With the eminent collapse of the fiat currencies system in a hyperinflationary burst, the talk of securing wealth in gold is rising; the qualities of gold, as a store of wealth and a measure of value, are exalted by countless internet sites and economic blogs.
The superiority of gold compared to fiat currency is beyond dispute, what irks me is that the benefits of gold might be slightly exaggerated. Hyperinflation is possible with gold currency and history is full of instances when a purse of gold was paid for a loaf of bread or a cask of water, examples of such inflation could be found in any account of medieval siege and lesser inflation was associated with bad weather, war or epidemics.
As for gold as a store of wealth that is 100% true, gold will store wealth long after the owner, and the owner’s heirs, are dead. When archaeologists find hordes of gold in a specific layer they concluded that there were disasters and calamities in this time causing people to horde gold; what is interesting is that a large number don’t come back for their gold!!
If the American dollar collapses, then the American economy will collapse. If the American economy collapses, then the world economy will collapse. If the world economy collapses then the American empire will collapse. If the American empire collapses then gold stored in a vault in Switzerland is useless.
Machiavelli successfully argues in his book The Art of War that gold is not the sinew of war, but, instead, iron is the real sinew of gold; for those who have iron will take the gold and so have both. Without the protection of the state any store of wealth is worthless, because those with real physical power will take it by force from those who can’t defend it, or as Machiavelli puts it: “The unarmed rich man is the prize of the poor soldier.“
Libertarians will argue that private-security companies will spring up to substitute the role of state. That people will have “the freedom to choose” from a spectrum of different companies, that thrive by having good market reputations, such companies, we are told, will protect your wealth without the need for the state. Such arguments are nonsense, those who espouse them should have their tongs pull out for gross abuse of the gift of speech.
If I had such a company and I was approached by the good people of Goldsville to protect them for a contracted salary paid with gold, then the only rational thing for me to do is to take their gold by force and leave them with nothing or even enslave them turning them into the fields to produce food for my men, to add some legitimacy to the whole enterprise I would call myself the Protector of Goldsville, reminding them that without me they would be massacred by brigands and thieves.
If a larger private-security company challenges me then I would pay them off and we would call the boss of that company: the Guardian of Goldistan. Very quickly we would form a sort of system where the defenceless people work and produce and those with weapons lord it over them and consume. Maybe then libertarians would finally understand that private property wouldn’t exist if it weren’t for the grace of the state.
At the end those who got the iron will take the gold and end up with both, those who bury their gold waiting for better times will be doing future archaeologists a big favour.
Alex Wallenwein (of The Euro vs Dollar Monitor) has been closing his recent articles with the question “got gold?” but for his most recent article he closes with the following sentence: “Even owning gold will not protect you from this.”
Gold could help in the short term, maybe even the medium term, but in the long term individuals can’t survive if the whole of society is crumbling around them.
Comment by anonemiss — April 11, 2008 @ 2:33 pm