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by Neville Kennard, veteran preaching and practising capitalist

As the price of gold (as expressed in US Dollars, and also in Euros and most other currencies, climbs to record highs those who don’t understand that gold is money, gold is currency, wonder about it. They see gold as a safe haven that people like when they lose faith in other currencies, or as a speculative bet to be bet on for a short term gain.

I asked a wealthy American investsor a couple of years ago what he was currently invested in. “Cash,” was his reply, “totally in cash.” I questioned him about gold, as I thought he would be a hard-money type. He replied “I said ‘Cash’ and to me gold is cash, the only real cash.” This wealthy investor knew how to protect himself in times of turmoil.

Gold as currency — not many see it this way. Gold as reserves — not what many businesses keep their spare cash in. Mostly companies hold the legal tender of their home country, perhaps also some other currencies such as the Euro Dollar, or for non-American companies they might hold some US Dollars. But to hold all or most of your spare cash, be it a company or an individual, in gold is very rare, and very profitable.

Priced in gold most commodities are about the same price as they were a year ago, ten years, ago, twenty years ago. Gold has not really gone up in real terms. It has gone up against government-issued paper (fiat) currencies. But this should really be expressed differently — government-issued fiat money has gone down against gold. Gold has stayed pretty much the same in real, purchasing-power terms.

Speculators in gold and silver and some other commodities may be making hefty profits these days. Gold ‘investors’, those buying gold for long term holding as wealth preservation will be doing at least as well as holding their own in real purchasing-power terms. Against paper-money, gold is a pretty sure long term wealth-preservation currency.

www.pricedingold.com is a web-site that gives the prices of various commodities when priced in gold.

Money requires three qualities:

  1. A Medium of Exchange.
  2. A Unit of Account.
  3. A Store of Value.

Government-issued paper money, usually backed by legal tender laws, serves currently as a medium of exchange and a unit of account. It also serves as a short- or medium-term store of value. But fiat money is not a long term store of value. In Australia the Reserve Bank (one of the less frightfully bad Central Banks in the world) has an inflation target of 1% – 3% p.a. That is to say the government and its monopoly supplier of “money” deliberately seeks to inflate, to depreciate the purchasing power of its currency. In the last 50 or so years the purchasing power of paper-money has declined by about 90%. Something that cost say a dollar in 1960 will now cost about ten dollars. We don’t notice this steady erosion of the value of “money” because our wages keep up pretty well, our house value may keep up (while the real value of the mortgage, the debt we owe on the house actually goes down in real terms).

The losers in this government-induced inflation are the poorest people. Those who don’t have investments and assets see the value of their meagre savings shrink in real terms. It is to them a disincentive to save.

Clinging to a flawed Keynesian notion that “a little inflation is good”, governments and their monopoly money-issuers see to it that tomorrow’s dollar will be worth a bit less than yesterdays. It may be good for the government and its debt but it is bad economics and crippling for many.

The answer is to:

  1. Repeal all legal tender laws and allow the competitive issuance of money and currencies. Bad-money issuers will not last long.
  2. Repeal all implicit or explicit government guarantees of banks and their depositors. Bad, insolvent, poorly-run banks will not last long. Careful depositors will withdraw their funds from dodgy bankers.
  3. Abolish the Reserve Bank of Australia.

Gold has proved, over the millennia, to be a trusted form of money because of it unique qualities:

  1. It is rare.
  2. It is consistent in quality — one gram of pure gold is the same as any other. It can’t be forged or counterfeited.
  3. It is infinitely divisible — it can be made extraordinarily thin and small.
  4. It is impermeable — doesn’t rust or corrode.
  5. It has value in and of itself — people like it for what it is, for its beauty and its rarity and its value as jewellery and adornment.
  6. It has stood the test of time. Unbacked fiat currencies always decline ultimately to their intrinsic value — zero. People trust gold.

With the world in financial turmoil and likely to be so for some years expect the value of fiat-money to decline, expect gold to at least hold its own in real terms, expect greater appreciation for gold as a store of value.

In Switzerland, where people like and trust gold, there is a post-card sold, paraphrasing the words on US coins, “In Gold We Trust”. The Swiss know these things.

(in order of appearance on Economics.org.au)
  1. Welcome from Neville Kennard
  2. Think Tanks Don't Work
  3. "Market Failure": Just what the government ordered!
  4. The Tragedy of the Tax Pool Commons
  5. Corporate Welfare
  6. Citizenship for Sale?
  7. I Don't Vote
  8. Voting: Right or Privilege?
  9. Stockholm Syndrome and our Love-Hate Relationship with Government
  10. Civil Disobedience: The Rules of Engagement
  11. Should Respect for Law Extend to Bad Laws?
  12. Jaywalking as a Demonstration of Individuality
  13. Government Likes War
  14. Collusion is Our Right
  15. Why Not the Drug Olympics?
  16. Unconventional Wisdom
  17. Tiger Farming: An Alternative to Extinction
  18. Looking Backwards: Mont Pelerin Society Conference, Sydney, 2010
  19. Tax Avoidance is a Patriotic Duty
  20. Kennard Writes to IPA Review Editor
  21. Genocide by Welfare: A Tragedy from the Aboriginal Welfare Industry
  22. Separating Sport and State
  23. Your Home is Not an Investment
  24. Dick Smith, Celebrity Philanthropist
  25. A Libertarian's New Year's Resolution
  26. Extend Politicians' Holidays to Create Prosperity
  27. Entrepreneurs are Disruptive, and Bureaucrats Hate It
  28. What is a good Australian?
  29. Governments Like Employment But Hate Employers
  30. The Market Failure Industry
  31. Neville Kennard: The Tax Avoidance Imperative
  32. Wot if ...?
  33. The Tribal Chief and the Witch Doctor
  34. The Tannehills
  35. Democracy versus Property Rights and Prosperity
  36. Government Doesn't Work, and That's the Way They Like It
  37. Minarchy vs Anarchy
  38. Euthanasia and Self-Ownership
  39. The Right Policies to Fix a Depression
  40. Is Howard Our Best PM?
  41. Tax Producers vs Tax Consumers
  42. Where There's a Queue, There's a Business Opportunity
  43. Authoritarian Freedom
  44. Why Classical Liberals Should Debate Anarchocapitalists
  45. The Tyranny of the Majority
  46. If you could choose to whom you paid your tax
  47. Business Should Exploit Boat People
  48. The Immorality of Trade Unions
  49. "America" vs "The United States"
  50. Sweet Anarchy
  51. The Illusion of "Job Creation"
  52. Gold Is Money
  53. Guilty Capitalists
  54. Bureauphobia
  55. Prosperity vs Growth
  56. Capitalism vs Democracy
  57. More people = More fun
  58. Self-Ownership - the very idea!
  59. Government will murder Neville Kennard if he doesn't back away
  60. The Australian Dollar Has Been Cowardly and Criminally Devalued, Harming the Poor Particularly
  61. Is Taxation Theft and Government a Tax Cheat?
  62. My Journey to Anarchy:
    From political and economic agnostic to anarchocapitalist
  63. Government Needs Bad Guys –
    that's why they like wars
  64. What Is Obscene?
  65. Traffic Economics
  66. Wayne Swan stands on the shoulders of other intellectual pygmies
  67. Neville Kennard Obituary
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