Headline news on Monday was the approval by the Department of Conservation of an extension of Oceana Gold’s Reefton mine by “34 rugby fields” as we heard one news story put it so kiwiana-ishly.
Our (likely controversial) take is that the Greens should actually be embracing gold. Why? Because gold would likely have a dramatic benefit on the environment if it was allowed to return to its natural role in the world.
It’s not to be hoarded as it is now. It is that of money. If gold was allowed to circulate freely there would likely be much reduced environmental destruction.
In one word: Balance.
The average environmentalist will likely understand the concept of balance that exists in nature, in ecosystems etc. It is something sadly lacking in today’s financial world.
However we’d guess that unfortunately most “greenies” would argue that the solution to the current mess is that government needs to have more rules and restrictions in place. That is the approach most often taken but we think a case of putting more and more band-aids on a festering wound.
If you’ve been following us for a while, you may have realised that we think dramatically less government is something we should be striving for.
We believe a free market gold standard would mean significantly less misallocation of capital. Therefore less asset bubbles – and if they were to occur said bubbles would likely not inflate to the same degree and would be liquidated faster. The classical gold standard (i.e. pre the Federal Reserve and legal tender laws) had much greater price stability and significantly less financial bubbles. Also without legal tender laws we’d be much less likely to see major wars which are funded usually by money printing. (Here’s a link to a speech Professor Antal Fekete gave here in Auckland a couple of years ago on how legal tender laws allowed for the funding of the great wars of last century. Source.)
Financial bubbles are the result of misallocation of capital and resources. Take the recent debt fueled housing bubble. If gold was circulating freely as money we would guess we would not have seen anything close to the level of over investment in housing.
You see a system built on debt means much is produced beyond what is actually necessary. So resources are wasted and directed to where they are not necessary.
But not only are capital and resources wasted on investment in areas where there is not actually demand, there is also the opportunity cost of where this capital might otherwise have been directed. What ideas and inventions might otherwise have been created? What cleaner technologies might entrepreneurs have created if capital was not wasted on inflated tech stocks, flipping houses etc.
Also take China as an example. In this article by Mexican billionaire Hugo Salinas Price he shows how China would not have been able to rise as meteorically as it has under a gold standard simply because of the balance that gold creates between the exports and imports of each nation. So it’s likely China wouldn’t be awash in the paper currency it has currently. Paper currency which it then channels into various wasteful government mandated developments – like shopping malls and apartments for no one.
Of course we are not envisaging a utopian world of perfection. Even with gold at the centre helping balance supply and demand, human nature would still lead to mal-investment from time to time. Rather we believe balance would be restored faster and the extremes would be less likely.
We’re also not saying that gold mining (or any type of mining) is not without some environmental costs, but these localized costs are likely far less than the damage wrought by a monetary system that actually encourages over-consumption and mal-investment.
Technological progress will likely continue to solve many of the problems as well. In fact greater wealth obviously leads to less pollution all round. If you are looking for your next bowl of rice you probably aren’t too bothered about how to make your local environment less polluted. It’s no surprise that wealthier nations are generally those with much better, healthier environments.
Anyway that’s just our quick 2 cents worth on why the greens should look a bit deeper at what role gold should be playing and how it would be to everyone’s benefit (well everyone except the bankers that is).
Leave a comment below as to what you think.