel for economic growth.

xPat

[karim0028]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

Yes, that's exactly the point. Gold provides a theoretical standard measure against something whose supply remains approximately constant. Oil provides a standard measure against something that, once depleted, spells the end of modern civilization.

I would be tempted to contend that this is the whole point, because once energy is gone, economic growth is gone. Tempted, that is, if not for your other point:



Indeed, that argument wins out over mine. But I contend that if you could somehow have a proxy for the amount of usable energy left on the planet, it would make a sensible store of value, and the function of the currency depleting along with the power to fuel economic growth also depleting would be perfect. It would mean that the money supply equals the energy supply equals the remaining future of economic growth.

Each time new sources of energy were discovered, that would increase the money supply which makes sense because the fuel to drive more economic growth would have been brought into existence. But if you use up the money supply (oil) without finding a replacement, the result is indefinite contraction commensurate with decay of the energy needed to fuel economic growth.

I'm not smart enough to propose a currency system that achieves a money supply equal to the aggregate of all energy sources still available to mankind that can effectively be exploited to fuel economic growth, but I do contend that if that were possible, it would be the best system. In an ideal scenario, money would be destroyed as energy is consumed, and money would be created as new energy sources are harnessed and made available to society as fuel for economic growth.

xPat

How would it be the best system? You would always have an unstable money supply and/or savings... Oil may be the play for the next 10-50 years due to peak oil, but when it gets expensive enough, we will come up with something else, that is for sure... Lest we forget oil has only been around and in use for about 120 years....

1) Oil is always consumed and is getting harder to find, so once you cant find any more of it, it's supply will constantly decline until it is decommissioned as a source of energy- ie. shrinking.
2) Usable energy - New forms of energy/technology can quickly destroy your oil savings. What happens when nuclear energy goes more main stream or becomes an order of magnitude safer due to technological advance, or goes into cars and oil becomes yesterdays news (a form of financial alchemy, leaving you with useless savings). You would have to constantly shift out of one asset to another for savings not necessarily profits. Money should be stable, immutable. Once you start looking at something you need to adjust into/out of lest it goes to zero or becomes obsolete, it is just an asset but not necessarily money.

[bill]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

Yes, that's exactly the point. Gold provides a theoretical standard measure against something whose supply remains approximately constant. Oil provides a standard measure against something that, once depleted, spells the end of modern civilization.

I would be tempted to contend that this is the whole point, because once energy is gone, economic growth is gone. Tempted, that is, if not for your other point:



Indeed, that argument wins out over mine. But I contend that if you could somehow have a proxy for the amount of usable energy left on the planet, it would make a sensible store of value, and the function of the currency depleting along with the power to fuel economic growth also depleting would be perfect. It would mean that the money supply equals the energy supply equals the remaining future of economic growth.

Each time new sources of energy were discovered, that would increase the money supply which makes sense because the fuel to drive more economic growth would have been brought into existence. But if you use up the money supply (oil) without finding a replacement, the result is indefinite contraction commensurate with decay of the energy needed to fuel economic growth.

I'm not smart enough to propose a currency system that achieves a money supply equal to the aggregate of all energy sources still available to mankind that can effectively be exploited to fuel economic growth, but I do contend that if that were possible, it would be the best system. In an ideal scenario, money would be destroyed as energy is consumed, and money would be created as new energy sources are harnessed and made available to society as fuel for economic growth.

xPat

Carbon Currency.
Energy efficiency and low carbon energy wins.

http://www.canadafreepress.com/index.php/article/19380

Global currency replacing all paper currencies, limiting manufacturing, food production and people movement

Carbon Currency: A New Beginning for Technocracy?

By Patrick Wood Tuesday, January 26, 2010
Introduction
Critics who think that the U.S. dollar will be replaced by some new global currency are perhaps thinking too small.
On the world horizon looms a new global currency that could replace all paper currencies and the economic system upon which they are based.
The new currency, simply called Carbon Currency, is designed to support a revolutionary new economic system based on energy (production, and consumption), instead of price. Our current price-based economic system and its related currencies that have supported capitalism, socialism, fascism and communism, is being herded to the slaughterhouse in order to make way for a new carbon-based world.

