Gold as money? – A critical analysis of the Swiss Gold Referendum 2014

By Cian Kristian Wittrup O’Brien



On 30th November 2014, the Swiss population went to vote on the ‘Swiss Gold Referendum’ which was a vote on the Swiss National Bank’s (SNB) gold policy. Due to growing public dissatisfaction with Swiss monetary and banking policy, the proposers of the referendum – the Gold Initiative – wanted to bring increased oversight and accountability of SNB and the Swiss franc back using a twofold move. Firstly, prohibiting future sales of SNB gold (7,8% of total assets) and secondly, repatriating former Swiss gold, increasing its gold stock to 20% of its total assets1.

According to the Gold Initiative, repatriating the former Swiss gold will create a banking system less dependent on foreign currencies and thereby securing the Swiss economy of future uncertainty in currency fluctuations2.

Among the Swiss population was a high ambiguity towards the question. My guess would be that this stems from the relation between the highly complex nature of the question on one side, and on the other, the feeling of gold holding an intrinsic value and historical symbolic value in Switzerland.

Many were very sceptical as repatriating gold could have a negative impact on national finances3.

The referendum raises the fundamental philosophical of what money is, how this is created, and which role gold plays in the constitution of this. Is Gold, as the Gold Initiative suggests, an incarnation of money in its purest form, and a security against future economic uncertainty? Or is gold, in the words of Keynes “…a barbarous relic”4, which is the view that the opposition has adopted?5

In order to investigate this I will draw on Bjerg’s analysis of ‘what is money’ in his book “Making Money: The Philosophy of Crisis Capitalism” (2014). Bjerg describes the double meaning of the phrase making money: redistribution of already existing money, and the literal meaning of creatingnew money6.Using Heidegger’s distinction between the ontic and the ontological Bjerg calls for a better philosophical understanding of the latter.

Heidegger’s distinction between the ontic and the ontological is to be found in his separation of ontology in two spheres: beings (Seiende) and Being (sein)7. Seiende refers to beings that already are, and is limited to the preoccupation of functions of beings in relation to other beings, leading to the question of “what is X” (white, carpenter etc.). This is what Heidegger names ‘ontic’8. On the contrary sein deals not with what is already being, but the ‘to be’-ness of an object. This leads to the investigation of the question of “How is X” and excludes relations in order to investigate the true sein. This is the ontological9.

Applying the notion of ontic and ontological to money, Bjerg initiates a philosophical discussion of the assumptions of money. Instead of asking the ontic question “What is money (in relation to other beings)”, he asks the ontological question “How is it that money exists?”10. In the following, I will use his analysis of how money is created to provide a basis for discussion of the Swiss Gold Referendum 2014 (hereafter SGR). Here I claim that the assumptions of mainstream critique of contemporary money creation is historically and philosophically misplaced and thus impotent.

Theories of Money

There is no superior theory of the being of money, hence Bjerg’s bold and paradoxical statement “money does not exist”11 in a book investigating the very subject. This is derived from the fact that there are different kinds of money in forms of commodities, fiat and credit, where the majority of  this today is money as credit. The three dominant theories of money; Commodity-, Chartalist-, and Credit-Theory all supply an answer to how money comes into being. However, they all also face the ontological problem of the relation between price and value: What is the price of money? In Žižekean terminology price is a symbolization of ‘real’ value of an asset. If money is a symbolization of value, there must already be a system in which to measure value. The problem arises when we use money, the symbolic, to determine the real value, as this can only lead us to the conclusion that money equals value expressed in money, in other words: Money is Money. In heideggerean terminology, we are mixing the distinction between sein and seiende. The Being of money is “…characterized by a particular configuration of the value and price”12. The distinction between sein (the Being) and seiende (being) blurs when it is applied to itself: Money used to describe what money becomes tautological.

Commodity Theory of Money: Money as Commodity (Gold)

“Money has evolved from a particular kind of commodity…which as some point was singled out to perform money”

– Ole Bjerg, 2014, p. 90

This quote captures the essence of commodity theory of money: A commodity is singled out to be different from other commodities due to its intrinsic value and spontaneously functions as money in the market, fostering efficient exchange between agents. Adam Smith described the assumptions of Commodity Theory as follows:

“In a tribe of hunters or shepherds a particular person makes bows and arrows…He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison, than if he himself went to the field to catch them”13.

This is a highly inconvenient system of exchange in a system with more than a few agents. The chance of two agents mutually desiring one and others products in time and quantity is unlikely, why this system of barter exchange is not desirable. As a result of division of labour, Smith derives the idea of money in the form of Gold as a mean of easing the exchange between the agents in the market, making exchange of all goods possible, hence increasing total wealth and welfare14: “Once upon a time there was a barter. It was difficult. So people invented money.” 15.

