Gold is omnipresent on Earth. It is one of the most precious metals, of vital importance to the economy and jewellery but also essential for science and industry. One of the reasons for its value comes also from the fact of its rarity: gold atoms are present on Earth only in fractions of parts per billion other atoms. Compared to our solar system and the Sun, where its abundance is found in the range of a few parts per trillion atoms, on Earth though rare, gold is found highly enriched.
Where does the gold on Earth come from? Which processes can generate gold and what is its origin? Why is it that rare, and can we produce gold in the laboratory? Obviously nature produced gold. However, its creation is not a simple process. Although we now know a lot about element formations, we do not know the details and even the main sites of gold creation. In the following, a physicist’s view of the origin of gold is presented.
This question, where does gold originate, actually relates to ‘What processes lead to the elemental abundances we observe on Earth?’ which is listed as one of the most important fundamental questions in physics: ‘How were all the heavy elements from iron to uranium made?’ (US National Research Council – The 11 Greatest Unanswered Questions of Physics). Thus, it is a very topical question in astrophysics and nuclear physics. In order to improve our understanding, researchers combine astronomical observations, experimental studies in the laboratory and theoretical models to elucidate Nature’s secrets of how all the atoms were created that we are made of.
Gold belongs to the heaviest atoms. Its mass is 197 times larger than hydrogen, about three and a half times heavier than an iron atom and only a few percent lighter than the heaviest stable elements lead and bismuth. Since the 1950s, we have a basic understanding of the principles of element formation. We know that many different processes are required to match the elemental abundance pattern we observe on Earth. We also now know that the reason for the existence of rare and more abundant nuclides is primarily a function of nuclear forces and nuclear properties that shape the relative abundances. To summarise, gold and the other heavier elements are produced in nature by nuclear reactions.
Physicists now have strong evidence that nucleosynthesis of all elements started very shortly after our expanding Universe was created in the so-called Big Bang, about 13.7 billion years ago. Within the first few minutes mainly hydrogen and helium was produced, but only minute traces of other (light) elements. Then the temperatures and particle densities became too low for continued nuclear reactions.
Interestingly, nature’s very specific set of a few stable light nuclides, when combined lead to very short-lived reaction products. The rapid decay of these short-lived nuclides blocked the formation of the heavier elements, like carbon, oxygen, iron, gold or lead, in these first minutes. It required a few 100 million years until the next nucleosynthesis process came into play: stars were born, leading to a fundamental transformation of the early Universe that also started the ongoing enrichment with heavy chemical elements: their dense and hot cores eventually allowed the ignition of nuclear fusion. This stellar fusion process, at core temperatures between some ten and a few hundred million degrees, turned lighter elements to heavier ones. Huge amounts of energy are released, which powers the stars to shine.
These stellar cauldrons synthesise almost exclusively all heavier elements, from carbon and oxygen, the main building-blocks of life, to iron, gold and uranium in the nuclear burning of lighter elements. In general, all elements except hydrogen, that compose our body, were produced in high-speed collisions in previous star generations.
Our Sun is a very typical small star and is quietly burning only the lightest elements hydrogen and helium over a time period of some 10 billion years. The Sun does not add new nuclides to the heavy element abundance in our solar system. It is the massive stars, most effectively those eight times heavier or more than our Sun, that run through a series of stages in stellar evolution and eventually generates the heavier elements that we observe on Earth today. Energy generation in stars works for fusion of lighter elements up to iron, the most stable element in nature, and therewith a small fraction of mass is transformed into energy according to Einstein. Fusion of heavier elements than iron, as is the case for gold, however, does no liberate energy. Further, massive stars burn much faster than sun-like stars, because their energy consumption is so much higher.
