We think we know that gold is no longer money, because Keynesians and
monetarists insist it is so.
Furthermore, it has been replaced by government currencies, which we use
to buy and sell, do our accounts and pay our taxes. While it is undoubtedly
true that gold is no longer used for transactions in all but a few places in
Asia, this common assumption has no basis in fact.
It is one thing for macroeconomists of all veins to theorise about the
contents of the dustbin of history, but the choice people make is what really
matters. Humanity has an infinite capacity for adapting and using what is
either made available or forced upon them. But just because they have adapted
and used government currencies as their circulating media, they have not
always given up on gold as the money of choice to retain a store of value.
This article is written in the parochial confines of a welfare state that
has advanced beyond regarding gold as money. The views of the people in
Britain on this subject are probably similar to those in the other welfare
states of Europe, North America and Japan. Those in the finance industries trained
in macroeconomics and subscribing hook line and sinker to the relegation of
gold to the rank of a plain commodity are relatively few: probably a few
million world-wide at most. There are a greater number so dependent on the
fiat money system that they would rather dismiss the issue instead of
properly considering it, which to a lesser extent must also be true of the
wider population which benefits from government welfare and spending.
The welfare system, based as it is on anything other than free markets,
conflicts with the concept of sound money. People would rather not pay for
everything through taxes, and money and credit inflation as a means of
funding are a convenient cop-out. But it is plainly wrong to say the uncaring
masses are anti-gold; it is more correct to describe them as not bothered one
way or the other. Even most western gold-bugs, which in numbers probably
balance the aforementioned macroeconomist establishment, vaguely regard gold
as an insurance policy or speculative investment, rather than sound money
only driven out of circulation by Gresham's law.
So the combined population of the welfare states is not anti-gold at all,
and the argument that progress in economic thinking has reduced its status to
a plain commodity is not true. Nor is it true in South and Central America,
where the US dollar is regarded as the sound money alternative to local
currencies, only because people have adapted to what is available to them.
Nor is it true in sub-Saharan Africa, where the majority of the population
has its roots in subsistence farming and tribal communities. However, in
Asia, where civilisations have long histories, the story is very different.
For centuries ordinary people from all walks of life are painfully aware
that government money is ephemeral, and true money is gold. When the
cumulative debasement of a currency leads to its replacement by another
debasing currency, you continue to dump the government stuff for gold. This
is the experience of the Turks, who faced a million-to-one consolidation of
the lira in 2005. According to Wikipedia one gold lira coin could be sold for
154,400,000 old paper lira towards the end, and the new lira is still going
down. Indian farmers and traders put their savings into gold, a wisdom borne
out by the rupee's continual devaluation over the years. Even the Chinese,
after decades of communism and the brain-washing of the cultural revolution
still persist in accumulating gold as the only sound money to tuck away for a
rainy day.
To understand why the belief persists that gold is the ultimate money, you
have to look back in time to appreciate its value before it was used as
money. Anyone who has not been to Cairo and seen the 3,300 year old gold mask
of Tutankhamen, and is unable to understand the feeling of awe that overcomes
one's emotions in its presence, must be devoid of all imagination. Not only
has it endured an extraordinary length of time, it is in itself timeless, and
unchanged from when it was fashioned: that's some store of value.
Max Keiser of the eponymous show on RT told me of an occasion when he
joined a debate on BBC Television about this very subject. He argued the case
for gold, while an economist representing the prestigious Economist weekly
journal argued against. Off-camera after the debate, the young economist was
just as eager as anyone else in the studio to touch and feel the gold bar
that had been brought into the studio as a prop.
That is the point: despite the theorising of macroeconomists and what
governments with a vested interest force us to believe, gold has an enduring
fascination for and a value to humanity. The majority of above-ground stocks
are still wrought in the form of jewellery and the highest classification of
ornaments. Gold's durability and fungibility makes this unique material
eminently suitable as the only sound money available to the human race.
The welfare states' denial of this simple fact, and their insistence that
their own inflating currencies are superior, is leading them towards economic
disaster. They have committed themselves to the destruction of a basic human
value, which they will never supress. Asian governments, many of which would
undoubtedly like to take this route are forced by their people to be more
realistic. Even government officials privately acknowledge the superiority of
gold, and in the case of China they have actually encouraged their population
to accumulate it.
This matters to us all, because the process of wealth creation is
declining in the west, and accelerating in Asia. Furthermore, there are four
billion Asians, the majority of which are either directly or indirectly
involved in the economic union of the Shanghai Cooperation Organisation, and
who have overwhelmingly become the world's savers and wealth creators.
Government currencies come and go while human values endure. The
adaptability of the human race will allow it to continue to use whatever is
most convenient for day-to-day transactions. But the days of ordinary people
in the welfare states blindly accepting fiat currencies as valid for storing
the product of their labour, however temporary, are probably drawing to a
close. The impossibility of our debt obligations, including the net present
value of future welfare commitments, is catching up with us, and the
requirement to debase these obligations is becoming paramount.
When this becomes obvious to growing numbers of the public in the welfare
states, as it is bound to do, they will switch from no opinion on gold to
having one. The derisory term for gold-bugs will disappear as their prescience
emerges, and the price of physical metal measured in government currencies
will reflect more properly its unique monetary quality.
The views and opinions expressed in the article are those of the author
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