It is crucial to the theory that gold holds an intrinsic value. This is the kind of assumption at play in the Swiss gold referendum when “the Gold Initiative” seeks a return to the old gold standard as a backing of their currency16. This intrinsic value is what makes it a natural and generally accepted medium of exchange17. In Bjerg’s Žižekean analysis, gold (as money) “coins are simultaneously real value and symbolic representations”18. When creating other coins, paper money, digital money etc., this is a representation of gold, and is thus still anchored to the intrinsic value of gold.

Money creation in commodity theory elevates gold to money in order to enable efficient exchange. It is natural that it is gold due to its intrinsic value, and there is therefore no contradiction since the value of money will always have an intrinsic anchor to the value of the commodity gold19.

Philosophically speaking the problem arises if we reach to the question of value of gold itself: There exists an inherent paradox in addressing value of gold in terms gold20, as this would have the obvious conclusion of gold = gold. In heideggerean terminology, Commodity Theory blurs the very distinction of the ontic and ontological in describing sein (the inherent value of gold) in terms of seiende (gold as money). We end up with an ontological mess, using the ontic to understand the ontological.

According to Bjerg’s analysis21, it is essential for the function of money that exactly this relationship is blurred: people must believe in money, and thus the inherent value of gold22. The problem that must be concealed is that it is a split commodity: it functions both as money (representation of value) and as a commodity with an intrinsic value23. In order to blur this relationship, to address gold ‘magical’ features, that it has value beyond the ordinary sphere of use-values24, it must be excluded from ordinary commodity circulation25. For this purpose, gold must be largely inaccessible, stored in (bank) vaults in order to limit circulation. It is in other words not for safety reasons it must be stored in vaults, but in order to secure its magical features, and sustain the belief in money as gold as concrete value26. Thereby we avoid ‘returning’ to the inefficient commodity exchange of the bartereconomy27.

Critique of Commodity Theory

A critiques of Commodity Theory, is that it relies on the assumption of a barter economy – which unfortunately has never existed28, and consequently is not a very good assumption on which to build the entire foundation of the theory: Natural emergence of gold to money as a spontaneous creation of the market 29. Thereby “Commodity Theory tends to veil the role of force and government in the creation of money”30. Besides this is the already mentioned tautological problems in the price – value discussion.

Chartalist Theory of Money: A State Theory of Money

“Bank-notes are not automatically money of the state, but they become so as soon as the State announces that it will receive them in epicentric payments [payments to the state]” Knapp, 192431

It is from the abovementioned critique of the commodity theory’s neglecting of the role of government force through the fantasy of spontaneous emergence of money, from which the Chartalist Theory of Money originates. The general idea found in Chartalist theorists such as Knapp (1924) and Keynes (1930) is that all money is fiat money32. Fiat money is a creation of a sovereign law33 imposed on citizens in order to collect taxes34. The state dictates which object can be subject of currency – be this old shoes, gold coins, or jewels. Money has in other words no intrinsic value, and is worth nothing more than the law commands. In words of Žižek, it is purely symbolic35. The demand for money and its use in exchange emerges from the fact that everyone knows that it is valid for paying tax36. In order to establish demand and secure functioning of money, there must be a specific debt relation between the citizen and sovereign. The state imposes a primordial debt on every citizen and demands the payment to be made in the state-chosen and state-issued currency37, thus forcing citizens to enter the fiat money economy. As long as the state requires payment in a specific currency, the demand for money is sustained38.

In the case of gold money, there is a discrepancy between the commodity market price of gold and the price of money. Usually the price of money exceeds the one of the commodity39. This surplus is the ‘fiduciary’ and symbolizes (in Žižekean terms) the value added by the very symbolization of money itself40. This discrepancy creates the same paradox as previously, just with another result: gold coin > gold commodity. The fiduciary surplus value is added, a social construction, that only has value beyond the commodity value insofar we agree that it does, it functions as money as long as we act as if this is the case41

Commodity Theory and Chartalist Theory disagree on whether money has intrinsic real value, or is a social construction containing only symbolic value. In Commodity Theory money in form of paper is a representation of real commodity value, while in Chartalist Theory paper money is money because the state says so42. In accordance to the next theory we will review, Credit Theory of Money, it is important to note that they agree on one thing: Money exists43.

Credit Theory of Money

“Credit and credit alone is money. Credit and not gold…is the aim and object of all commerce”44 – A.M. Innes, 1913

In opposition to Commodity- and Chartalist Theory, Credit Theory offers a controversial account of money: Money is first and foremost purely imaginary. Money is not necessarily a ‘thing’, and exchange mediated by money does not require the physical presence of money objects45. Instead of a specific commodity or law backing money, money exists only in the form of debt and credit46, and is therefore not backed by anything else than money itself47.