It is plainly evident that the world is laboring under a dying system of price-based economics as evidenced by the rapid decline of paper currencies. The era of fiat (irredeemable paper currency) was introduced in 1971 when President Richard Nixon decoupled the U.S. dollar from gold. Because the dollar-turned-fiat was the world’s primary reserve asset, all other currencies eventually followed suit, leaving us today with a global sea of paper that is increasingly undesired, unstable, unusable.
The deathly economic state of today’s world is a direct reflection of the sum of its sick and dying currencies, but this could soon change.
Forces are already at work to position a new Carbon Currency as the ultimate solution to global calls for poverty reduction, population control, environmental control, global warming, energy allocation and blanket distribution of economic wealth.
Unfortunately for individual people living in this new system, it will also require authoritarian and centralized control over all aspects of life, from cradle to grave.
What is Carbon Currency and how does it work? In a nutshell, Carbon Currency will be based on the regular allocation of available energy to the people of the world. If not used within a period of time, the Currency will expire (like monthly minutes on your cell phone plan) so that the same people can receive a new allocation based on new energy production quotas for the next period.
Because the energy supply chain is already dominated by the global elite, setting energy production quotas will limit the amount of Carbon Currency in circulation at any one time. It will also naturally limit manufacturing, food production and people movement.
Local currencies could remain in play for a time, but they would eventually wither and be fully replaced by the Carbon Currency, much the same way that the Euro displaced individual European currencies over a period of time.
Sounds very modern in concept, doesn’t it? In fact, these ideas date back to the 1930’s when hundreds of thousands of U.S. citizens were embracing a new political ideology called Technocracy and the promise it held for a better life. Even now-classic literature was heavily influenced by Technocracy: George Orwell’s 1984, H.G. Well’s The Shape of Things to Come and Huxley’s “scientific dictatorship” in Brave New World.
This paper investigates the rebirth of Technocracy and its potential to recast the New World Order into something truly “new” and also totally unexpected by the vast majority of modern critics.
Background

Philosophically, Technocracy found it roots in the scientific autocracy of Henri de Saint-Simon (1760-1825) and in the positivism of Auguste Comte (1798- 1857), the father of the social sciences. Positivism elevated science and the scientific method above metaphysical revelation. Technocrats embraced positivism because they believed that social progress was possible only through science and technology. [Schunk, Learning Theories: An Educational Perspective, 5th, 315]
The social movement of Technocracy, with its energy-based accounting system, can be traced back to the 1930’s when an obscure group of engineers and scientists offered it as a solution to the Great Depression.
The principal scientist behind Technocracy was M. King Hubbert, a young geoscientist who would later (in 1948-1956) invent the now-famous Peak Oil Theory, also known as the Hubbert Peak Theory. Hubbert stated that the discovery of new energy reserves and their production would be outstripped by usage, thereby eventually causing economic and social havoc. Many modern followers of Peak Oil Theory believe that the 2007-2009 global recession was exacerbated in part by record oil prices that reflected validity of the theory.
Hubbert received all of his higher education at the University of Chicago, graduating with a PhD in 1937, and later taught geophysics at Columbia University. He was highly acclaimed throughout his career, receiving many honors such as the Rockefeller Public Service Award in 1977.
In 1933, Hubbert and Howard Scott formed an organization called Technocracy, Inc. Technocracy is derived from the Greek words “techne” meaning skill and “kratos”, meaning rule. Thus, it is government by skilled engineers, scientists and technicians as opposed to elected officials. It was opposed to all other forms of government, including communism, socialism and fascism, all of which function with a price-based economy.
As founders of the organization and political movement called Technocracy, Inc., Hubbert and Scott also co-authored Technocracy Study Course in 1934. This book serves as the “bible” of Technocracy and is the root document to which most all modern technocratic thinking can be traced.
Technocracy postulated that only scientists and engineers were capable of running a complex, technology-based society. Because technology, they reasoned, changed the social nature of societies, previous methods of government and economy were made obsolete. They disdained politicians and bureaucrats, who they viewed as incompetent. By utilizing the scientific method and scientific management techniques, Technocrats hoped to squeeze the massive inefficiencies out of running a society, thereby providing more benefits for all members of society while consuming less resources.
The other integral part of Technocracy was to implement an economic system based on energy allocation rather than price. They proposed to replace traditional money with Energy Credits.
Their keen focus on the efficient use of energy is likely the first hint of a sustained ecological/environmental movement in the United States. Technocracy Study Course stated, for instance,

Although it (the earth) is not an isolated system the changes in the configuration of matter on the earth, such as the erosion of soil, the making of mountains, the burning of coal and oil, and the mining of metals are all typical and characteristic examples of irreversible processes, involving in each case an increase of entropy. (Technocracy Study Course, Hubbert & Scott, p. 49)