In the late phases of stellar evolution – and as a non-energy generating by-product – stars produce also elements heavier than iron over time periods of millions of years in a slow process involving free neutrons. These neutrons are sequentially captured by existing nuclides. By adding more and more neutrons as building blocks to lighter elements, in combination with radioactive transformations, heavier and heavier elements are produced, and eventually also gold, lead and bismuth. This process takes place during a quiet burning phase at a late stage of a stars life and is responsible for the production of about half of all nuclides heavier than iron.
At least one additional process is required to match the missing second half of the heavy element abundances observed on Earth and in our solar system. The site for this nucleosynthesis process, however, still lies in a mystery. We know such a process lasts only for a few seconds, involving neutrons as well, however, at extremely high densities. This process requires a very short and intense burst of neutrons and it involves the most violent processes known in our universe: most-likely supernova-explosions or the collision of two neutron stars. Actually, as much as 95% of all gold is made in this violent process, only 5% in the slow process mentioned above. The reason is, that in the slow process, destruction of gold (adding a neutron to gold) is favoured compared to its formation probability. Thus gold to a large extent has a very turbulent past!
Supernovae occur when the core of a massive star collapses towards the end of its evolution and huge amounts of energy at high temperatures are released with a shockwave creating a sea of protons and neutrons, the latter the main source for heavy element nucleosynthesis. During this event heavy elements (i.e. gold) are created; an explosion drives the freshly produced elements into the interstellar medium. Supernova-explosions have a brightness of a whole galaxy. If this happened in our Milky Way, it would appear to observers on Earth like a bright new star has formed and would be visible even during daytime in the sky for a few weeks. Researchers are eagerly waiting for the next one in our galaxy being already much overdue. In rare cases, close-by supernovae could leave traces on Earth. Researchers are searching to find minute traces as a fingerprint of such events.
The second candidate for heavy element formation and thus gold creation, are merging neutron stars, even Black Holes. Neutron stars are extremely densely packed objects that are more massive than the Sun, but only about 10 kilometres in radius, and that consist predominantly of neutrons. They are actually the leftovers, the dead cores of stars running out of nuclear fuel and exploded as supernovae. If two such neutron stars orbit around each other, they slowly spiral inwards until they merge. In a massive collision they eject large amounts of material that is made of heavy elements. These events are, however, exceedingly rare. In the whole Milky Way, such an event happens about every 100,000 years.
Supernovae and neutron-star mergers are the two most likely scenarios for how gold and the other heavy elements are synthesized in nature. Which of these is the dominant production site is an ongoing hot question in astrophysics.
But, how does gold find its way from its production sites in stars to eventually arrive on Earth? The heavy nuclides that are created in massive stars or their remnants are ejected during their explosions and expand rapidly into the surrounding interstellar medium. Thus the interstellar medium is continuously fed with heavy elements synthesised in many stellar sites and then expelled via such explosive events. A next generation of stars can form from this mixture of pristine Big Bang material and stellar-processed heavy elements – with a new nucleosynthesis process triggered in this new star. As a consequence material produced in massive stars is recycled many times into next generation stars.
Our solar system is the product of dozens of previous star generations all with their individual nucleosynthesis processes. There is strong evidence, that the collapse and formation of our solar system itself some 4.6 billion years ago was triggered through one or more close-by supernova-explosions. When our solar system and Earth formed, the Universe had already been around for about 9 billion years. Previous stars in conjunction had generated the heavy elements and fixed also the abundance of gold now present in our solar environment.
However, the gold we find and dig today on Earth is likely not the primordial gold when the Earth formed. This primordial ‘terrestrial’ gold is rather concentrated towards the core of the Earth, as it sank at the early time when the Earth was too hot and no solid crust existed. We have now evidence that the gold we find on Earth actually originates from meteorites – built from the same parent material – that bombarded Earth’s surface a few ten to a few hundred million years later after our planet was formed but, by then, already with a cold crust surface.
Thus creation of gold relies on a very violent and rare process. In fact, we are all star stuff (© Carl Sagan) and moreover, all the gold we love, the gold rings on our fingers, the jewellery, the gold whose value we see changing up and down in terms of paper money has experienced much more turbulent times in the past.