In his article, ‘What is Money’ (1913), Innes shows how money has always been an account of debt rather than a commodity representation in exchange, and thereby criticizes practice of commodity theory using the example of the tally, which is a wooden instrument for recording debt and credit. “The principal instrument of commerce was neither the coin nor the private token, but the tally”48. The tally evolves into money when it is not limited to the initial buyer/seller, but functions as a mean of exchange with other debts/credits. The value of credit money thus derives from “its capacity to redeem the debtor from his debt”49. From this follows that money does not equal gold as in commodity theory, but rather the creditworthiness of the debtor50. Innes expresses this through a very explicit critique of Commodity Theory:

“Future ages will laugh at their forefathers of the nineteenth centuries, who gravely bought gold to imprison dungeons in the belief that they were thereby obeying a high economic law and increasing the wealth and prosperity of the world.”51.

Not only is there no connection between gold and money, it is also a ludicrous idea that hinders a use of the commodity gold in the real world (“who knows what uses not be in store for it to benefit the whole world”52). Innes replaces the idea of Commodity Theory, gold = money, with the idea of credit = money53. This is essential in understanding contemporary banking and money creation, which I will return to shortly.

In relation to Chartalist Theory, there is a significant difference: While Chartalist debt is always asymmetrical – the citizen is in primordial debt not because of commodity exchange but because of the law – the Credit debt is symmetrical. Paraphrasing Paul Simon’s 1970 song “One Man’s Ceiling is Another Man’s Floor”54, One Man’s Debt is Another Man’s Credit: Credit Theory concludes a symmetrical relationship between the amount of credit and debt. This justifies the assumption of money equalling credit. There is a movement from the citizen (you) owing ‘It’ (the State) in Chartalism, to the individual (I) owing other individuals (you) and vice versa in ‘Credism’55.

Banking in Credit Theory

In Commodity Theory, the role of banks is depositing gold for reasons of convenience56, by issuing certificates of ownership that may be used in commodity exchange instead of the impractical gold. This is what is known as an early type of full reserve banking, in which reserves equals the amount of credit.

In Credit Theory, Innes describes a bank as a fair for settling credit and debt. The value of this credit or debt will naturally depend on the solvency of the debtor57, in this case the bank.

In Commodity Theory, gold must be set apart from other commodities in order to function as money. Applied to the object of money in Credit Theory, debtors that create credit money must be set apart from other debtors in order to create money in which the users believe. This leads to Bjerg’s critique of Innes: Banks are not just fairs for settling debt/credit, but are themselves debtors58.

In order to perform this double role (both being the fair for settling debt/credit and simultaneously being a debtor), the banks must have an outstanding creditworthiness, higher than any other debtor must59. This creates the need for a central bank, which sets a nominal value of money60 and is the guarantee of credit conversion to fiat money.

Creditworthiness is in other words an evaluation of the banks debt-credit ratio plus its future ability to convert credit money to fiat money. To secure a high creditworthiness, central banks/governments usually function as a ‘lender of last resort’, securing moneyness of not only fiat money61, but also the credit money of private banks. This in itself prevents bank runs62 and is what we have seen in e.g. ECB’s quantitative easing programs.

Illustration by Mattias Tjalve
Illustration by Mattias Tjalve

In modern (western) banking, banks produce money as credit ex nihilo (out of nothing)63, and are thereby constitutive for money64. Innes description of symmetrical debt/credit is  no longer applicable. This is easiest described using a fictional example: Agent A deposits 10 USD in the bank. Agent B goes to the bank and takes out a loan of 10 USD, taking the bank liquidity to 0 USD, and thus not entertaining the idea of the credit money backed by fiat money should agent A return to withdraw his funds. Should this happen it would no longer be a bank. The bank must in other words keep sufficient deposits to repay agent A. As there are many more customers in the bank, the likelihood of them all going to withdraw their money at once is rather small, why the bank is able to lend out other agents deposits, with a small risk of everyone claiming their deposits simultaneously (bank run) as long as the idea of bank credits convertibility to fiat money is entertained65. If everybody accepts this system – bank credit as liquid – there is only a need for tying a very small reserve in costly affairs as gold or cash66. This is not how our contemporary banking system works!