Modern emphasis on curtailing carbon fuel consumption that causes global warming and CO2 emissions is essentially a product of early Technocratic thinking.
As scientists, Hubbert and Scott tried to explain (or justify) their arguments in terms of physics and the law of thermodynamics, which is the study of energy conversion between heat and mechanical work.
Entropy is a concept within thermodynamics that represents the amount of energy in a system that is no longer available for doing mechanical work. Entropy thus increases as matter and energy in the system degrade toward the ultimate state of inert uniformity.
In layman’s terms, entropy means once you use it, you lose it for good. Furthermore, the end state of entropy is “inert uniformity” where nothing takes place. Thus, if man uses up all the available energy and/or destroys the ecology, it cannot be repeated or restored ever again.
The Technocrat’s avoidance of social entropy is to increase the efficiency of society by the careful allocation of available energy and measuring subsequent output in order to find a state of “equilibrium,” or balance. Hubbert’s focus on entropy is evidenced by Technocracy, Inc.’s logo, the well-known Yin Yang symbol that depicts balance.
To facilitate this equilibrium between man and nature, Technocracy proposed that citizens would receive Energy Certificates in order to operate the economy:

“Energy Certificates are issued individually to every adult of the entire population… The record of one’s income and its rate of expenditure is kept by the Distribution Sequence, so that it is a simple matter at any time for the Distribution Sequence to ascertain the state of a given customer’s balance… When making purchases of either goods or services an individual surrenders the Energy Certificates properly identified and signed.
“The significance of this, from the point of view of knowledge of what is going on in the social system, and of social control, can best be appreciated when one surveys the whole system in perspective. First, one single organization is manning and operating the whole social mechanism. The same organization not only produces but also distributes all goods and services.
“With this information clearing continuously to a central headquarters we have a case exactly analogous to the control panel of a power plant, or the bridge of an ocean liner…” [Technocracy Study Course, Hubbert & Scott,p. 238-239]

Two key differences between price-based money and Energy Certificates are that a) money is generic to the holder while Certificates are individually registered to each citizen and b) money persists while Certificates expire. The latter facet would greatly hinder, if not altogether prevent, the accumulation of wealth and property.
Transition

At the start of WWII, Technocracy’s popularity dwindled as economic prosperity returned, however both the organization and its philosophy survived.
Today, there are two principal websites representing Technocracy in North America: Technocracy, Inc., located in Ferndale, Washington, is represented at www.technocracy.org. A sister organization in Vancouver, British Columbia is Technocracy Vancouver, can be found at www.technocracyvan.ca.
While Technocracy’s original focus was exclusively on the North American continent, it is now growing rapidly in Europe and other industrialized nations.
For instance, the Network of European Technocrats was formed in 2005 as “an autonomous research and social movement that aims to explore and develop both the theory and design of technocracy.” The NET website claims to have members around the world.
Of course, a few minor league organizations and their websites cannot hope to create or implement a global energy policy, but it’s not because the ideas aren’t still alive and well.
A more likely influence on modern thinking is due to Hubbert’s Peak Oil Theory introduced in 1954. It has figured prominently in the ecological/environmental movement. In fact, the entire global warming movement indirectly sits on top of the Hubbert Peak Theory.
As the Canadian Association for the Club of Rome recently stated, “The issue of peak oil impinges directly on the climate change question.” (see John H. Walsh, “The Impending Twin Crisis – One Set of Solutions?, p.5.)
The Modern Proposal

Because of the connection between the environmental movement, global warming and the Technocratic concept of Energy Certificates, one would expect that a Carbon Currency would be suggested from that particular community, and in fact, this is the case.
In 1995, Judith Hanna wrote in New Scientist, “Toward a single carbon currency”, “My proposal is to set a global quota for fossil fuel combustion every year, and to share it equally between all the adults in the world.”
In 2004, the prestigious Harvard International Review published “A New Currency” and stated,

“For those keen to slow global warming, the most effective actions are in the creation of strong national carbon currencies… For scholars and policymakers, the key task is to mine history for guides that are more useful. Global warming is considered an environmental issue, but its best solutions are not to be found in the canon of environmental law. Carbon’s ubiquity in the world economy demands that cost be a consideration in any regime to limit emissions. Indeed, emissions trading has been anointed king because it is the most responsive to cost. And since trading emissions for carbon is more akin to trading currency than eliminating a pollutant, policymakers should be looking at trade and finance with an eye to how carbon markets should be governed. We must anticipate the policy challenges that will arise as this bottom-up system emerges, including the governance of seams between each of the nascent trading systems, liability rules for bogus permits, and judicial cooperation. [Emphasis added]

HIR concludes that “after seven years of spinning wheels and wrong analogies, the international regime to control carbon is headed, albeit tentatively, down a productive path.”
In 2006, UK Environment Secretary David Miliband spoke to the Audit Commission Annual Lecture and flatly stated,

"Imagine a country where carbon becomes a new currency. We carry bankcards that store both pounds and carbon points. When we buy electricity, gas and fuel, we use our carbon points, as well as pounds. To help reduce carbon emissions, the Government would set limits on the amount of carbon that could be used." [Emphasis added]

