Comment by AlotOfReading a day ago
Currency exchanges are exactly why I differentiated between monetized and unmonetized bullion. I don't see why going to Costco and buying a bar of gold is fundamentally different than buying the same weight of gold jewelry. That jewelry may very well be intended for resale the same way.
I believe that is a widely misunderstood conception of the origin of money. Gold has generally not been used as currency. The sovereign right to dictate the value of a coin struck in a metal is called "seigniorage", and exists for all of those 3000 years. The value of the currency comes from the demand for it by the government to pay taxes, not the value of the metal in the coin. The metal in the coin makes it expensive to counterfeit said coin, with punishment by death doing the rest of the disincentive.
There is a reason the coins have the emperor's face on them. They are what he will accept as payment for the taxes he requests, and in assessing taxes according to his power, he dictates their value by fiat.
> The value of the currency comes from the demand for it by the government to pay taxes, not the value of the metal in the coin.
That's the fantasy, not the reality.
> The metal in the coin makes it expensive to counterfeit said coin, with punishment by death doing the rest of the disincentive.
What actually happens is the government declares a dollar value for the coin, and then alloys the gold with cheaper metals. This results in inflation. The usual content of counterfeit gold coins is less than the gold in the government issue, which is where the death threat comes in.
Only one counterfeiter ever put more gold in the coin than the government, that was Baraha. The government got mad at him because a Baraha sovereign was worth more than the government issue.
> he dictates their value by fiat
Governments always try that, and it never works. Governments are always alloying the precious metal with cheaper metal, but nobody is fooled, and the result is inflation.
Why do you think the government no longer issues gold coins? why there's no silver in a dime anymore?
Inflation.
>Why do you think the government no longer issues gold coins?
Because it became self evident in the 1800s and first half of the 20th century that a commodity backed currently is not a good idea in any non static economy with a reasonably stable government?
Deflation and constant boom and bust cycles (something like the 2008 crisis would have been pretty mild back in the gold standard days) are somewhat of a drag on economic productivity.
Just because the gold standard had flaws doesn’t mean the fiat system that replaced it is flawless or even better. There are tradeoffs involved in both systems.
In a fiat currency system there is no meaningful constraint on the supply of money. We’re experiencing the effects of that feature of the fiat system currently. Tying the supply of money to a rare commodity like gold may create other problems, but it completely solves the issue of currency devaluation.
For the record, the world was on the gold standard when the agricultural and industrial revolutions occurred. It’s not at all obvious to me that the gold standard prevents productivity growth.
Much of the 3,000 years of history you're referring to saw precious metals used as wealth storage primarily in the form of objects like jewelry, silverware, and candlesticks. All of which have sales taxes.
The question I'm asking is why it's unreasonable that bullion that we've agreed isn't currency isn't being treated differently than these other things?
A fork is a finished consumer product. Even if it's made of silver, you can use it to eat with.
Bullion isn't a finished consumer product, it's the packaging format for the raw material.
Sales tax applies to finished consumer products. The intermediary stages are traditionally exempt, i.e. the person who buys bullion in order to make silver forks doesn't pay sales tax, the person who buys the fork does.
Craft stores still add sales tax to raw material. Costco charges sales taxes to business accounts, unless given a certificate of resale or buying from an exempt category in whatever state. I could go on, but clearly sales taxes apply to more than "just" finished consumer products. They apply pretty broadly to retail sales as a whole.
It's at least a distinction though, unlike the other arguments.
Sales taxes is a much more modern invention not 3000. Gold was money and still is in freer jurisdictions
> Whereas to me, it's wild that thousands of years of gold bullion trade as a form of currency exchange is supplanted basically overnight and now only "gold but only on paper" would be considered the only form of real gold currency.
I mean, it's not a coincidence. For example, the US government has laws against using gold as currency, and they take those laws seriously and enforce them with vigor. They don't want dollars to suffer the competition.
Given the laws, it is necessarily the case, by definition, that gold is not currency.
> the US government has laws against using gold as currency
I don't think that's true, or I can't find any evidence of it. If you want to buy a car and the seller agrees to accept 50 gold coins instead of $100,000 cash, that is perfectly legal. Hell, the US makes currency out of pure gold that are currency at face values of $5-50 (but the gold in the coins is worth 100x more than the face value).