Today most banks operate from the fractional reserve model, having only a fraction (1- 2%) of issued credits in reserves67. As we have seen in the example above, it is possible to make credits liquid by entertaining the fantasy of full convertibility to fiat money (full reserve banking). When a customer goes to a bank to make a deposit, the bank adds the deposit to its reserves. When another customer then gets a loan, the bank (usually) does not pay out the deposit in cash fiat money from its reserves, but simple creates a credit ex nihilo and enters it digitally on the customers checking account, now in the form of a virtual deposit that has never existed68. Thereby it does not draw on its reserves, which is much more profitable. As long as the customer does not ask for cash, the bank can, in theory, create as much credit money as it wishes (although most governments have rules on credit creation69, such as the European Basel III requirements70). In the age of digital banking, where almost every agent on the market uses internet banking, credit cards etc., the need for fiat cash is diminishing71, from which it follows that banks can create even more cash without risking a bank run. As long as credit money functions (in a Žižekean reference) “as if” it were fiat money, it serves the constitution of credit as money72 – the very belief that money is cash sustains a system in which money does not equal cash73. As it is evident in data from the National Bank of Denmark (Danmarks Nationalbank) in 2013 there was a “fiat money-credit money” ratio of 1:2074, which indicates a large inconsistency in the traditional assumption of Credit Theory as ‘symmetrical’ debt.

Nevertheless, it is a very profitable business as long as less than 1 in 20 or approximately 5% of debtors wish to convert their deposits to fiat money.

Concluding remarks on Theories of Money

Although their differences, the three theories of money are inescapable intertwined75, which does not take us closer to the initial ambition of identifying a specific ontology of money. Rather it seems that there are several co-existing ontologies at play at once, supplementing each other when their ontological base becomes either tautological or contradictory.

Neither of them gives a fulfilling ontological answer in the heideggerean understanding of this. Nevertheless, we can use the theories in the following analysis to identify claims in the SGR 2014, and thus get a better understanding of which assumptions the agents act upon and what is actually at stake in the discussion of the Swiss reserves of Gold.

Historical remarks on Bretton Woods, gold, and the Swiss Franc

In the post-World War II-era, the Bretton-Woods Agreement was signed in order to stabilize major currencies (IMF run). The member-states (not including Switzerland) pegged their currencies to US Dollars (USD) at a 1 % fluctuation, as this was the one major, stable economy at the time76. The USD was pegged to a fixed gold price through government declaration (a fiat)77, and convertibility to ensure ‘real value’ in currencies. This was named the gold-window. The market value of commodity gold was maintained through strategic buying and selling of gold reserves. In order to keep high gold reserves available, gold from e.g. Switzerland was borrowed (which was a great income for Switzerland)78. USD was philosophically speaking the representation of money in the form of gold. As we have already seen in the analysis of Commodity Theory, the equalling of gold with money is tautological when the value of a commodity (gold) is measured in the representational value (money) which again depends on the money price of gold. The need to maintain the price through strategic buying erodes the illusion of this inherent connection, and rather gives credit to Chartalist Theory (which seems fair since the price of gold was fixed by the US government).

In the 1960’s and early 70’s there was an outflow of gold due to low trust in USD (Vietnam War spending etc.). The increased gold demand created a gap between the commodity price of gold and the fixed USD-gold conversion rate, increasing the risk of a gold run. The price volatility of gold was too significant to back a stable currency (or the currency volatility was too significant to hold a fixed gold price). As an answer to this, President Nixon in 1973 surprisingly closed the gold-window (the Nixon Shock) and thereby ended the Bretton Woods Agreement. Money was decoupled from gold. However, ontologically speaking this was not a decoupling since we have not been able to establish any connection in which gold equals money.

One could have imagined that this would be the end of USD as hegemonic world currency – but quiet on the contrary the USD was strengthened partly due to Federal Reserve’s newfound ability to print fiat money without the fear of a gold-run. This manifested the ideology Chartalism, in which fiat USD equalled money, not because of its intrinsic value, but because of US superiority79. In a third turn, the Federal Reserve (owned by private banks) could not issue infinite amounts of fiat money due to inflation risks, why the continuous growth in ‘money’ was handled by private banks creating credit money ‘as if’ it was in fact fiat money80. This reduced the demand for borrowing Swiss gold, thus reducing the passive income that the Swiss state had enjoyed during the Bretton Woods-era81 and thereby logically reducing the immediate need to own gold.

During this same period of time, and perhaps as a consequence of the Bretton Woods Collapse, there was a shift towards monetarism, deregulating financial markets during the 1980’s, thus lowering liquidity requirements82. Consequently, the shift from Chartalist inspired money creation to credit inspired, fiat cash and credit money was ideologically decoupled.