In 2007, New York Times published “When Carbon Is Currency” by Hannah Fairfield. She pointedly stated “To build a carbon market, its originators must create a currency of carbon credits that participants can trade.”
PointCarbon, a leading global consultancy, is partnered with Bank of New York Mellon to assess rapidly growing carbon markets. In 2008 they published “Towards a Common Carbon Currency: Exploring the prospects for integrated global carbon markets.” This report discusses both environmental and economic efficiency in a similar context as originally seen with Hubbert in 1933.
Finally, on November 9 2009, the Telegraph (UK) presented an article “Everyone in Britain could be given a personal ‘carbon allowance.’”

“… implementing individual carbon allowances for every person will be the most effective way of meeting the targets for cutting greenhouse gas emissions. It would involve people being issued with a unique number which they would hand over when purchasing products that contribute to their carbon footprint, such as fuel, airline tickets and electricity. Like with a bank account, a statement would be sent out each month to help people keep track of what they are using. If their "carbon account" hits zero, they would have to pay to get more credits”. [Emphasis added]

As you can see, these references are hardly minor league in terms of either authorship or content. The undercurrent of early Technocratic thought has finally reached the shore where the waves are lapping at the beach.
Technocracy’s Energy Card Prototype

In July 1937 an article by Howard Scott in Technocracy Magazine described an Energy Distribution Card in great detail. It declared that using such an instrument as a “means of accounting is a part of Technocracy’s proposed change in the course of how our socioeconomic system can be organized.”
Scott further wrote,

“The certificate will be issued directly to the individual. It is nontransferable and nonnegotiable; therefore, it cannot be stolen, lost, loaned, borrowed, or given away. It is noncumulative; therefore, it cannot be saved, and it does not accrue or bear interest. It need not be spent but loses its validity after a designated time period.”

This may have seemed like science fiction in 1937, but today it is wholly achievable. In 2010 Technocracy, Inc. offers an updated idea of what such an Energy Distribution Card might look like. Their website states,

“It is now possible to use a plastic card similar to today’s credit card embedded with a microchip. This chip could contain all the information needed to create an energy distribution card as described in this booklet. Since the same information would be provided in whatever forms best suits the latest technology, however, the concept of an ‘Energy Distribution Card’ is what is explained here.”

If you study the card above, you will also note that is serves as a universal identity card and contains a microchip. This reflects Technocracy’s philosophy that each person in society must be meticulously monitored and accounted for in order to track what they consume in terms of energy, and also what they contribute to the manufacturing process.
Carbon Market Players

The modern system of carbon credits was an invention of the Kyoto Protocol and started to gain momentum in 2002 with the establishment of the first domestic economy-wide trading scheme in the U.K. After becoming international law in 2005, the trading market is now predicted to reach $3 trillion by 2020 or earlier.
Graciela Chichilnisky, director of the Columbia Consortium for Risk Management and a designer of the carbon credit text of the Kyoto Protocol, states that the carbon market “is therefore all about cash and trading – but it is also a way to a profitable and greener future.” (See Who Needs a Carbon Market?)
Who are the “traders” that provide the open door to all this profit? Currently leading the pack are JPMorgan Chase, Goldman Sachs and Morgan Stanley.
Bloomberg noted in Carbon Capitalists on December 4, 2009 that

“The banks are preparing to do with carbon what they’ve done before: design and market derivatives contracts that will help client companies hedge their price risk over the long term. They’re also ready to sell carbon-related financial products to outside investors.”

At JP Morgan, the woman who originally invented Credit Default Swaps, Blythe Masters, is now head of the department that will trade carbon credits for the bank.
Considering the sheer force of global banking giants behind carbon trading, it’s no wonder analysts are already predicting that the carbon market will soon dwarf all other commodities trading.
Conclusion

Where there is smoke, there is fire. Where there is talk, there is action.
If M. King Hubbert and other early architects of Technocracy were alive today, they would be very pleased to see the seeds of their ideas on energy allocation grow to bear fruit on such a large scale. In 1933, the technology didn’t exist to implement a system of Energy Certificates. However, with today’s ever-advancing computer technology, the entire world could easily be managed on a single computer.
This article intended to show that

• Carbon Currency is not a new idea, but has deep roots in Technocracy
• Carbon Currency has grown from a continental proposal to a global proposal
• It has been consistently discussed over a long period of time
• The participants include many prominent global leaders, banks and think-tanks
• The context of these discussions have been very consistent
• Today’s goals for implementing Carbon Currency are virtually identical to Technocracy’s original Energy Certificates goals.