Dr. Anton Wallner
Department of Nuclear Physics
Research School of Physics and Engineering
The Australian National University
ACT 0200, AUSTRALIA
In my recent article ‘Entrepreneurial Magic’, I discuss the topic of trust based credit… or how to make money without money. I discuss how trust based credit reduces the cost of doing business… any business. In today’s G’man dominated world, only fringe businesses can benefit from using trust based credit. These benefits should be available worldwide to all business. Indeed these benefits were available under the Classical Gold Standard; as observed by Natural Philosopher Adam Smith.
Adam Smith saw that the ‘heavy lifting’ in world trade was accomplished not by the circulation of money (Gold and Silver coin) but mainly by the circulation of Bills of Exchange. Indeed, some people call this observation ‘The Real Bills Doctrine of Adam Smith’… as if Adam Smith had invented this ‘doctrine’.
Like any true natural philosopher, Adam Smith observed reality, saw what was happening with clear, unbiased vision… and then proceeded to write up the observations and hypotheses based on his observations. Quite unlike today’s mainstream ‘science’; where observations are selected to support current dogmas.
In any case, Adam Smith saw the almost magical qualities of Real Bills… aka Bills of Exchange. If you missed the last couple of articles, Real Bills are commercial bills drawn against urgently needed consumer goods delivered to retailers, with terms… that is, the bills have an extended due date… unlike retail bills that need to be paid cash on the spot.
Until their due date when they must be paid in full, Real Bills carry the value of the merchandise they were drawn against, and will circulate as a means of payment… increasing the efficiency of Gold and Silver money virtually without bounds. They are called Bills of Exchange because they change hands in clearing payments.
They are also called Real Bills because they are drawn against real goods already delivered. These goods are in urgent demand by consumers… consumers who will pay for the merchandise in Gold coin, thus allowing the bill to be paid in time by the retailer… indeed, perhaps paid before due date if consumption is brisk; prepaid at a consideration. This ‘consideration’ for pre-payment is the origin of the discount rate. Unlike interest that originates as the cost of (borrowed) money, the discount originates as the consideration offered for early payment of Real Bills.
As discussed in my last article ‘Trust Your Neighbor-Tie Your Camel’, the cost of doing business by borrowing to pay for inventory is very high… around 50% of net realized profits go to pay the cost of funds…! To see how detrimental this is to employment, consider the idea of the Marginal Productivity of Labor…oops, bit of economic jargon slipped in here… but the idea is simple once you look at it more closely.
Margin is the line dividing two things… like the border of two countries for example. The productivity of labor is simply how much value an hour of work creates… whether the labor is shoveling coal, doing brain surgery, or cutting the patron’s hair. All work is called ‘labor’. Margin is the line between labor that is profitable… and labor that is not profitable. This is the Marginal Productivity of Labor; the line dividing profitable from non-profitable (loss making) economic activity.
Suppose the work of digging up 100 Lbs. of potatoes creates value of $20.00. That is, from a hundred pounds of potatoes in the ground to one hundred pounds of potatoes in a sack ready to ship creates (adds) value of $20.00. Now suppose an expert can dig 100 Lb. in one hour… ($20 worth) while a less experienced or less motivated picker digs 75 Lb. per hour ($15 worth), and a rooky, wimpy picker bags 50 Lb. ($10 worth).
Our expert creates value of $20.00 per hour, the journeyman creates value of $15.00, and the rooky creates $10.00. Assume the overhead cost of the potato digging business is $10.00 per hour, and the minimum wage is $5.00… Overhead is an indirect cost, wages are a direct cost. Overhead is the ‘cost of doing business’. It includes costs of capital, compliance costs, taxes, etc… Direct cost is the payment made to the worker; paid directly for the work of potato digging.