For many years the Swiss government tried to maintain previous independence from USD, which changed by joining the IMF in 1992. The membership “implied that the Swiss had to change their constitution: until 1999 the franc was officially bound to gold. The gold reserves…were historically regarded as the property of the people which could not be sold.”83. The 1990’s American demonetization of gold led to the removal of the Swiss 1971 constitutional article, requiring the  Swiss franc to be backed by 40 % gold. In 2007 the gold reserves had been reduced to 7,8 %, replaced by “bonds that create income”84.

Analysis of the Swiss Gold Referendum 2014

YES! – a Commodity Theory Approach

“Preserve Your Wealth: Gold is better than Pegging to the Euro” – Peter Schiff85

The YES say’ers of the SGR 2014 draw on assumptions from Commodity Theory86. Gold is singled out to have intrinsic value, in which price equals value: …pursue long-term protection in the form of ‘Real Money’, Gold87. The intrinsic gold value is a mean of security in future uncertainty: “The Swiss Franc will be very stable, leading to a strong economy (on why to vote “yes” for gold)88 which means that “Switzerland will remain a strong independent nation not influenced by EU or USA”89. In the words of libertarian, Ron Paul, a yes to the SGR 2014 is an ‘attempt to bring more oversight and accountability to the SNB…’90. Or in the words of the initiative:

Nur mit einer unabhängigen Nationalbank bzw. einer unabhängigen Währung könnten Selbständigkeit und Wohlstand der Schweiz gesichert bleiben. Je grösser die Goldreserven sind, desto unabhängiger bleibt die Nationalbank und desto weniger kann sie von aussen

88 Matterhorn Asset Management (November, 2014) ”Save Our Swiss Gold” 89 Matterhorn Asset Management (November, 2014) ”Save Our Swiss Gold” 90 Paul, Ron, October 2014: “All Eyes on the Swiss Gold Referendum”

unter Druck gesetzt werden. Die vorliegende Initiative stärkt somit nicht nur die Unabhängigkeit der Nationalbank, sondern der Schweiz insgesamt.91

In commodity theory “YES“ say’ers refer to the intrinsic value of gold, securing independence and a prosperous economy, implying a return to gold92 as a monetary standard.

Whether this is a good idea or not I will not comment on, however, according to the previous analysis of Commodity Theory, there are several philosophical and historical problems in the assumption of the initiative, Ron Paul etc.

As we have already seen, Commodity Theory not just is an ‘ontological mess’, building on the tautological truth of money equals gold equals money, but also relies on this very blurriness to function. In other words, we must assume this connection to be a priori true: Instead of investigating the ontological, we describe the ‘ontological’ with a reference to the ontic. The advocates for the 20% gold reserve expose a distinct absence of any attempts to explain why gold creates stability and prosperity in other than historical references to the previous income of the Bretton Woods-era: “the

Bretton Woods period.”93. A quiet obvious problem of inconsistency of this argument is firstly, that it is not considering the historical context: One reason for the previous Swiss prosperity and security in gold was exactly linked to the fact that the Bretton Woods agreement existed – the passive lending income. In a world in which this no longer exists, it is hardly a valid argument. Another problematic argument, however common reference, is the historically incorrect94 fantasy of the spontaneous emergence of gold as money in a barter economy, leading to the Ron Paul recommendation of “returning” to a gold standard.

In Commodity Theory, paper money should be a representation of real value. This is the terminology used by the Gold Initiative, when they predict that the gold requirements will have the positive impact that the “Swiss National Bank can no longer gamble with our economy by printing hundreds of billions of worthless paper money”95.

Finally, in Bjerg’s Žižekean analysis, gold must be excluded from normal commodity circulation in order to single in out as a different commodity having intrinsic ‘magical’ features. It must be made inaccessible by placing it in bank vaults etc., which is exactly what the initiative advocates in their three demands: 1. No further gold sales by the SNB! 2. All Swiss gold stored in Switzerland 3. The SNB must keep at least 20% of total assets in the form of gold96. Intentional or not (my guess would be that the gold initiative relies on a feeling of the intrinsic value of gold, rather than a conspiracy to exclude gold form circulation in order to give it magical properties), the effect would be “reconnecting” gold and money.

These less than convincing assumptions have naturally led to a severe critique. The critique is divided into two types of assumptions: Chartalist- and Credit Theory of Money.

Maybe? – A Chartalist Approach

As we have seen, in Chartalist Theory, all money is fiat money, and exists only insofar the government (or sovereign) decides so through law or force. Therefore there would be no ontological problem with the Gold Initiative’s estimated consequence of a “No”, that “Swiss National Bank will print additional CHF 100s of billions”97. Having said this, it does not mean that this cannot cause technical problems such as a surplus production of money will lead to a reduced demand for money, thus creating unintended inflation. This risk of inflation is further increased due to the CHF being pegged to the Euro, and thereby subject to the possible inflation of the ECB’s Quantitative Easing98. In terms of Žižek, as long as money functions ‘as if’ it were money, it is in fact money. In this sense, there is no reason to spend enormous resources collecting gold as security, as the law already performs this security. Money is a social construction, which can have any form that suits the government99.