Of course, a currency is merely a means to an end. Whoever controls the currency also controls the economy and the political structure that goes with it. Inquiry into what such a system might look like will be a future topic.
Technocracy and energy-based accounting are not idle or theoretical issues. If the global elite intends for Carbon Currency to supplant national currencies, then the world economic and political systems will also be fundamentally changed forever.
What Technocracy could not achieve during the Great Depression appears to have finally found traction in the Great Recession.
Bibliography & Resources

Scott & Hubbert, Technocracy Study Course, Technocracy, Inc., 1934
Hanna, Toward a single carbon currency, New Scientist, 1995
Victor & House, A New Currency, Harvard International Review, Summer 2004
Hannah Fairfield, When Carbon Is Currency, New York Times, May 6, 2007
M. King Hubbert & The Technocracy Technate Design – Historical blog
Everyone in Britain could be given a personal ‘carbon allowance’, Telegraph (UK)
Network of European Technocrats – website for Europe
Technocracy, Inc. – website for U.S.
Technocracy Vancouver – website for Canada
Association for the study of Peak Oil & Gas – website for Peak Oil

Now I have to get back to my Graphene studying.
http://en.wikipedia.org/wiki/Graphene

[Polish_Silver]

oil as money? --No!

I disagree. Money has to be something which circulates, without being consumed or increased. Oil gets used up. It has massive price fluctuations. If prices were set in
oil terms, grocery store items would vary in price by 2X every year!

Electrical power is much more stable in price, and has been suggested as a medium of exchange. California used to have a political party based on this idea, and thier symbol
is still shown in some businesses (it's more l like a rotary club now).

Using oil for exchange is more like a batter system. It is very poor as as "unit of account".

[Prazak]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

It's easy to agree with the logic of your post. But I'm always uncomfortable when the underlying position of an argument is "This time it's different."

[ThePythonicCow]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

A few posts back, I wrote:

Whether the price of gold, oil or cows milk is part of calculating that fabrication matters not in the slightest to me.

xPat replied with a sensible rebuttal, to which I replied:

Yes, a better reserve currency is needed, and an energy based one seems like an improvement (though it is still an issue that I don't worry about.)

After thinking about this some more, I don't like what I wrote. It misses the point I should have been making.

In our current monetary system, all money is lent into existence. Most individuals, corporations and governments, including all who have "borrowed the most to spend the most", are in debt, typically deeply in debt, to the banks. Far too much power over our lives and institutions has accrued to the financial elite who control the money center banks.

The collective power of our civilization is woefully out of balance, excessively centralized in the hands of a few. Near absolute power has corrupted nearly absolutely.

Refinements to this current monetary system (such as an improved Reserve currency) extend the life of that system, and distract from the necessary task of replacing that system. Such refinements are therefore counterproductive.

We should not do something that is counterproductive, just because we don't see a productive alternative.

We must break the hammerlock on our civilizations monetary system that is held by the financial elite who control the major banks.

[Southernguy]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

The change I envision in world currency is the substitution of the dollar as a global reserve and exchange currency by a basket of about 5 mayor units.
Nothing which quantity is fixed (like gold, stock practically stable) can serve as currency without provoking prices to go down continuously due to economic growth against stable currency amount. Once you create some "representation" that is to say credit which stems from "real" currency aka gold in a gold standard, you create the "multiplier" and the ability to generate "value" from thin air.
And then you have all the problems arising from paper currency with a gold standard. Because, how to control the "multiplier"?
The trick is, thus, the multiplier, which has always been controled by central banks reserve percentages for bank deposits.
So, as power shifts from USA to a more distributed set of countries, posibilities arise for a more rational use of money.
However, the problems set by paper money shall always be there, cyclicaly arising from time to time. At least as capitalism remains as the almost unique economic system worldwide.
To effectively control monetary problems, at least at a national level, banks should be state owned. But unless that happens in most of more powerful countries, at an international level we will see this kind of things (economic wars either hot or cold) happening.
Pesimistic? maybe, buy for those who are not north american to get free of dollar hegemony, even to be submited to a more distributed one is a big step forward.

[DSpencer]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

I'm not smart enough to propose a currency system that achieves a money supply equal to the aggregate of all energy sources still available to mankind that can effectively be exploited to fuel economic growth, but I do contend that if that were possible, it would be the best system.