If we take $10.00 (overhead) and add $5.00 (wages) we can see that the net value created by the expert is $5.00 ($20.00 -$15.00 = $5.00). This net value pays profits… or bonuses, or expansion of the farm, or whatever. On the other hand, the journeyman digger creates net value of $15.00 – $15.00 = $0.00… Break even!
There is no room for profit, or bonuses, or growth of the farm… this is the margin… the ‘marginal productivity of labor’ in the potato digging business is $15.00 per hour. Finally, the rooky who produces $10 of value per hour, will not create any NET value; indeed, $10 – $15 = -$5.00 … a five dollar per hour loss. The farmer cannot afford to hire the rooky; he is ‘sub marginal’.
So what can we do to improve the situation? Clearly the liberal stance of ‘increasing the minimum wage’ will put more workers out of work… as an increase in the cost of doing business raises the marginal productivity of labor; more workers will become sub-marginal. If the minimum wage is pushed to $10.00, the expert will become marginal. This wage increase will put the expert out of a job, and force the farmer out of business… or cause an uptick in the cost of potatoes to compensate for the increase in costs.
On the other hand, the conservative stance of ‘getting rid of minimum wages’ may put more workers to work… but at starvation wages. Neither liberal nor conservative views are complete; the real answer is to reduce the cost of doing business… or, the same thing, to lower the marginal productivity of labor; make it profitable to hire less productive workers.
Suppose overhead costs are reduced from $10.00 to $5.00… by reducing the cost of capital (through the use of trust based credit instead of bank borrowing) and by reducing compliance costs and taxes; now the journeyman worker indeed produces a net positive value. $15 – $10.00 = $5.00 of net value. The expert picker would also produce more net value; $20.00- $10.00 = $10.00. Why, the expert may even get a raise.
And our rooky? He produces $10.00 value per hour; overhead costs are $5.00… so he may sneak in at wages of $5.00 per hour… The rooky is now the marginal labor, instead of the journeyman. A new, lower margin (break even) at $10.00 per hour has been established. If the minimum wage is reduced to $4.50, we can be pretty sure the rooky will be in a position to be hired… and be in a position to learn, to upgrade his skills, soon to become a journeyman who easily picks 75Lb per hour.
Now play this very same scenario out over ALL business, all jobs, and ALL workers worldwide… and it becomes very clear why there was no structural unemployment under Gold. Borrowing costs were replaced by Real Bill profits. Under a fully developed Bill market, there is no need for the retailer to pre-pay his bill to get a discount; he simply buys other merchant’s bills as his till fills with the consumer’s Gold coin… and earns profits on these Bills as they appreciate.
If you think this can be compared to the retailer using a savings deposit or a CD to earn income on surplus cash, you miss the point; the money the retailer gets for his CD or deposit is more than offset in the economy at large by other borrowers, who pay the banks a much higher interest rate. The money the retailer earns by buying Bills is never borrowed, does not reduce any other merchant’s profits… rather flows strictly from the propensity of consumers to spend.
Remember, both the retailer and wholesaler, that is both the acceptor and initiator of a Real Bill benefit; the retailer gets merchandise on consignment (at no cost) and the wholesaler gets to sell more merchandise. Both parties benefit… else they would not make the deal. Neither borrowing nor lending is involved.
The structural unemployment we suffer from will not go away on it’s own. Dole payments are no substitute for wages and profits honestly earned. The World economy will never turn around as a result of more borrowing, more spending… but it will indeed turn on a Dime… if the Dime is real Silver, and if Real Bills that mature into Silver and Gold circulate freely once again.
