The case for banning gold mining
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| 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.
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| 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.