I agree with jpatter666 and Chris Coles that oil has some properties that make it inferior to gold in terms of use as money. Consider what some people consider to be the key factors in determining what is "good" money:

1. Portable: Gold - yes and with low cost Oil - yes, but not without lots of cost
2. Divisible: Gold - yes Oil - yes
3. Fungible: Gold - yes Oil - yes to a degree but not entirely
4. Durable: Gold - yes Oil - more so than milk maybe, but as others mentioned it can be destroyed and would be consumed as normal course of action creating a huge problem. To make it a legit standard you would have to warehouse it or have a currency backed by the idea of oil rather than a real amount of oil.
5. High ratio of value to weight: Gold - yes Oil - not very. Goes back to the issue of portability. Oil is very valuable, but only in large quantities. Being 100% serious if oil (or gasoline) was more valuable by weight I would be storing it in my garage.

All that being said I think oil could be a useful way to back a currency for certain situations. Who should decide? The MARKET. Why not have the freedom to let everyone decided for themselves what is the best money?

I think you are on the right track xPat, but not taking the idea far enough. Oil/energy may be the most important commodity to be traded or used as money/currency but why not expand it to all goods as they all can contribute to economic growth. Then let the market decide which ones are logical to use as a currency to exchange.

Never trust the government or the banks with control of the money supply! Just let the government control fraud.

[xPat]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

I think you are on the right track xPat, but not taking the idea far enough. Oil/energy may be the most important commodity to be traded or used as money/currency but why not expand it to all goods as they all can contribute to economic growth. Then let the market decide which ones are logical to use as a currency to exchange.

Thanks for the compliment. After thinking more about this and reading the various replies, I agree that my thoughts were, at best, half-baked. Like I said, I don't know how to design a viable currency system. But I remain convinced that the gold argument rests entirely on the "it's been that way for thousands of years" argument, and I still contend that the modern world isn't like the world of the last several thousand years. The modern world has billions more people, and keeping them and society alive depends on energy. For that reason, I contend that energy is a whole lot more important to the world than shiny metal. Now, as to the question of how to base a currency system on energy, well I guess it's now been made clear that my ideas were not sufficiently well thought out. My hope was to start a discussion that might lead us to more plausible scenarios for monetization of energy.

xPat

[Chris Coles]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

Thanks for the compliment. After thinking more about this and reading the various replies, I agree that my thoughts were, at best, half-baked. Like I said, I don't know how to design a viable currency system. But I remain convinced that the gold argument rests entirely on the "it's been that way for thousands of years" argument, and I still contend that the modern world isn't like the world of the last several thousand years. The modern world has billions more people, and keeping them and society alive depends on energy. For that reason, I contend that energy is a whole lot more important to the world than shiny metal. Now, as to the question of how to base a currency system on energy, well I guess it's now been made clear that my ideas were not sufficiently well thought out. My hope was to start a discussion that might lead us to more plausible scenarios for monetization of energy.

xPat

You should not be so negative about your thinking, any new idea needs to be rolled around in debate and there is nothing wrong with failure in innovation. A wrong turn can often lead forward towards a better understanding.

[ThePythonicCow]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

how to design a viable currency system.

That is a worthy challenge.

Yes, energy is vital to the modern world; as vital as shelter, clothing food, water and air to the individual.

Whether that means that energy, shelter, clothing, food, water or air are proper elements of a healthy monetary system is not so obvious to me.

Perhaps the most essential role that a monetary system serves is as a basis for trade.

When the miner, the factory worker, the factory owner, the wholesaler, the retailer, the farmer, the baker and the candlestick maker can all trade their labor and resources for energy, shelter, clothing, food, water or air (well hopefully air is free) that they and their families will need, based on having done something or made something that someone else wants, then trade is working.

The individual laborer, the wage and salary earner, is paid by an employer, who has decided that it is worth continuing to pay that person as they contribute to the production of that business.

But how is the business paid? The end customer might be half a world away, not yet even realizing they will choose to purchase that product and lacking any direct business relation with the producer.

There is a chain of wholesalers, distributors, other factories, and retailers that might connect the output of one mine, farm or factory to that end consumer. Each business in that chain has some ongoing expertise in what their customers might soon want, which of their suppliers might provide the raw materials to make it, and the means and methods for shipping, storing and further assembling product from their suppliers to provide goods to their customers.

The single most important role of a monetary system, in my view, is the funding of this trading.

We have seen in the last couple of centuries two methods of funding commercial trade, these methods being real bills of trade and commercial bank lending.

In the 1800's, ending with World War I, 90 day bills of trade (aka real bills) were used. When supplier A sent a requested order to vendor B, A also sent along a bill, due and payable 90 days after receipt of that order. Vendor B would mark and sign that bill "accepted", and return it to supplier A. Supplier A could then immediately "clear" that bill, to obtain the funds to pay his workers, or could send, via a clearing house, that accepted bill back to his suppliers, further upstream, in payment for some other order that A had received earlier.

