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Got into another abolish the federal reserve system and bring back specie thread. Since I’ve been taking part in such discussions for more than 40 years I know most of the arguments and while I support the basic proposition the assumptions used in this debate are curiously uninformed. Some basic points:

Gold as money is hobson’s choice. Specie has the least bad track record of money including central banks. With horrendous disasters such as the 30s depression, the South Sea Bubble (UK)/Mississippi Scheme (France) and other less memorable nightmares caused directly by central banking the advocacy of central banks to control money lacks all credibility.

Central banking being at least a borderline insane way of running a currency in no way implies that the various criticisms of specie are without merit. A 2100 USA with fully backed warehouse receipt currency is not going to be Heaven on Earth in any sense of the word. It will avoid the kind of disaster that is currently going on in the mortgage market but not other kinds of disaster. Exchanging hyperinflations and the probability of a decade long depression at least once every normal lifetime for hurky-jerky money growth and more frequent and more severe but much shorterlived downturns strikes me as the much better choice.

Since precious metals are a storehouse of value they encourage savings and investment at the cost of consumption, particularly consumer debt. Taking out a note to buy a depreciating asset such as a new car or computer is a monstrously bad idea with specie. KIA style warranties will be the norm for cash purchases, much better warranties will be needed to get financed purchase buyers into the new car showrooms. By the by in the recent real estate boom your house went up by less than zero what went up in value was the lot and land improvements. So no mortgage boom with specie.

During the transition from fiat to specie currency the national debt will at first go up in terms of federal reserve notes and then go down quickly. This is the famous Gresham’s law. Federal obligations are denominated in federal reserve notes and they will remain money while being retired from circulation. They will remain valuable as a way of paying taxes and two tier pricing will emerge quickly say .2 ounce in gold vs. $400 for a printer. Smart businessmen will buy t-bills and pay their taxes with those.

But the major wildcard in the switch to specie is the development of space and that is one of the major problems with most of the arguments of fiat vs. specie currency. So let’s go into this in a bit of detail.

Let’s say you are a major sports team owner or the leader of a nation that wants to sweep the Olympics. You need better athletes than your competitors. You can’t buy better athletes either because of salary caps or because they aren’t your citizens. You can’t use steroids because you will get caught. If you pull some stunt that is currently legal the rules will be changed to make your stunt illegal. Bummer that! Wait a second, what if your stunt benefits the world? That could work. Particularly if you don’t get greedy and offer the same deal to your competitors at a substantial but reasonable profit to yourself.

What kind of stunt would work like this? Capturing asteroids that cross Earth’s orbit and putting them into orbits that do not mess with satellites can be sold as altruisitic. Out of the kindness of your little heart you are preventing a dinosaur killer from hitting the Earth. You might get the Nobel prize for this stunt. Take an asteroid and smelt that sucker to make a habitat/space station and spin it so it that produces say 2 gs and make it the training camp for your team. That means that your team will be building muscles and developing faster reflexes even while eating popcorn and watching film. This kind of continuous g stress has been tested in rats and dogs. It improves health and increases life expectancy. This is better than implanted steroid pump for improving athletic performance. Your team will become the biggest, strongest and fastest players in their competition(s). Everybody in every athletic field will want that kind of training camp. One of the byproducts of getting the materials for such a training camp is about 0.02% precious metals. (The old L-5 magazine had an article on the analysis of the composition of asteroids.)

Let’s examine that. Isn’t 0.02% gold and silver content only slightly better than the dirt in your backyard? No, but it is much lower grade ore than the breakeven point for $1,000/ounce gold and a lot of it is silver. So what am I babbling about here?

The gold and silver is part of the slag produced getting other materials such as oxygen, hydrogen, carbon, nitrogen, iron, nickel and aluminum needed to build training camps. The slag heaps are much richer in precious metals
than the original asteroid. Better yet most extraction costs are capital costs.
Build a hot box. Heating big hunks of rock to say an interior temperature of 200 degrees F for 12+ hours lets volatile elements inside the rock crack it. These volatiles will form an atmosphere within the hot box that can be bled off and used later. Sticking the rock directly in front of a solar furnace at say 3000 degrees before baking is called the cheez-whiz in the microwave solution. The possibility of boiling off hydrogen from one compound and oxygen from another nearby compound is especially bad but flash heating ice into water while less bad will still ruin your whole day not to mention the millions of square yards of aluminum foil that make up the solar furnace.
Build a solar furnace. Send the rocks in along one axis and set up teflon coated electrodes on the other axis and opposite the entry point. Let cool and repeat until layers of chemically pure elements build up on the electrodes.
Let the research lab experiment with the stuff not needed for the task at hand and let marketing sell any stuff that isn’t needed but does have a ready market i. e. gold, silver and platinum.
Unless somebody does something stupid maintenance costs are close to zero. Just keep on keeping on and produce specie as a byproduct of producing say foam iridium tank/car frames. Foaming metal in zero g means keeping 90% of the strength at 10% of the weight by introducing a gas into the metal while molten. It also means that a fenderbender happens when you make contact with a shaped charge 6′ shell so if you are in the car you will be too dead to make a warranty claim. And the claim might not be too valuable because the damage to the car might not exceed the deductible. Gold and silver as a byproduct of making such products should not be affected by prices $10/ounce Gold or $.5 Silver.

All of the above may be possible today. DARPA prize research on tethered satellites and X prize research on cheap 100 km rockets need little if any improvement to create space industrialization and that means continuous gold price drops in the near future. Implementation of transition to specie from fiat currency with that kind of overhang should be good for another article.