Carl Menger, born Feb. 28, 1840, died Feb. 26, 1921
I considered another title for this post; Degrade With Dave, but I really like Sandeep Jaitly. He’s willing to wade right into a subject matter that most folks wouldn’t even consider. If most folks did bring it up people would think they were crazy. You see Sandeep is willing to talk about human consciousness and its role in value creation in reference to gold. On top of that he’s willing to attempt to melt his ideas with those of Karl Menger and the Austrian School of economics.
Max Keiser of The Keiser Report recently interviewed Sandeep. They talked about the subjective and objective aspects of gold and why Sandeep, unlike Fed Chairman Ben Bernanke, believes that gold is money. If you listen to the interview carefully however you will also hear two things that may surprise you.
1. Gold has no intrinsic value
2. Gold is being debased by mankind
If you extract those quotes from the interview they seem quite counterintuitive to the idea of gold as money or gold as a store of value in general. Dave agrees completely with Sandeep on both of these key issues, but Dave disagrees with Sandeep on the most fundamental level of value creation and where it comes from.
If you take a look a the two Carl’s… Carl Menger and Karl Marx, you get an opportunity to consider value creation from two points of view. It was Karl Marx that points us to the value inherent in the goods that we produce is derived from the value of the labour used to produce them. For example, if you have an American auto worker whose labour contract requires that he receive $60,000 annually in salary by the time he finished making your car it may cost $40,000 and a comparable non-union car from Japan for example may cost $20,000. According to Marx, the $40,000 car is worth it because that’s what it cost to make the car regardless of what the market will pay for the car (sounds eerily similar to our current solutions for economic stimulus coming out of Washington).
Carl Menger on the other hand would say that labour should make the best car it can make and see what it sells for in the marketplace and that would define the value of the labour that went into make the car. If it was a Rolls Royce the labor would be highly valued and if it was a Suzuki, maybe not so much. Menger said that the value of labour derives from the value of the goods it produces and not the other way around as Marx claimed. You can consider one of these arguments as the horse pulling the cart while the other is the cart being pushed by the horse… then you decide which one you like.
But gold… that’s a horse of a different color. You see, with the exception of the cost of mining the gold, we don’t make gold. We don’t produce it. Yes, we dig it up, but we don’t do much to it. If you find a chunk of gold, it’s not like you have to do much to it before it’s worth the price of a chunk of gold. Gold doesn’t derive its value from either the labour applied to it or does labour derive it’s value from the efforts that go into producing gold. Gold just isn’t like that.
Now silver, on the other hand, is a little bit like making tires or growing corn. Silver has industrial uses and is part of the production process and gets used up, but that’s a horse of a silver color and we will address the difference between gold and silver in another blog post… back to the economic quicksand of Sandeep’s human consciousness and the value it places on gold.
If you listen to the interview, you may have some difficulty in following the logic… Dave certainly did. Here’s what I believe Sandeep is trying to say and I am most definitely putting words in his mouth. Dave thinks that Sandeep is attempting to explain whether or not gold, as a unit of value is, (as you would say in Latin) a priori or from the former… before you were born so to speak. On the other hand is gold’s value a posteriori or in other words does gold’s value enter the human mind after you decide that it has value through your reasoning? In other words, are we pre-programmed in our consciousness to accept gold as value or is it something that we have the free will to choose to accept or choose to deny?
What is fascinating to Dave is that from the existentialist viewpoint, our lives only gain their meaning so-called “after-the-fact.” There is no grand plan and no particular calling on your life. You make the most out of what you have been given, or you squander your life a posteriori… after you’re born. Your life is your life and there was no Creator who called you into existence with a plan for you to change the world. In a reasoned, after-the-fact assessment of gold as a precious metal, it has no value beyond that of a shiny metal. Sure, you can argue that gold has been money for generations and that any reasonable person would expect that to continue, but alas, if you understand the math as Sandeep Jaitly does you will quickly come to the same conclusion that gold is indeed being “debased” every living day one shovel full of gold-filled dirt at a time.
On the other hand if you reject the existentialist perspective and view life as an awesome opportunity to fulfill the unique calling that has been gracefully bestowed upon you, then unlike Karl Marx, you are placing your own free will at the top of the heirarchy. You acknowledge your Creator in the fact that you are free to accept or deny that same Creator and to follow His calling laid out for you or to choose a pathway of your own design. You’re free and within that freedom to choose is the freedom to either value gold or to not value gold. You can even go so far as to allow others to value gold while denying any of its value to you.
Under the free will plan, gold’s value is indeed formed within the human consciousness, but if you accept free will as the state of conscious being, then you also accept the possibility that gold’s value will be abandoned or denied just as quickly as it is accepted and embraced. So gold, in all its shiny nature has reflected the question right back onto the questioner. In plan A, you involuntarily accept that gold is value but you rationally calculate that it is being debased and scientifically uncover that it has no intrinsic value (Sandeep said it, not Dave). In plan B, you value gold by choice but with the knowledge that you’re free to change your mind and so is everyone else, creating a huge problem for the fundamentals of scarcity-based economics and the supply & demand model for pricing. If suddenly no “other” values gold, then suddenly gold has no value. The very knowledge of that destroys the value in gold from the perspective of “the other.”
