We’re in San Francisco today taking a break from our daily labors to ride cable cars up and down Powell Street and traverse through the city’s sundried districts, like Chinatown, North Beach and Fisherman’s Warf, with our wife and son.
Looking around we see hardly a sign of economic turmoil. People are bustling about, the hotel rooms are dearly priced, and the restaurants are full. Perhaps a stroll through the Tenderloin would change our opinion. But even in good times that neighborhood’s a lost cause.
The weather’s cool and foggy. We’ve heard breathing in the moist bay air somehow stimulates the mind and body to ideas and creativities that would otherwise go missed. Like one night in 1905, when 11-year old Frank Epperson left a stirring stick in a drink he was mixing on his porch. The next morning he discovered the drink was frozen to the stick and, if you can believe it, he’d invented the Popsicle.
So last night we gave it a try… We took in a deep breath of the cool moist air hoping to reach our inner Kerouac or Jack London in the thick bay mist. But, alas, wherever you go you always find yourself.
And once again we have gold on the mind. The dramatic price movements may have something to do with it. Plus, for the second time this week, we’re at the site of one of the greatest gold rushes in North American history. Where, between 1846 and 1852 San Francisco’s population boomed from 200 residents to about 36,000, as treasure seekers descended on the area.
Thus, with a cool windpipe, we’ll turn our attention to the world of money and gold…
What is Money?
If you were to ask someone 100 years ago: What is money? They would reply: Gold.
If you asked the same question 200 hundred years ago the reply would be: Gold.
And if you asked the same question 1,000 years ago, you would get the same answer: Gold.
But if you asked someone today, the question: What is money? They would generally look perplexed. And the responses offered would vary widely. One person would say: Dollars. Another would say: Euros.
Another would say: A promissory note. And still another would say: Available credit or purchasing power. Are these bad answers? Are they wrong? Let us explore.
We know that money is an essential part of human civilization. It facilitates commerce between individuals and businesses, and trade between nations. It advances markets beyond barter and serves as a means for the accumulation of capital. William Stanley Jevons, in 1875, stated that money has four functions – it is a:
1. Medium of exchange
2. Common measure of value
3. Standard of value
4. Store of value
Today’s money falls short in its function as a store of value.
If you consider just the dollar, it has lost 95-percent of its value in less than 100-years. And many other currencies that were around 100-years ago, no longer exist. In other words, they became worthless.
Hell Bent on Destroying the Currency
Over just about the last 100-years, the dollar has been under the stewardship of the Federal Reserve. During this time the money supply, along with government, has expanded like a cancer.
Here at the Economic Prism we prefer a stable and sound monetary base…one that increases at the rate of economic growth, where interest rates are determined not by the whims and wishes of a government stooge, but by the whims and wishes of a free market economy.
When a government stooge is commandeering over it all, free markets become distorted like one’s reflection in a funhouse mirror. The ultimate answer to paper money and central banker shenanigans, of course, is gold.
Gold has always been the asset of last resort. No government controls its supply. It can’t be printed or created out of thin air. There’s no IOU attached to the back of it. It’s entirely sovereign. And in times of uncertainty, like now, people hold it for wealth preservation, as trust in the world’s currencies, and the governments that issue them, are called into question.
Still, gold, like cigarettes or sea shells, is only worth what people believe it is worth. Right now, people believe it is worth over $1,800 per ounce. Eleven years ago they believed it was worth $300 per ounce. Obviously, we like shopping for $300 gold better than $1,800 gold.
Currently the central bankers of the world, the Federal Reserve included, seem hell bent on destroying their currency. They believe printing massive amounts of money is how to prevent a depression. They want inflation…and they want it bad…even if it kills us.
In the end, they just might get it. In the end, $1,800 per ounce gold might not be so bad.
for Economic Prism