Friday, August 21, 2020

The case for banning gold mining

The Kalgoorlie Super Pit Mine in Australia

Does the world need gold mining?

Let's think about what a world without farming look like. If all farming came to a stop, we'd soon use up all of our inventories of wheat, soy, rice, and vegetables. Mass starvation would rapidly ensue. A world without crude oil production wouldn't be much better. We have plenty of the stuff above-ground. But since oil products are destroyed in usage, we'd run out pretty quick. Society would grind to a halt.

But if gold mining were to suddenly stop, nothing bad would happen.

The unique thing about gold is that it doesn't get used up. The main way we consume the yellow metal is by storing it, say in vaults or by wearing it as jewellery. Compared to how we use an industrial metal like copper, this sort of usage is very safe. Copper parts in machinery, for instance, are dissipated by abrasion and wear. But gold just sits there, untouched.

Nor does gold depreciate. Unlike most materials, it is almost indestructible. Copper corrodes, steel rusts, wood rots, and concrete crumbles. But a gold coin from 200BC is still perfectly lustrous.

Nor does the yellow metal suffer from technological obsolescence. Gold keeps doing the same thing it has done for thousands of years.

And obviously we don't eat the stuff.

The upshot of all of this is that most of the gold that has ever been mined continues to exist in the form of bullion or jewellery. The World Gold Council estimates this amount to be around 190,000 tonnes. This above-ground stock of the metal dwarfs the amount of new mine production, which runs around 3,000 tonnes per year.

Were this 3,000 tonne trickle were to come to an end, we'd still have plenty of the yellow metal to meet our needs. The existing stock of gold is incredibly flexible and can repurposed into whatever form we want. Gold fillings can be melted down to mint coins, which can be recycled to produce circuits. Circuitry can be melted down to form bars, which can be melted down to gold fillings.

There is a second reason why we don't need new gold mining.

Our demand for most things is defined in terms of physical units. But our demand for gold is expressed in terms of dollars.

Let me give a better explanation for this difference. To make breakfast for a gathering of friends, say that I plan to get a package of bacon, a dozen eggs, and a litre of milk. When I arrive at the grocery store I discover that the price for these things is higher than I thought, and I can't afford everything on my list. It'll be a disappointing breakfast for my friends.

But our demand for gold is different. Say that I want to buy some gold to hold in a vault. It doesn't make a difference to me that the price is higher than I planned for. If the price is $1000, I'll buy 1 ounce. If it's risen to $2000 I'll buy 0.5 ounces. Either way I end up with the same $1000 worth of gold. I'm perfectly indifferent between these two states of the world.

Because our demand for gold is expressed in dollar amounts, there can never be a shortage of the stuff. If everyone on earth suddenly wakes up wanting to own twice as much gold as before, the price of gold can rise to whatever price is necessary to meet that demand. Not so with pork, or eggs, or milk. If everyone suddenly wants to eat twice as much pork, there's nothing that can satisfy that demand except for a huge ramp up in production.

So to reiterate, society doesn't need new gold mining. The stuff is virtually indestructible, and any increase in demand can be instantly satisfied by a rise in price, not new production.

By the way, I'd have a different opinion on this if we were still on a gold monetary standard. Under a gold standard, all goods & services prices are defined in terms of a fixed amount of gold. A steady stream of new gold from mines would help mute large fluctuations in the demand for gold, thus making the general level of consumer prices more stable. But ever since 1968 the gold link has been severed.

Now let's go onto the next issue. If we don't need new gold, why not just ban gold mining?

Mining imposes many costs on society. To begin with, mining is incredibly invasive. Pascua Lama, a project in Chile that has yet to be developed, originally envisioned relocating entire glaciers to get at the underlying gold formations. The Donlin mine in Alaska involves moving "one mountain to another." Clearing out mine sites destroy forests, wetlands, and displaces wildlife.

When rock is processed to retrieve gold, the uneconomic reminder, known as the tailings, must be kept in large reservoirs know as tailings ponds. Dangerous chemicals like cyanide are required to "leach" gold from rock. The breach of a tailings pond at the Mt Polley gold mine in British Columbia, Canada led to 10 million cubic metres of water contaminated with arsenic leaking into nearby lakes and rivers.

