Posts Tagged silver

“Paper Money is Trash”

Such a statement is often either implied or explicitly stated by precious metals-alarmists. You can find videos on YouTube where people have been predicting the demise of the dollar and the explosion of silver and gold prices for several years now — “It’s coming, here it is, this big thing, it’s coming!” — and tidbits from the news are collected and used as conclusive “proof” of market manipulation, conspiracy, and the imminent occurrence of whatever they are predicting. I can’t help but wonder what stake they have in the precious metals market.

There may be several types of people spreading the message: people who happen to own silver and/or gold and sincerely believe they ought to inform as many people as possible for their own good, and those who may or may not own silver and/or but make overstatements and suggestions that are have a specific purpose in mind — opinion-shaping. Many times it is asserted that the actual market price of precious metals is far beyond what COMEX prices the metals at. I’ve yet to find a concrete shred of evidence supporting such assertions. Historical references are about the best attempts at taking an argument out of a purely rhetorical state that I’ve seen thus far. Yes, gold and silver were used throughout history as money — copper as well. It is fallacious to assert that the exact trends must be followed in vastly different circumstances. I do not deny that precious metals are worth investing in. I deny the claims of $10,000 gold and $1,000 silver (per troy ounce) projections based upon the fact that the people making the claims are either laymen with regards to economics or have not established any ethos whatsoever (the interests they hold, as I mentioned earlier).

More on the rhetoric factor in this (as per the title of the post). Fiat currency, without its government decree, is intrinsically worthless. Silver has value independent of government because individuals are interested in attaining it for reasons such as investment, industrial use, and so forth. Silver’s scarcity and its many uses give the idea to some that silver has intrinsic value. I’m quite unsatisfied with that term as it comes across as rather vague, with the hope that the term will not be further questioned (as my experience has been thus far, mainly in moral philosophy), but I’ll continue to use it for simplicity’s sake nonetheless. Silver’s scarcity is only relevant because there is demand for it in the first place, otherwise no one would care how much or how little there was of it. Just as anything that is used in a transaction involving at least two parties, the demand for a good or a service is truly what gives it value. There can be demand for, say, bottle caps. Their price would be determined by their availability, which would be quite low since they’re fairly abundant, but the price is only relevant due to demand. The caps have low intrinsic value and no government decree to give them value beyond what people would normally pay for them.

If a man offered to sell me his car for 10 bottle caps, I’d accept the offer. Whether or not the man got a deal, the transaction was made. At that point in time, the buying power of my bottle caps was equivalent to a car. Let us introduce fiat currency into this. Fiat currency, like the bottle caps, has little intrinsic worth. However, the buying power of the fiat currency is unquestioned. I can easily swap back and forth a silver coin and its equivalent value in fiat currency. As with the caps, the buying power of the fiat currency is independent of its intrinsic worth. While I may not expect a fiat currency note to maintain any buying power for an indefinite amount of time, the buying power during the time of a given transaction involving fiat currency is equivalent to whatever was attained in exchange. The buying power of the silver coin works in the same way, but historically, precious metals are more resilient in terms of buying power.

Thus, if “paper money is trash” is the result of a contrast between fiat currency and precious metals, a fallacy of equivocation has been committed.

Formulated in a syllogism:
P1: Money must have value
P2: Fiat currency does not have value
C: Fiat currency is value-less

The problem with the syllogism is that “value” is misleadingly used.
Here’s an expanded version to make the fallacy obvious:
P1: Money must have intrinsic value
P2: Fiat currency does not have intrinsic value
C: Fiat currency does not have buying power

Value is used both in the sense of “intrinsic value” and in the sense of “buying power.” Even though precious metals have both high intrinsic value and buying power, the fact that fiat currency only has buying power, even if it is temporary, and insignificant intrinsic value, fiat currency cannot be classified as trash because trash cannot be something of any buying power to the one who refers to it as trash (the relativity of this is shown by the existence of “dumpster divers,” though I can’t say I’m familiar with the transactions occurring in those types of settings).

I say to those who consider fiat currency trash — let me relieve you of that trash, I’d be happy to take it.


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Investment Craze

For several years now, particularly with the current state of the US economy, people all over the internet have been adamant about their claims of a major economic collapse, providing a convenient solution as well — precious metals. Wild claims are cited, such as gold reaching $10,000 per troy ounce and silver $1,000, promising huge returns and urging immediate investment. Is there not a contradiction? In an economic collapse, where the dollar would be virtually devalued (though some argue that, being the world’s reserve currency, it just can’t happen), those gains in dollar value would be meaningless. Precious metals ought to be used as hedges against the hyperinflation a currency would experience during the aforementioned economic collapse. Even though there are indicators that suggest the supply of silver may be overstated, the laws of supply and demand would make silver mining profitable enough (as well as other PM’s) to resume on a larger scale once more. Hypothetically, keeping a good watch on the market conditions may give people a chance to sell their precious metals before the supply reaches demand once more, but that is hardly something that can be expected of the majority of precious metal owners.

Therefore, the advocates of investment in precious metals ought to be citing inflation hedging and not easy profit. Videos are constantly put up on YouTube which proclaim the end of the dollar and allude to a near-Armageddon scenario — they are meant to incite fear, not to provoke reason. Feeding on this fear are companies and individuals who are more than happy to sell many silver coins and bullion bars for way over precious metal spot price.

This is not to say that precious metals are entirely immune to inflation. If a large amount of gold would suddenly be introduced into the market, its value would undoubtedly decrease. However, it’s much easier to print fiat currency than to acquire gold at nearly no cost. Thus, the value both types of currency hold — hard currency and fiat currency — still depends on the amount in circulation. The point is a bit more complicated with regards to fiat currency as there is virtually nothing to back up the dollar expect people’s confidence in it, but the concept still applies.

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