When you consider Michel Foucault, Friedrich Nietzsche or Jean-Paul Sartre’s attempts to express your consciousness as being predicated on “the other” or someone else and not that of your Creator, then you start to realize the only value gold has is expressed in the form of another and not from within yourself and that it is therefore essentially a form of imperialist power to be held over you and to be used against you. The good news is that it can only be used as such if you accept it as such. It only has power if you choose to give it power.
Is Dave saying you shouldn’t buy gold? It would probably be more accurate, from a U. S. Federal Reserve Notes return on investment standpoint, to say that Dave is saying just the opposite, but Dave’s not a financial advisor. Is gold going up? My guess would be that it is going way up when measured in U.S. dollars, but does that make gold valuable? What Dave is trying to say is that if Sandeep Jaitly is saying that we have a “bullion basis” for our human consciousness, then we can’t have our gold and eat it too. Either we have free will or gold is always guaranteed to be money… we can’t have it both ways.
Dave has written a lot about how the Libertarian school of economics (i.e. the Austrian School, Carl Menger, Ludwig von Mises) is being co-opted by the progressive political movement through a very crafty scheme known as Libertarian Paternalism. It is basically an acceptance of the Austrian School under the umbrella of “behavioral economists know best” because they have the best information. It’s essentially saying that we’ve already completed the Pepsi Challenge for you and we know who the winner is so we’ve already provided you with the choice you would make if you had been given the free will to make your own choice. To put it another way, we’ve been tracking you online and we have identified you as a “choosy mother” and therefore we have made a choice for you and that choice is Jif peanut butter.
If you dig into Mr. Jaitly’s arguments that surround gold value within the human consciousness you will see for yourself that gold’s value is subjected to the free will of man and thereby it’s value isn’t real, but rather is simply a construct, a form within our consciousness that is subject to exiting our consciousness faster than Richard Nixon aboard a Marine 1 helicopter.
If you want to know what to do with your fiat dollars, I would suggest listening to the interview between Max Keiser and Sandeep Jaitly. Then I would suggest reading the July 11 article written by FOFOA. As you’re reading the article, consider exactly what FOFOA stands for when he says he is “friend of friend of another.” Could it be that “another” is that “other” that I’ve been talking about.
The stage is set for the introduction of the Eurozone bond equivalent of our Treasuries. Here at TradeWithDave, we have elaborated on the new pipe that has been laid through LCH Clearnet, the CLS Bank and the new HKMex through which the liquid gold will flow in its attempt to create balance for the new normal and a framework for the new occidental currency. Take note of the excerpt from the 1985 book The Triumph of Gold by Dr. Franz Pick highlighted by FOFOA as he describes the death of currencies via debasement, not through credit expansion (i.e. QE n) but rather through the degradation of value. It may help to think of it this way. Which is more valuable, a nuclear weapon or a job creation and productivity machine such as we see in Germany?
As currencies become more and more devoid of substance, they perpetuate their existence through their multiples. The milreis replaced 1,000 reis, and the bilpengoe tried to substitute for a billion pengoe. The conto was worth 1,000 escudos. The Greek talent was equal to 6,000 drachmae or 36,000 obols. In Java, the bahar was good for 100 million candareens. In India, the nil replaced one hundred billion rupees…
Some coins were flattened to the point where they were as thin as a sheet of paper, or actually chopped up into strips, or cut into bits of all sizes and shapes. Some were punctured and the holes then plugged with inferior metal.
These strategems did not and will not save currencies, which are all doomed by the passage of time.”What’s the takeaway for this venture into the quicksand of human consciousness. That’s fairly simple. We’re entering the phase where gold will be used as a form of power over you through your consciousness of the value of gold. Then we will enter a phase where gold will no longer have value within your consciousness. When will these two things happen? Phase 1 requires the completion of the infrastructure for Mohammed El-Erian’s “new normal” followed by the flipping of the reset switch. This will most likely occur in conjunction with the next global financial crisis, or possibly the one after that. Let’s say, we’re getting close. What about Phase 2? I guess you could read Isaiah Chapter 2, verse 19-22.
Men will flee to caves in the rocks and to holes in the ground from dread of the Lord and the splendor of his majesty, when he rises to shake the earth. In that day men will throw away to the rodents and bats their idols of silver and idols of gold, which they made to worship. They will flee to caverns in the rocks and to the overhanging crags from dread of the Lord and the splendor of his majesty, when he rises to shake the earth. Stop trusting in man, who has but a breath in his nostrils. Of what account is he?
Here’s the Max Keiser/Sandeep Jaitly interview. Sandeep begins at the 14 minute mark:
Here’s a link to the FOFOA article. I will warn you ahead of time. If you haven’t read FOFOA, then you haven’t been into “the matrix” of gold: http://fofoa.blogspot.com/2011/07/euro-gold.html
Here’s a link to other blog posts on the subject of human consciousness as it relates to that question of the hour… “What is money?”: http://tradewithdave.com/?p=6582