In 90 days, no sooner, the acceptor of that bill, vendor B above, was obligated to present the bills value in gold, if and when presented with that bill. This gave vendor B time to move the goods further down the chain to his customers, perhaps even an end-user retail customer, and receive payment from them.

Note the useful, though not essential, role of the London clearing houses in this. Supplier A did not have to directly send the accepted bills he received back to the suppliers he purchased from; for one thing, those suppliers might have had no trust relation with the customers of Supplier A who accepted that bill. Rather Supplier A could exchange that bill at a clearing house for the funds he required to run his business and pay his employees, and for credit to his suppliers. The clearing house could net out bills received and paid out, and could refuse to accept bills accepted by no longer trusted businesses. The clearing house made a profit on the discount of bills they received, and had to take losses on bills that turned out to be worthless at the end of the 90 days (the original acceptor did not honor the commitment.)

The clearing houses were not essential. Real bills could also be traded on the open market. Someone with extra gold could purchase a real bill at a discount, and then receive the face value when the bill matured, thus earning some interest. Businesses holding real bills, perhaps from obtained from the down stream businesses they sold to, could sell those bills for gold on the open market or at a clearing house, in order to fund such expenses as their weekly payroll.

This system led to a great boom in international trade, reaching a peak just before World War I, as a percentage of all (domestic + international) economic trade, that was not reached again until the recent peaks of "globalization." Trade was multi-lateral and between businesses, with no great dependency on either the internal politics of nations nor the debt issuance of money center banks.

The great clearing houses of London closed down during World War I, and never re-opened again in that capacity.

Instead we have the second method of funding trade, in use since World War I. Banks issue debt paper to monetize international trade. Businesses have to take out short term commercial loans (the basis for our modern day money market accounts) to fund payments for supplies and wages until they received payment in full from their customers.

Trade is funded by bank credit, and the resulting immense flows of various national and regional currencies are cleared on the foreign exchange (Forex) markets. This causes the primary impact of trade funding to have major bi-lateral affects between nations, rather than multi-lateral affects between trusted businesses regardless of the complex nature or geographic location of their supply or customer chains. When the businesses of any nation nowadays buy too much stuff from another nation, national currency, hence the national debt needed to absorb that currency, flows the other way to fund these purchases.

The money center banks have successfully replaced the monetary blood supply of a healthy world trading network, using real bills of trade reimbursable for gold in 90 days, with a different monetary fluid, that being debt-based fiat national and regional currencies (lent into existence).

Such a global monetary system does not support stable and sustainable world trade. It blows up bubbles due to excess and mis-allocated liquidity, and when debt starts to default, it lacks a reliable means to pay workers.

Real bills of trade had a couple of significant advantages over debt financed production.

1. Bills of trade, by virtue of their being accepted by a second business closer to the final sale, placed a fine grained feedback mechanism on their generation. A grocery store in Nome, Alaska would be unlikely to accept a bill for a shipment of string bikinis in the early months of winter. This provides a realistic feedback mechanism from those closer to the end customer sale, back through the supply chain to the original farmers, miners and manufacturers.
   
   Bank issued debt lacks that realistic feedback mechanism. The bank issues credit based on (perhaps) the general credit worthiness of a business.
2. Bills of trade were self-extinguishing. The means of their repayment (the resale of the goods received) were present in their establishment. Credit is not self-extinguishing. Credit worthiness depends on more nebulous characteristics of a business or individual. It is thus too easy to issue more credit than what can be repaid, as we have seen of late.

So ... how does this relate to your (xPat) observation that energy has become a commodity of great importance in the current world economy?

Perhaps thusly.

The objections to basing money directly on energy or oil, such as a GlobalBuck worth 1/100 of a barrel of WTIC at Cushing OK, are reasonable in my view. The worth of oil, while great, is not stable. It varies over short term and long term, by season and by event (e.g. Hurricane Katrina or the BP Gulf Oil Spill.)

The problems we currently have with pricing oil, in my view, are the same as the problems we have with pricing anything else. All finance is done by bank credit, which is not inherently connected to the specific actions of trade by knowledgeable participants (producers and consumers.)

An independent physical (quite difficult to counterfeit) item, dense, store-able and of long term stable quantity serves best as the base for the financing of world wide trade. The item should not itself have high and fluctuating inherent utility (not food or energy, e.g.), as that destabilizes its value.

So we have three kinds of money required.

For day to day trade, the above (1) real bills worked best.

These were of value and hence readily accepted because they could reliably be redeemed for (2) gold in 90 days.

For day to day individual use, (3) either precious metal coins or government issued paper bills might work best. (I don't have a clear thought on which to prefer at this moment.) If paper bills, then sovereign nations should issue them, and collect taxes in them. They should not be conditioned on the issuance of bank debt.