Are you talking about the Gold Reserve Act of 1934 and Executive Order 6102? That banned private ownership of gold and demanded that citizens turn in their gold. But it was lifted in 1974.
> If you want to buy a car and the seller agrees to accept 50 gold coins instead of $100,000 cash, that is perfectly legal.
You're free to barter in general. 50 gold coins, though, would probably be illegal even though 50 marble statues is fine.
https://www.law.cornell.edu/uscode/text/18/486
Using gold (or any metal) as currency ["current money"] is specifically illegal if the metal is coined.
You'd need to establish that it never crossed the seller's mind that he might later exchange those coins for something else. As an isolated incident, you'll have a fairly strong defense. If there's been another transaction in gold coins in your area recently enough that either of you might have known about it, you won't.
> the US government has laws against using gold as currency, and they take those laws seriously and enforce them with vigor
This is nonsense. If you'd like, you can absolutely sell your house for gold bullion. (Or Japanese yen or bails of peanuts.)
> That jewelry may very well be intended for resale the same way.
It isn't.
There is a widespread belief that jewelry is a durable investment, that if you fall on hard times you will be able to sell the jewelry for an amount similar to what you paid for it, or more.
It's fair to say that many people have this idea in mind when they buy jewelry, and that it pushes up the price.
But it isn't true; if you resell your jewelry you're going to get basically nothing compared to what you paid, unless you like to wear gold chains. The resale value of new jewelry is more like the resale value of a new car.
If there was any significant demand to resell jewelry, everyone would know this. The fact that they don't is sufficient to demonstrate that they have no intention of actually reselling.
> But it isn't true; if you resell your jewelry you're going to get basically nothing compared to what you paid, unless you like to wear gold chains. The resale value of new jewelry is more like the resale value of a new car.
This entirely depends on the type of jewellery and the premium you pay for it over the price of raw materials.
I know for a fact that there's quite a lot of jewelry that trades at a fairly tight spread around the price of weight in gold (10-20% between bid and ask). Losing 20% isn't getting "basically nothing"
Of course, if there's a brand name involved you're not really paying for just the gold content anymore so there the resale value sucks.
You can sell jewelry for the same price as the equivalent weight in whatever purity of precious metals it is and I specified same weight in the parent comment. They won't be the same price originally, but that's not particularly germane to this discussion of whether there should be a sales tax on one vs the other.
And for what it's worth, people buy things for different reasons. It's very common for Indians to explicitly value jewelry as a wealth store (among other reasons), to give one example.
> You can sell jewelry for the same price as the equivalent weight in whatever purity of precious metals it is and I specified same weight in the parent comment.
Yes, of course. Didn't you see my aside?
>> unless you like to wear gold chains
But you can't buy jewelry for the price of the precious metal content. You get charged for the jewels too, and they have very limited resale value.
> It's fair to say that many people have this idea in mind when they buy jewelry, and that it pushes up the price.
Jewelry is the single biggest usage of gold, worldwide. It makes for nearly half of all the gold's reserve and usage. Jewelry alone represent as much gold as all the gold held by central banks and hoarded by individuals (be it bars or coins). There's also some gold use by various industries but that gold is often lost.
So it's fair to say that jewelry does, indeed, push gold's price up.
But maybe I misunderstood your comment.
Indeed, you misunderstood my comment. It says:
(1) Many people believe they can sell jewelry for something approximating the purchase price;
(2) This belief is false;
(3) But the false belief that the money they are spending is recoverable makes those people willing to pay more for jewelry, pushing up the price of jewelry compared to what it would be if people knew they couldn't resell it effectively.
Whereas to me, it's wild that thousands of years of gold bullion trade as a form of currency exchange is supplanted basically overnight and now only "gold but only on paper" would be considered the only form of real gold currency.
"Monetized" gold has only existed for 50 years since gold futures started being offered in 1972. But the real "retail era" of "gold but only on paper" started just ~20 years ago with gold ETF's in 2003 (Australia) and 2004 (USA). So in just 20 years, we're now arguing that the norm from the past 3,000 years of gold trade is completely invalidated.
That said, you're not completely out of line with the views of the USA federal government. Gold has fascinating history of regulation. There was the 1933 total ban on private ownership when U.S. citizens were given until May 1, 1933, to surrender all gold coins and bullion. That lasted until 1974. Or that gold bullion is not subject to FinCEN Form 105 (currency) but rather CBP Form 6059B (goods).