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.
What is Gold’s Natural Role?
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.
How so?
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.
So Back to Why the Greens Should be Embracing Gold
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 fuelled 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.
Wasted Capital and Lost Opportunities
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 localised 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.
Read more: Why the NZ Super Fund Should “Invest” in Gold >>
After the coming fiat currency crash and a return to a *viable* gold standard, sure, we can dig up NZ gold to increase NZ’s real wealth and maintain a better balance in the world (and all live happily ever after, of course). Until then, most of the gold dug out of the ground in NZ will likely find its way to China, in exchange for the “privilege” of holding US debt that China is becoming eager to unload. Nothing against China in this context: Where ever the gold goes, we’ll be exchanging it for a soon-to-be worthless IUO… Unless we start importing Iranian oil with it 😉
Winners: Anyone with a financial stake in the gold mine
Losers: Everyone else
Digging up NZ gold, now, will not bring about the fiat crash any sooner (and in the meantime, capital will continue to be wildly misallocated on speculation); it will only put NZ in worse shape after the crash happens.
The time to mine NZ gold has not yet come.
Have faith. Leave it in the ground… For now.
Thanks Atom,
Good point you make re: leave it for later and use it locally.
Can’t argue much with that!
We mainly hope a few more people come to realise the likely benefits to everyone of a return to gold as money and as a balancer of trade.
Actually even if no more gold was mined there’d still be plenty topside to act as money. From memory I think the British Empire ran on only about 150-200 tonnes of gold which is somewhere in the vicinity of what Thailand holds as reserves today (and they are only 24th in the world).
So perhaps our point is more that of embracing gold as money, as opposed to necessarily embracing mining.
Thanks for the comment.
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Do we (New Zealand) actually own any of our gold / silver mines? I know Waihi open pit mine is owned by a yankee company. What good is NZ gold and silver if we let foreign companies dig it up and send it off shore?
Thanks for your comment Jade.
Yes Waihi is owned by Newmont. There is the Macraes mine in the South Island that is owned by a publicly listed company OceanaGold. There are some smaller miners like Glass Earth and Heritage (now Talisman Gold Mines) that are publicly listed her in NZ and in OZ. But then there are plenty of privately owned mines locally – mostly very small ones.
But the point of our article was the benefit of gold itself in a monetary system. As opposed to being solely about mining it.
As we said in the comment above, there wouldn’t have to be any more gold mined for a gold based monetary system to be better than the current one.
That said you could argue the same point on why any of our natural resources are harvested and exported.
But a gold based system would provide balance and then a countries exports would need to be equal to its imports or it would lose money (i.e. gold) to other countries.
So we were more commenting on golds role in society.
But Atom above makes the point to leave it in the ground for now – we’d agree. Better to be selling it at higher prices than it is at today.
Thanks again for commenting.
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