Businesses should not allow bank lenders to control their normal business activity with bank lending, and sovereign nations should not allow bank lenders to control their government policy with bank lending.

In such a monetary system, the producer of oil can reliably fund the purchase of the goods and services that their oil is worth, using the real bills of trade they receive from the refiners who purchase that oil.

The problem we have and that I suspect you are noticing, xPat, is that energy is not priced properly reflecting supply and demand, short and long term, but rather is being unrealistically manipulated by banks and by the nations those banks control. This is not a problem that would be solved by basing money on energy. Rather it is a problem that could be solved by restoring a working monetary system that was able to fairly price all manner of goods and services, including energy, and to reliably fund ongoing productive economic activity.

The essential key is to remove bank lending from its critical and now dominant controlling role in the creation of all money, and hence in the day to day activity of individuals, businesses and nations.

The direct funding of labor, by real bills of trade working their way up the supply chains as goods travel down the chain, would resolve the chronic unemployment of a debt-based monetary system that is dependent on bank credit at each step of the way.

Gold or something quite similar that is recognized across national boundaries is required to support the funding of commercial trade across national boundaries. Thus real bills of trade must redeem in gold, not some national currency that the bearer might not want.

(The above comments were partially inspired by a few very brief readings, and no doubt a nearly equal number of misreadings, of Antal E. Fekete's analysis.)

[xPat]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

You should not be so negative about your thinking, any new idea needs to be rolled around in debate and there is nothing wrong with failure in innovation. A wrong turn can often lead forward towards a better understanding.

Thanks, Chris. Actually, I really wasn't feeling "negative" about my thinking. Rather, I realized that I was mixing two ideas and that my conclusion that energy is a better basis than PMs for a currency system is therefore half-baked. Not wrong, but half-baked.

A few things I feel absolutely certain of:

1. The people who talk on and on about re-monetization of gold consistently fail to recognize that despite gold being money for thousands of years, the modern world is different from the thousands-of-years world. You have to either think in terms of what is important to modern post-industrial society, or you have to envision a regression to a new dark ages period where we go back to pre-industrial era functioning of society. I don't believe in the latter.
2. What is most important and what will define economic power for the forseeable future is energy. That means energy plays a key role in the financial power system. Somehow.

Based on the above truths, which I hold to be self-evident, I was jumping to the conclusion that energy was the right thing to serve as backing for currency. That's the leap of logic that I made without thinking hard enough. Others here have pointed out (and correctly so), that stability of supply may be more important for a currency-backing commodity than the role the commodity plays in the economy. I need to learn more about currency systems before I can develop my ideas further, but I remain convinced that the gold bug crowd who keep talking about return to a gold standard are missing the points above. Whatever happens needs to consider them, one way or another.

xPat

[Chris Coles]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

The single most important role of a monetary system, in my view, is the funding of this trading.

While not wanting to in any way dampen your input, it important to point out that you have still not taken account of the role of equity capital. You are describing a monetary system for the sensible function of trade. I have no problem with that; but trade stems from business and it is the underlying function of equity capital that creates the capital foundations for any trading business to retain prosperity within the local community within which it originates.

There is thus two functions for money.

1. to lubricate trade which inevitably involves movement of goods over distance.

2. to create the foundation of the underlying trading business, (which does not involve movement of the business) and thus serves to retain the generated prosperity at the location of the foundation of the business.

What has also gone wrong is that; as we have moved to a bank driven credit based economy, we have also allowed the location of the foundation of the business to become as fluid as the trade.

Without local equity capital creating strong roots for the underlying business; the credit based system can move the business as easily as the trade itself, and always to the advantage of the banks.

[DSpencer]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

1. The people who talk on and on about re-monetization of gold consistently fail to recognize that despite gold being money for thousands of years, the modern world is different from the thousands-of-years world. You have to either think in terms of what is important to modern post-industrial society, or you have to envision a regression to a new dark ages period where we go back to pre-industrial era functioning of society. I don't believe in the latter.
2. What is most important and what will define economic power for the forseeable future is energy. That means energy plays a key role in the financial power system. Somehow.

I agree with the second. I don't think that #1 is true.

The reason that gold was important for thousands of years was because it was useful as money. It was not directly useful for food, or shelter, or fire or toolmaking or anything other than jewelry and money.

What has changed? Yes we have lots of new technology and we use lots of energy. It's not like people used gold for any of the things we use energy for now. They could have used cattle, grain, land, tools etc as money (and did to some extent) but they realized that gold was much more practical. It's more practical than oil too.

A gold standard is not my first choice either. I think it would be an improvement over what we have currently, but almost anything would.