However, if Switzerland seeks independence from USD or ECB it might make sense to constitute money as something that is not denominated in these currencies – e.g. in the form of gold backed paper money. This would be a solution to the problem posed by Ron Paul: “…no tyrannical regime in history has bullied Switzerland as much as the United States government has in recent years.”100. In order to seek independence from USA, it might be desirable to denominate Swiss money in a value that does not refer to the USD. Instead of an ontological discussion of value, this approach would call for a technical analysis, in which the market and previous prices are studied thoroughly in order to make the right decision101.

No!” – A Credit Theory Approach

In credit theory, money is not ‘a thing’ but recording of debt. The value of this is expressed as creditworthiness, which in turn is an expression of present and future ability to meet obligations to creditors. High future income means high creditworthiness. For banks to be constitutive of money, they must be set apart from all other debtors by having the highest creditworthiness. This is secured by a central bank, lender of last resort, which guarantees convertibility of credit to fiat money. The central bank must possess the ability to meet future obligations of private banks that create money ex nihilo. It must do this through responsible asset management i.e. preserve creditworthiness, thereby preventing bank runs, which could ultimately unveil the fact that most credit money cannot be converted to real fiat money.

Danish economist Jakob Graven comments as follows on the SGR 2014 (translation): ”Usually it is not wise to have a large portion of the balance invested in a certain good. And in this case, something you can’t even sell.”102, 103. Here gold is evaluated as any other investment that minimizes the risk of SNB’s portfolio. The lower the risk, the higher the creditworthiness of SNB. Graven continues, arguing that repatriating gold would have been a costly affair for the Swiss citizens, as gold would not generate the same profit as bonds, which potentially would cause an increase of income taxes104.

This is consistent with the statement of SNB president, Thomas Jordan: “The initiative is both unnecessary and dangerous”…“It is unnecessary because, under the current monetary order, there is no link between price stability and the share of gold in the SNB balance sheet.”105. This point puts emphasis on the decoupling of money and gold: In a post Bretton Woods-era, monetary stability is not linked to such “barbarous relics” as gold. Instead of investing in an unnecessary commodity, the bank should invest in activities maintaining or increasing creditworthiness, i.e. profit generating activities “Gold generates no income as opposed to bonds”106.

Considering our contemporary monetary ideology, Credit Theory, there is nothing controversial in the views held by SNB president and Jakob Graven: Money is credit, and stable credit equals high creditworthiness. Reducing liquidity in acquiring gold that produces a lower future expected return than bonds, will reduce SNB creditworthiness, and thus making it a less reliable ‘lender of last resort’, ultimately weakening CHF and Swiss economy as a whole.

When decoupling credit from commodities and fiat money, business becomes much more profitable, hence reconnecting money and gold seems like a rather unprofitable decision.

Discussion and Conclusion: Commodity Theory – an Impotent Critique

The analysis of the SGR 2014 has shown that the philosophical views on ‘what is money’ of the different opposing positions do not operate within the same assumptions, thus making the critique of the common Credit Theory approach not only misplaced, but also largely impotent. When Ron Paul, the Gold Initiative, Peter Schiff among others argue that larger gold reserves will stabilize the Swiss franc, their critique is very easily dismissed with a reference to their assumptions as ‘barbaric relics’: In the words of Innes, future generations will merely laugh at it.


Commodity Theory Chartalist Theory
Commodity (gold) is elevated to money. Money is not determined by intrinsic value of object
Intrinsic quality Can have intrinsic quality, but does not necessary have it.
Value of money = value of commodity Value of money does not equal value of commodity
Money exists, and has a real inherent value. Money exists, but has only symbolic value
Value/price relation Value/price relation
Emerge spontaneously Emerge as order of law


In order to create a potent critique of contemporary money creation and thereby the arguments of Jakob Graven, and SNB president, Thomas Jordan, we must engage in a critique of the very assumptions on which their ideology builds.     As shown earlier, Innes’ assumptions of symmetrical debt in Credit Theory is far from reality in today’s money creation – thus the need to maintain the fantasy of this in order to prevent bank runs. Instead of answering the question of ‘how do we secure future monetary stability’ with ‘let us buy some gold’ or ‘let us invest in bonds’, one may rather pose the question of ‘How do we wish to create money in the future? Do we wish to leave it in the hands of private banks? Do we wish to let banks profit from money creation ex nihilo, and back them with fiat tax money in cases of liquidity problems?’ These questions question the very foundation of contemporary theory of money creation, and allow us to reconsider the foundation on which we build our economy.