Mt Polley before and after a tailings pond leak

Earthworks, an environmental group, calculates that 20 tons of toxic waste are produced for every 0.333-ounce gold ring.

Finally, the various steps in producing gold—mining, milling, and smelting—create large amounts of green house gases, as does the associated usage of electricity to power a mine.

So to review, banning gold production won't hurt society—we don't need more of the stuff. To boot, we'd be getting rid of an activity that hurts the environment.

Yes, there are drawbacks to a ban, too.

Mining provides employment. Not only would a ban destroy the livelihood of hundreds of thousands of miners. All the related businesses that depend on the local gold mine, say restaurants or local retailers, would collapse.

To avoid mass dislocation, gold mining bans would have be carried out slowly. Perhaps existing mines could be allowed to operate until they are no longer economic, but gold prospecting, mine extensions, and new mines banned. These policies would have to be accompanied by large budgets for relocation and retraining. 

But even if dislocation could be managed, there remain other problems.

The production of drugs like cocaine is illegal, but this hasn't stopped drugs from being produced. The same applies to gold. No doubt production bans would be fairly effective in countries like Canada and the U.S., but what about Kazakhstan and Guyana?

Unfortunately, a ban on global gold mining could end up replacing relatively safe and clean gold production with dirtier and more dangerous types of mining. A small but significant chunk of global production is carried out by artisanal miners; family-run outfits that do not exist in an official capacity. Because they are small and agile, artisanal producers could more easily evade a ban. Unfortunately these black market producers are not likely to be held to the same environmental and labour standards as large multinational miners.

A ban on gold production could create a more general problem. Historically we have banned products that are dangerous to consumers, say like drugs. But in this case we'd be introducing a new set of criteria for instituting a ban; because some product serves no purpose. Maybe you think that zombie movies are a waste. Does that mean we should stop allowing producers to make new zombie films? This may be a door we don't wish to open.

So as you can see, banning gold production has merits and warts.

But in theory, the idea makes a lot of sense. If something is indestructible, and we only want dollar amounts of it rather than ounces, why the devil are we wasting time and resources producing it? As long as we can successfully shift gold mining communities to other forms of employment, then ending global gold production makes a lot of sense.

44 comments:

  1. One issue you didn't mention: the price would immediately skyrocket. You would thus shower rewards on the people who supported this supposedly destructive activity. Can't imagine having a bunch of newly-minted "gold billionaires" is smart for society.

    The price increase would also create new lines of activity trying to "mine" gold in not-illegal ways (asteroid capture?).

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    1. Yes, the gold price would rise, and this would help anyone holding gold. But would it skyrocket? Production only accounts for a small amount of existing stocks. And remember, mines wouldn't immediately stop producing, existing mines could keep going for a decade or two.

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    2. Gold is a global asset held by very many diverse groups of people over the world. Like central banks and governments. Money for thousands of years. Your argument about an externality of creating gold billionaires is laughable and can be compared to not caring about climate change because some companies will make billions on the trend. Mining companies are destroying the earth ecosystem so I would argue that consideration is a priority above your stated concerns.

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    3. The price will skyrocket regardless, but that would make it skyrocket much faster and higher

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    4. Democrats are gypsies and love their oil, gold and gold mining...!!! Gold mining produces a lot more waste than nuclear.

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  2. So, basically, you want the poor to remain poor.

    Gold mining is something poor people do to get rich.

    Of course, rich corporations are in the race too, but at least, this gives work to poor people who still benefit from it.

    You would have an argument, if we still used the gold standard for our money (and I think we should, but this is another question). In that case, mining new gold would be similar to printing money, and could only be condoned if it was done at the same rhythm the global wealth grows. Otherwise, see what happened to Spain (but note that even in the case of Spain, it wasn't really mining, but stealing already mined gold). But even in that case, since global wealth grows way faster than the gold stock, mining wouldn't actually be a problem (only theoretically). In any case, we would have to adjust prices in gold just like we would have to manage paper money sanely (which is not done, so who cares anyway?!).

