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Commodities
are produced because they add value to society. Wheat is for food, oil
for fuel and steel to build things. Why do mines burrow over two miles
into the earth, process tons of hard rocks to refine the yellow metal that is
then shipped and buried in some vault? What value does gold add to
society that results in its production?
The
value gold adds to society is in performing mental calculations of value. The constant marginal utility is unmatched by
any other commodity. Therefore, gold is money and a currency.
Most people perform mental calculations of value, the pricing mechanism, in
US$, C$, Euros or some other national currency. However, all are
‘bills of credit’ and subject to Payment Risk. Those who disagree, and most
financial professionals do, are like those who disagreed with Copernicus.
Politicians who disagree can no more change this fact than vote to
repeal the law of gravity. The earth (US$) revolves around the sun
(gold). Either gold is a portfolio asset or everything else is. This
is monetary law. This
principle has been taught for centuries.
“What
we fancy to be a rise in value of our products is merely an alteration of the
name in money that we exchange them by; they are not altered thereby, in
their exchange value, with regard to each other.” – Charles Holt Carroll in an 1857 essay on
page 54.
From An Enquiry into the Paper Credit of Great Britain,
an 1802 book written by Henry Thornton who was an economist and governor of
the Bank of England: ”We assume that the currency which is in all
our hands is fixed, and that the price of bullion moves; whereas in truth,
it is the currency of each nation that moves, and it is bullion which is the
more fixed.”
Gold
is currently the center of the financial universe because of the large above
ground stockpiles. But gold is not the only commodity that can function
as a currency. If gold ceased to exist the free market would quickly
find a substitute. Only a commodity based currency can be
‘risk-free’ or in other words subject only to Exchange-Rate Risk. Some key ratios
are available to save you time. For these reasons it would be
wise to use gold as the unit of account for financial statements. Mr.
Maloney’s recent book is a great treatment on this
topic. I recommend using gold as a presentation
currency. It would also be prudent to be able
to use it as a backup currency like GoldMoney.
Trace Mayer
RuntoGold.com
Trace Mayer,
J.D., holds a degree in Accounting from Brigham Young University, a law
degree from California Western School of Law and studies the Austrian school
of economics. He works as an entrepreneur, investor, journalist and monetary
scientist. He is a strong advocate of the freedom of speech, a member of the
Society of Professional Journalists and the San Diego County Bar Association.
He has appeared on ABC, NBC, BNN, many radio shows and presented at many
investment conferences throughout the world.
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