Model 1: Overview of Commodity Theory of Money and Chartalist Theory of Money

The Swiss Gold Referendum 2014 was a chance to discuss the ontological assumptions of Swiss money creation, instead contemporary theory easily dismissed critique and thereby ended up convincing 78 % of Swiss voters to vote against increasing gold reserves in SNB by law. It is out of the range of this essay to comment on whether increasing gold or not makes sense in the case of SNB, however, it is clear that contemporary theories have considerable ontological inconsistencies, which calls for a discussion of contemporary assumptions of money creation.


1 Paul, Dr. Ron; All eyes on Swiss gold, The Daily Reckoning, Oct. 8, 2014

2 The Gold Initiative (November 2014) – Argumentation

3 Dorgan, George, March 2013: “SNB Concerned”: Does a Yes to the Swiss Gold Referendum Imply an End of the CHF Cap?

4 Keynes, 1923, p. 172

5 Dorgan, George, June 2014: Swiss Franc History, 2000-2007: The Sale of Swiss Gold Reserves

6 Bjerg, 2014, p. 1

7 Bjerg, 2014, p. 2

8 Bjerg, 2014, p. 5

9 Bjerg, 2014, p. 3

10 Bjerg, 2014, p. 4

11 Bjerg, 2014, p. 83

12 Bjerg, 2014, p. 87

13 Smith, Adam; An Inquiry Into the Nature and Causes of the Wealth of Nations; Thomas Nilsson Edinburgh, 1843, p. 7

14 Bjerg, 2014, p. 92

15 Graeber, David; Debt: The First 5,000 years (2011), Melville House Printing, p. 28

16 Paul, Dr. Ron, October 2014: “All eyes on Swiss gold”

17 Bjerg, 2014, p. 92

18 Bjerg, 2014, p. 92

19 Bjerg, 2014, p. 113-114

20 Bjerg, 2014, p. 95

21 Bjerg, 2014, 93-100

22 Bjerg, 2014, p. 90

23 Bjerg, 2014, p. 96

24 Bjerg, 2014, p. 97

25 Bjerg, 2014, p. 99

26 Bjerg, 2014, p. 99

27 Bjerg, 2014, p. 100

28 Graeber, David; Debt: The First 5,000 years (2011), Melville House Printing, p. 29-30

29 Bjerg, 2014, p. 100

30 Bjerg, 2014, p. 100

31 Knapp, 1924 (1973), p. 135

32 Keynes, 1930 and Knapp, 1924 (1973)

33 Bjerg, 2014, p. 270

34 Bjerg, 2014, 101;103

35 Bjerg, 2014, 110-111

36 Bjerg, 2014, p. 103

37 Bjerg, 2014, p. 106

38 Bjerg, 2014, p. 105

39 Bjerg, 2014, p. 103

40 Bjerg, 2014, p. 110

41 Bjerg, 2014, 110-111

42Appendix 1, Model 1

43 Bjerg, 2014, 114

44 Innes, 1913

45 Bjerg, 2014, p. 117

46 Innes, 1913

47 Bjerg, 2014, p. 120

48 Innes, 1913

49 Bjerg, 2014, p. 119; 126

50 Bjerg, 2014, p. 127

51 Innes, 1913

52 Innes, 1913

53 Bjerg, 2014, p. 119

54 Simon, Paul; One Man’s Ceiling is Another Man’s Floor., There Goes Rhymin’ Simon (1970)

55 Bjerg, 2014, p.123-124

56 Bjerg, 2014, 124

57 Bjerg, 2014, p. 125

58 Bjerg, 2014, 126

59 Bjerg, 2014, 127-128

60 Bjerg, 2014, 127-128

61 Bjerg, 2014, 142

62 Bjerg, 2014, 146

63 Bjerg, 2014, p. 129

64 Bjerg, 2014, p. 130

65 Bjerg, 2014, p. 131

66 Bjerg, 2014, p. 131

67 Bjerg, 2014, p. 134

68 Bjerg, 2014, p. 174-175

69 Bjerg, 2014, p. 183

70 Basel III requirements:

71 Bjerg, 2014, 135

72 Bjerg, 2014, 137

73 Bjerg, 2014, 140

74 Bjerg, 2014, 168

75 Bjerg, 2014, p. 149-150

76 Bjerg, 2014, 156-7

77 Bjerg, 2014, 159

79 Bjerg, 2014, 165

80 Bjerg, 2014, 173

81 Dorgan, George (June 2014) “Swiss Franc History, 2000-2007: The Sale of Swiss Gold Reserves”

82 Bjerg, 2014, 189

83 Dorgan, George (June 2014) “Swiss Franc History, 2000-2007: The Sale of Swiss Gold Reserves”

84 Dorgan, George (June 2014) “Swiss Franc History, 2000-2007: The Sale of Swiss Gold Reserves”

85 Dorgan, George (June 2014): “Peter Schiff’s Message to Switzerland: Preserve Your Wealth, Gold is Better than Pegging to the Euro”

