Is Gold Still Money?

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Furthermore, it has been replaced by government currencies, which we use to buy and sell, do our accounts and pay our taxes.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.

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.

Reprinted with permission from GoldMoney.