In view of much recent talk
on the safety of gold, with investors looking for
a place of safety amid the European debt crisis
and faltering stock markets, it may be necessary
to let reason break the gold fever.
Safety
in physical gold over fiat money is a myth.
One cannot eat gold any more than one can
eat fiat paper money, such as the dollar. The gold
market is all about gold derivatives, not about
physical gold. One cannot transact physical gold
in any substantial quantities beyond a few gold
bars one can physically carry. For most people
that is a few hundred ounces. Remember Richard
III: "A horse, A horse, my kingdom for a horse"
... (and all the gold in it).
Gold funds
are all scams that play on consumer fear and
ignorance. They are never really backed by
physical gold, only a
claim on physical gold at
a bullion bank in London. As we all know, a claim
is just a claim, not the same as physical
delivery. It depends on the credibility of the
party against which a claim is filed.
The
biggest financial inertia about gold is that it
does not pay interest, unless the gold is leased
out, which then carries the risk of not having it
returned by the lessee to the lessor.
Ironically, the people holding the most
secured assets at any one time are the traders of
assets with unimpaired liquidity. Security in the
market is the ability to sell at a given price at
any time, not possession itself. The value of
one's possessions is determined by the price at
which one can sell it for, discounted by the
timing of the sale. No more, no less. (See my
articles on the gold market - which is not the
same as writings on gold - listed below). As I
wrote in my article "Monetary Theology" [1] :
Davanzati showed how "barter is a
necessary complement of division of labor
amongst men and amongst nations"; and how there
is easily a "want of coincidence in barter",
which calls for a "medium of exchange"; and this
medium must be capable of "subdivision" and be a
"store of value".
He remarked "that one
single egg was more worth to Count Ugolino in
his tower [prison] than all the gold of the
world", but that on the other hand, "ten
thousand grains of corn are only worth one of
gold in the market", and that "water, however
necessary for life, is worth nothing, because
superabundant".
That was of course
before International Monetary Fund (IMF)
conditionality requiring the poor in the
indebted Third World to pay for water through
privatization of basic utilities to service
foreign debt. ...
Davanzati observed
that in the siege of Casilino, "a rat was sold
for 200 florins, and the price could not be
called exaggerated, because next day the man who
sold it was starved and the man who bought it
was still alive".
Of course, modern
economists would call that a market failure.
Davanzati viewed all the money in a country as
worth all the goods because the one exchanges
for the other and nobody wants money for its own
sake. Davanzati did not know anything about the
velocity of money, and only recognized that
every country needs a different quantity of
money, as different human frames need different
quantities of blood.
The mint ought to
coin money gratuitously for everybody; and the
fear that, if the coins are too good, they
should be exported is simply illusory because
they must have been paid for by the exporter.
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