86 According to the empirical data collected for this essay.

87 Matterhorn Asset Management, (November, 2014) ”Matterhorn Asset Management supports ‘The Swiss Gold Initiative’”

91 Translation: Only with an independent National Bank and an independent monetary independence and prosperity of Switzerland could remain secure. The larger the gold reserves, the more independent is the National Bank and the less they can be set from the outside under pressure. This initiative thus not only strengthens the independence of the National Bank, but the total Switzerland. http://gold- 3rd December, 2014

92 Paul, Ron, October 2014: “All Eyes on the Swiss Gold Referendum”

93 Dorgan, George (June 2014) “Swiss Franc History, 2000-2007: The Sale of Swiss Gold Reserves”

94 Bjerg, 2014, p. 100

95 Matterhorn Asset Management (November, 2014) ”Save Our Swiss Gold” 96 Matterhorn Asset Management (November, 2014) ”Save Our Swiss Gold” 97 Matterhorn Asset Management (November, 2014) ”Save Our Swiss Gold” 98 Paul, Ron, October 2014: “All Eyes on the Swiss Gold Referendum”

99 Bjerg, 2014, p. 110

100 Paul, Ron, October 2014: “All Eyes on the Swiss Gold Referendum”

101 Bjerg, 2014, 36-37

102 Børsen, 1st December 2014:”

103 Translation from Danish: Normalt siger man, at det er ikke klogt at have en stor del af balancen i en bestemt ting. Og i dette tilfælde noget, som man ikke engang kan omsætte

104 Toft, 2014 (Børsen)

105 Forbes Magazine, November 2014: “Swiss Voters Reject Increasing Gold Reserves in Referendum”

106 Dorgan, George, March 2013: “SNB Concerned: Does a Yes to the Swiss Gold Referendum Imply an End of the CHF Cap?”


Basel III requirements:

Bjerg, Ole (2014); “Making Money: The Philosophy of Crisis Capitalism”, Verso, London

Børsen, 1st December 2014, “Schweizerne stemmer nej til gyldent forslag”, Børsen (Virksomheder),  ldent_forslag.html#ixzz3LEqTzv1I

Paul, Dr. Ron (October 2014) “All eyes on Swiss gold”, The Daily Reckoning, Oct. 8, 2014,

Dorgan, George: (March 2014) “SNB Concerned: Does a Yes to the Swiss Gold Referendum Imply an End of the CHF Cap?”, SNBCHF, March 22nd 2013,

Dorgan, George (June 2014): “Swiss Franc History, 2000-2007: The Sale of Swiss Gold Reserves”, SNBCHF, June 22nd 2014,

Swiss Franc History, 2000-2007: The sale of the Swiss gold reserves

Dorgan, George (June 2014): “Peter Schiff’s Message to Switzerland: Preserve Your Wealth, Gold is Better than Pegging to the Euro”, SNB


CHF, 22nd June, 2014,

Forbes Magazine: Swiss Voters Reject Increasing Gold Reserves in Referendum, 30th November,   2014  increasing-gold-reserves-in-referendum/

Graeber, David, 2011: “Debt: The First 5,000 years”, Melville House Printing

The Gold Initiative (November, 2014) “Argumentation” from homepage:   (28th   November  2014)

Innes, A. Mitchell, 1913: “What is Money?”, The Banking Law Journal 30, (  )

Keynes, John Maynard, 1923 (1924); “A Tract on Monetary Reform”, MacMillian & Co., 2nd print   (1924)

Keynes, John Maynard, 1930 (1976) “A Treatise on Money” Volumes I and II, New York: Harcourt, Brace & Company

Knapp, G.F., 1924 (1973), “The State Theory of Money”, Clifton, New York (USA)

Matterhorn Asset Management, (November, 2014): ”Matterhorn Asset Management supports ‘The Swiss Gold Initiative’”.

Matterhorn Asset Management (November, 2014) ”Save Our Swiss Gold”

Smith, Adam, 1776 (1843): “An Inquiry Into the Nature and Causes of the Wealth of Nations”, Thomas Nilsson Edinburgh  e_summary_r&cad=0#v=onepage&q&f=false

Simon, Paul, 1970: “One Man’s Ceiling is Another Man’s Floor”, There Goes Rhymin’ Simon

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