    To conclude, remember the Yap-yap use big round stone (unmovable in practice) as coins. They only exchange ownership titles. The quantity of stone doesn't matter, and indeed, the quantity of gold doesn't matter. If we'd have only 1 gram of gold on the planet, we could still use it as money to represent the total (variable) wealth of the planet.

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    1. "...this gives work to poor people who still benefit from it."

      The idea would be to provide resources to communities who need it to help them shift away from gold mining. It would be done slowly; an inter-generational switch.

      "You would have an argument, if we still used the gold standard for our money..."

      We have different views on this. During a gold standard, it's beneficial to have a consistent flow of new gold to help counterbalance deflationary increases in the demand for gold. (But while this part of the debate is interesting it's mostly off-topic, since we don't have a gold standard.)

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    2. The gold standard will soon be reimplemented and not by choice

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  3. Rather than an outright ban, perhaps high taxes on the pollution/destruction caused by mining could encourage it to "naturally" decrease. This has the same compliance problem as a ban but it seems easier to argue for in our market-based world.

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    1. Good point, Wes. Ideally, the tax revenue would flow back to the communities themselves, to help them reconfigure their post-gold mine lives.

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  4. Gold does have industrial uses.

    About the mining of metals generally -- we are actually going to need a hell of a lot more copper (and other metals: nickel, RREs, PGEs, etc) if we are going to undertake rapid decarbonization. Greener tech requires metals.

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    1. My argument definitely does not apply to metals in general.

      But industrial uses for gold are pretty negligible relative to the existing stock of the stuff.

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    2. Dear sir. Without gold you could not post this article. Gold is often a byproduct of silver...copper and and entire host of other metals that are essential in just about every electronic device that exists. In fact silver is used in thousands of non electronic applications. Some would also suggest that gold is transportable silver. Quite frankly your article is preposterous. Perhaps you should become more informed before you publicly publish such nonsense.

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  5. We are on a gold standard so now what?

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  6. Gold prices are going up and up and demand is also going up and up. why are we wasting our money to buy it then?

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    1. We can't eat dollars either..why waste our time printing them?

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  7. Tell that to China lol

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  8. The search for all the existing lost gold off the beaches and in the ancient cities would destroy not only as much earth as miners are destroying, but they will destroy the remaining evidence of human past history. That's worth more than gold. It will happen because the greed and necessity for gold is inherent in mankind for some odd reason

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  9. NOte, I had to edit one very important point about deflation so am reposting:

    Eventually, the people of the world will see that paper currencies do not work. When the current system collapses a system that people can believe in will need to be created. This will be a gold-based system because gold has been valued and trusted since the beginning of recorded history. The beautiful thing about the level of current mining production is that it is in the 2% range of gold already above ground. This will naturally allow for enough built-in inflation to allow the money supply to grow and NOT deflate, this being one of the primary concerns about the use of a gold standard. Since mining largely occurs in poorer parts of the world, I believe that gold mining bans would be hard to enforce. Sanctions against poor nations violating such a ban would only hurt those people trying to work their way out of poverty.

    While this article was very well thought out and written, the last thing we need to do is ban an activity that supports the building of real money supplies in the world. In my view freedom, the rule of law and the use of gold as money has helped move billions of people from poverty to wealth. Let's not stop mining a product which so many central banks and people value and use to maintain their wealth around the world.

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    1. You make a lot of good points.

      "The beautiful thing about the level of current mining production is that it is in the 2% range of gold already above ground. This will naturally allow for enough built-in inflation to allow the money supply to grow and NOT deflate..."

      Yep, agreed.

      But that's a good argument for restarting gold production when (or if) we get back to a gold standard. It doesn't justify mining gold when we're not on a gold standard.

