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11A082
What Use is Gold?
by Jim Davies, 3/24/2011
Dan Dicker, a commodities floor trader, gained notoriety this week by opining: “Gold has no valuation, no metrics, no commercial use. It’s the world’s most respected ponzi scheme.” He may have a point: what use is gold, exactly? - It's pretty, for jewelry, and it doesn't tarnish. It conducts, so it serves well in electronic circuits, but not a whole lot else. You pan a nugget or some dust; what exactly will you do with it? It brings no nourishment and eating it will break your teeth, but it's too soft to use for toolmaking. I drink it, a few flakes every Monday in my tasty, postprandial sip of Goldschläger, but it's really the liquor that does the heavy lifting. Yet its price, in terms of government paper, goes on rising. Is that a bubble, or as Dicker says, a Ponzi scheme? I think he's wrong about Ponzi. Carlo discovered he could attract money by promising uniquely high interest rates and keeping his promises out of new funds being deposited, to the few who claimed them; so his scheme was outright fraud. Currently by far the world's biggest Ponzi scheme is Social Security, so Dicker must have somehow forgotten that. And gold? - no, anyone who wants to sell his holding can do so, for government paper, if he trusts that more. Now, gold has - and certainly should, and in the coming zero government society most probably will - serve as money, a medium of exchange, and it's very good indeed at doing so, as has been acknowledged for several thousand years. Money is important, for it overcomes the need for barter, enabling exchanges to be made much more often. It's oil, for the machinery of wealth-producing commerce. It's good for that purpose because it cannot be counterfeited, for example by government. And in the nature of true money, it retains value over time; it enables value to be borrowed, used productively, and then repaid. So Dicker is wrong; gold does have a very important commercial use, and is not at all a Ponzi scheme. Further, in so far as people value it, it has a valuation; its metrics have to do with what people will voluntarily exchange for it, value being subjective in a non-Marxist world. Labor, for example, or other property. Even so, gold produces nothing. If somebody saves up some earnings he will want to invest them, somewhere he can find a good safe return; perhaps a successful company needing capital for expansion. Now, that's capitalism. The saved money is put to work to produce something new, to make workers yet more productive. That process - saving, investing, producing more - is what creates wealth. (There is no other way; government "investment" merely steals money from producers and places it where politicians wish, which is never as productive a place as where the owners would have placed it.) So to put saved money into gold (dug out of the ground, only to be buried again in vaults) creates no new wealth.
The fact that so many are doing it
today indicates that in the sovereign judgement of the producers
of wealth, gold is more reliable than other available investment
opportunities. That's no fault of gold. It just says that the
alternatives are less trustworthy.
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Perhaps investors think the
Great Recession government caused will soon dip into a new
