One of the arguments for using gold — or silver, or cowrie shells, or some similar physical medium of exchange — is that gold has "intrinsic value", unlike paper money. But that's not true once the price of gold comes to be dominated by its utility in trade, that is, its exchange value. When that happens then gold becomes subject to the same sort of loss-of-confidence avalanche that any other trust-based money suffers from. And one of the other arguments for gold, that its supply is dominated by natural forces outside the control of governments, likewise crumbles under closer analysis. Governments can hoard and release gold, they can expand or contract production via subsidies or penalties, and they can manipulate its use in countless other ways. And as technology changes the claimed stability in gold's production rate looks increasingly dubious. Think of all the new developments in mining and applied chemistry, in the ability to move mass quantities of earth and water to capture and enrich tiny amounts of selected elements.

Bottom line: there's no magical store of value in the world, other than perhaps human creativity. The enchantment I (and many others) felt as a teen-ager with ultra-simple rules for how the economy works? Misplaced, immature. Real life: always complex, always ringing changes on what used to be, always putting a new twist on old truths. Wiser: diversify, think long-term, don't imagine you're cleverer than everybody else.

(cf. BookhouseBoy (1999-09-29), MoneyWisdom (2001-05-20), SilverSkepticism (2001-07-29), PermanentPortfolio (2003-06-02), ...) - ^z - 2012-11-04