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  10. Have you even looked at the mining regs. Let alone thr reclamation bond you have to put up for large scale mining. For instance even small 1 man operations have to plant 3 trees for every one removed how bout getting informed before speaking

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  11. Wow love when people open there mouth about stuff they don’t comprehend mining is mining and all have different methods of production and all have different lvls of dangerous impacts on the ecosystem I can see trying to curve they way people use chemicals but mining will never stop even if you make it illegal end of story !! And just so we are clear mining for gold also produces copper, iron , platinum (ect) so saying let’s stop just gold mining then people will still mine for gold , iron , copper (ect) Lol the only way to get people to stop mining for stuff is to make it valueless and that will never happen to gold !!!

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  12. This comment has been removed by the author.

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    1. Yes the author remove the comment and he's a commie p****

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  13. What about this? https://cointelegraph.com/news/bitcoin-a-hedge-against-elon-musk-mining-asteroid-gold-say-winklevoss-twins

    Don't think this is far-fetched. According to NASA, there are several hundred quintillion dollars worth of metals even in asteroids that are Near Earth Objects. The Luxembourg Space Initiative has basically said "finders keepers" as companies just have to open an office there for tax free profiteering. If you research asteroid mining, it's a real eye opener.

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  14. Both at the grocery store and at the "gold store" you get less with your money . . Is 1 ounce not better then .5? I see no difference. Is there an example where rising prices meets demand anywhere? This makes little sense to me.

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    1. "Either way I end up with the same $1000 worth of gold" um yeah, and an ounce less of gold. Your point?

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  15. If your POV distinguished between artisanal and industrial mining then your environmental claims would make some sense, but by commingling those vastly different activities, your claims don't really hold water. I'm a part-time artisanal gold miner so I do have a bias, but I have also swam in the deep river pools created by suction dredging in CA, and have come face to face with salmon and other fish escaping warm water. There are many efforts underway to move artisanal miners away from mercury, which is often used badly. Everything we as humans do damages the environment in some way - the key takeaway IMO is to limit that damage to a rate below that which overwhelms the environments ability to recover. Excepting the use of mercury in artisanal mining (which btw can be done safely even though it usually is not), the average artisanal miner does less damage to the env than the average bear. Industrial scale mining is a different story altogether.

    Your bacon and eggs story doesn't make sense to me - as we learn in basic econ, there are almost always alternative choices which tend to keep demand, and so prices, elastic. So cut down on the bacon and add some potatoes. Gold does show some elasticity, since there are often alternatives, such as the use of silver in jewelry, but maybe not a whole lot, since gold has unique properties.

    All in all (even though I think it tries to bite off too much), a thought provoking article!

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    1. I'm replying to myself to add a little information. Although artisanal mining takes many forms, I'm only addressing dredging here. Rivers and streams tend to become broader and shallower the older they get, which causes them to become warmer. Most fish die-offs can be attributed to dangerously warm water. Dredging can remedy the decline of fish habitat by removing the age old accumulation of rock in waterways and so creating cool deep water pools.

      Though it's tangential, there's a lot to like about engaging with nature in this way. One thing that I think a lot of people don't process is that we are part of the environment - it isn't something that exists outside of us. The attitude should be mindfulness, and the action, continuous improvement.

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    2. Actually, there are no fish in the creeks near where I "small-scale" mine because CA Fish/Wildlife introduced River Otters. Before then, there were 8 pound trout in those streams.

      Insofar as fresh water biota is concerned, unless you also have a Ph.D. in Fisheries Biology or in Geology, you should study-up. I have been following the small-scale gold dredging in CA for some time and you are not at all informed sir.

      The more you comment in areas which you do not have specific knowledge, the less I am tending to believe or respect your opinions now.

      And make no mistake...they are only your opinions. You might study money, but that doesn't make you an expert on everything else.

      Respectfully,

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    3. And if you happen to be a member of the Hoopa nation, who are apparently trying to cut off their own nose to spite their own face, then let me just say that protecting the salmon run goes way beyond you. If you're a San Franciscan who has never spent time in the northern part of CA, then keep drinking your lattes and let those of us who actually give a darn about the forest make the calls. And if you're just a troll, then may God have mercy on you.

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    4. Post hoc, ergo propter hoc - a relatively common logical error. In any case, your reply is ad hominem, and does nothing to address the merits.

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    5. Unknown @ 4:06 and 4:30,

      Thanks for your input.