Rudy J. Fritsch
Editor in Chief
Since 1971 the irredeemable monetary system has been in a constant state of paralysis. Over the last decade this state has only further deteriorated bringing global trade into unchartered and dangerous territory, crippling the global economy and desolating entire cities (Detroit is only one such tragedy). For the astute readers of this journal, the ills of the irredeemable monetary system are of no mystery, thanks in part to this publication which has relentlessly crusaded to intellectually illuminate this shadowy field. Yet it would be intellectually dishonest to make the claim that this publication is the only one. There are in fact many groups which advocate a gold standard; the Rothbard “100% backers” are just one example of the diverse array of gold standard advocates.
It is no secret that the Gold Standard Institute (GSI) advocates a particular type of gold standard, specifically an unadulterated gold standard which rests on the principle of the separation of state and economics. Yet unfortunately there is much confusion amongst our contemporaries concerning the kind of gold standard which will alleviate our monetary troubles.
One such group have been those commentators calling for an “international gold standard” to settle trade between countries and corporations as a relief to the dollar standard. The idea is a neo-Bretton Woods Agreement where countries would tie their currencies to gold and simply balance each account quarterly in gold bullion. This is a peculiar proposition in the realm of monetary history based upon unsound and impractical economics.
The first obvious flaw is the expression “international gold standard”. Money as a concept is universal to man irrespective to his geographical location. As pointed out in previous articles in this publication, gold is money. Prior to the dismantlement of the classical gold standard, if one held US Dollars and exchanged them for British Pounds, the “exchange rate” was merely the ratio of US Dollars to gold relative to Pounds to gold. There were no political trade agreements in place sanctioning such a trade except the laws of nature (in this case the ratio of currency to a weighting of gold). Since gold is money, by its very nature it has to be the most marketable good meaning it must be “international”- or universally accepted. Hence the advocates of an “international gold standard” are merely advocating a monetary cartel of sorts. The term “international” should be interchanged with “exclusive” as all are not are allowed to freely participate. This means that an international gold standard is just an exclusive arrangement between various entities for purposes more attune to political favour than economic virtue.
Such a monetary system contradicts the entire philosophical case for a gold standard; the defence of individual rights a la laissez faire capitalism. An international gold standard which is currently being advocated ignores the principles of a free market by its exclusive nature. Money is a tool strictly developed by the free action of man. Advocating a gold standard outside and apart from a free market is an entirely pointless affair. It reduces the status of gold to any other commodity, whether it is coal, oil or pork-bellies.
Nevertheless, setting the philosophical aspect aside, such a monetary arrangement will not work as it flies in the face of elementary economics. An international gold standard is an ill-conceived and highly problematic proposition for the same fundamental reason as the current monetary arrangement: One central planner’s policy for another. Bretton Woods collapsed as a result of the arbitraging forces between the fixed currency ratios, or price, to a weight of gold. To advocate a neo-Bretton Woods agreement would be akin to advocating just another type of disaster. Keeping in mind that Bretton Woods collapsed before high speed trading algorithms were off the ground, if a neo-Bretton Woods agreement were to be formalised and introduced, its greatest achievement would be for the agreement to survive longer than a month.
The practical virtue of an unadulterated gold standard is not the control of the quantity of money but rather stability of interest rates – a point almost entirely lost in economic academia. The quantity of money is almost immaterial to the stability of an economy or currency. An “international gold standard” has no answer to the issue of interest rate stability which has brought the global economy to financial ruin. Conceivably such a monetary arrangement would require assiduous interest rate fluctuation to balance out the excessive arbitrage and overcome speculation between gold, the currency in question and every other currency – something which no man or superman would be able to do leading to the systems eventual cannibalism. Governments would be forced to devalue their currencies to gold, most likely at an ever increasing pace, in order to preserve their own gold reserves. The entire affair would alleviate none of the present problems and only advance the case of those adversaries of gold and a free market.
An unadulterated gold standard is the ideal, one which the GSI strives to champion. Yet the process of realising and implementing an unadulterated gold standard is not a Sunday night presidential broadcast. It requires meticulous attention and transparency – not in managing it, but in introducing it. That is no small task.
President – the Gold Standard Institute Australia