      "Your bacon and eggs story doesn't make sense to me"

      Let me put it this way. Say that I can magically make the gold price double on the condition that I destroy half your ounces (everyone else's too). Your situation hasn't changed. But if I destroyed half of the goods in your pantry (and doubled their price) you'd be worse off.

      There is something unique about gold. We don't need more ounces of the stuff, since a higher price can always satisfy us.

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    6. Oh, but it has, JP. I'm trying to cast a quarter ounce gold ring, and my cost has now doubled.

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    7. I appreciate your POV, although I think you are viewing gold as some commodity unlike any other.

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    8. Sorry folks, too many "unknowns" on this thread for me to unpack. Use a better pseudonym or your real name if you want to engage.

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  16. You know Jp Koning it is painfully obvious to me that you truly have no idea about that which you write,,and yes you have overlooked many places in our world and products where gold plays a monumental role in our daily lives including the appliances and electronics in your own home,,not to mention the instrument that you used to write the article in the first place,,it is very easy to have an uninformed opinion these days,,my suggestion is do your home work it is available at your fingertips,,

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  17. One thing the author neglects to acknowledge is that a lot of gold is mined as a byproduct at copper, nickel, silver, and iron mines. Also nearly all of our electronics contain gold.

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    1. Good points.

      I think the idea would be to ban mines that primarily target gold, not mines copper mines that also yield gold as a byproduct.


      Yes, I agree that gold is important to electronics. But gold circuitry doesn't get depleted, it gets recycled. Also, it is pretty small relative to the above ground supply. So I don't think a gold mining ban would a huge adverse effect on electronics.

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  18. JP,
    Gold is a rare commodity that people can and will continue to trade for the things they need, except in the most dire circumstances. If fiat currencies collapse, as some predict, WHAT will hold enough value that it could be traded for food and water? Firearms and ammunition? Gasoline or Kerosine? Warm Clothing and footwear? The answer seems obvious doesn't it.

    The social structure that human beings create in nations with nationalized systems of commerce is not communal, it is individualized. The value of self-reliance, especially in times of economic strife, become paramount. People in these circumstances will wish to acquire wealth and the power and control that comes with it.

    That said, in the short run, have you no idea of the potential that gold bartering in local communities that share similar values and mores could have?

    Your article for the case against gold mining on an industrial scale holds some merit, but on gold mining on a much smaller scale, you miss the target completely in my opinion.

    In the worst case scenario, thinking smaller will be wise.

    -small-scale miner

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    1. "If fiat currencies collapse, as some predict, WHAT will hold enough value that it could be traded for food and water?"

      Fair enough. But I'm not arguing for an end to gold, only an end to mining. If mining is banned there will be still be plenty of existing gold around to meet the eventuality that you are describing.

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  19. You basically answer your own question when you admit people will still mine for gold even when some would-be central planners ban gold mining . Why? Because it is no different then pulling thousands of dollars out of the ground. Gold circumvents governments and central planners. Maybe you think the people who "matter more" have enough gold, but that is not for you to decide.

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  20. The more important question that nobody is asking is, "What happens to the world economy if there is a dramatic and prolonged rise in the price of gold?" Look at what happened to the world economy the last time that happened (the 1970s stagflation decade). You think there's no causal connection there? I beg to differ. If bondholders see that they are consistently making far worse returns loaning money at, say, 5%, rather than hoarding gold to make 20%+ yearly returns, you will see another bondholders' revolt like we witnessed in the 1970s. Creditors will go on strike until they get much higher real interest rates like they got in the 1980s. The consequences for the federal deficit, commercial loans, and homebuilders would be catastrophic.

    In general, all other things being equal, a higher amount of gold production will result in lower rates of interest, and vice-versa. This is explained in thorough detail in an article entitled, "Are Marx and Keynes Compatible? Pt 4" on Critique of Crisis Theory blog.

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  21. "- Earthworks, an environmental group, calculates that 20 tons of toxic waste are produced for every 0.333-ounce gold ring!!"

    Wowza, and here I was thinking that diamonds were bad news!

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