Doug Casey On Why Gold Is Money

Tyler Durden's picture

Authored by Doug Casey via InternationalMan.com,

It’s an unfortunate historical anomaly that people think about the paper in their wallets as money. The dollar is, technically, a currency. A currency is a government substitute for money. But gold is money.

Now, why do I say that?

Historically, many things have been used as money. Cattle have been used as money in many societies, including Roman society. That’s where we get the word “pecuniary” from: the Latin word for a single head of cattle is pecus. Salt has been used as money, also in ancient Rome, and that’s where the word “salary” comes from; the Latin for salt is sal (or salis). The North American Indians used seashells. Cigarettes were used during WWII. So, money is simply a medium of exchange and a store of value.

By that definition, almost anything could be used as money, but obviously, some things work better than others; it’s hard to exchange things people don’t want, and some things don’t store value well. Over thousands of years, the precious metals have emerged as the best form of money. Gold and silver both, though primarily gold.

There’s nothing magical about gold. It’s just uniquely well suited among the 98 naturally occurring elements for use as money…in the same way aluminum is good for airplanes or uranium is good for nuclear power.

There are very good reasons for this, and they are not new reasons. Aristotle defined five reasons why gold is money in the 4th century BCE (which may only have been the first time it was put down on paper). Those five reasons are as valid today as they were then.

When I give a speech, I often offer a prize to the audience member who can tell me the five classical reasons gold is the best money. Quickly now—what are they? Can’t recall them? Read on, and this time, burn them into your memory.

Money

If you can’t define a word precisely, clearly, and quickly, that’s proof you don’t understand what you’re talking about as well as you might. The proper definition of money is as something that functions as a store of value and a medium of exchange.

Government fiat currencies can, and currently do, function as money. But they are far from ideal. What, then, are the characteristics of a good money? Aristotle listed them in the 4th century BCE. A good money must be all of the following:

  • Durable: A good money shouldn’t fall apart in your pocket nor evaporate when you aren’t looking. It should be indestructible. This is why we don’t use fruit for money. It can rot, be eaten by insects, and so on. It doesn’t last.

  • Divisible: A good money needs to be convertible into larger and smaller pieces without losing its value, to fit a transaction of any size. This is why we don’t use things like porcelain for money—half a Ming vase isn’t worth much.

  • Consistent: A good money is something that always looks the same, so that it’s easy to recognize, each piece identical to the next. This is why we don’t use things like oil paintings for money; each painting, even by the same artist, of the same size and composed of the same materials is unique. It’s also why we don’t use real estate as money. One piece is always different from another piece.

  • Convenient: A good money packs a lot of value into a small package and is highly portable. This is why we don’t use water for money, as essential as it is—just imagine how much you’d have to deliver to pay for a new house, not to mention all the problems you’d have with the escrow. It’s also why we don’t use other metals like lead, or even copper. The coins would have to be too huge to handle easily to be of sufficient value.

  • Intrinsically valuable: A good money is something many people want or can use. This is critical to money functioning as a means of exchange; even if I’m not a jeweler, I know that someone, somewhere wants gold and will take it in exchange for something else of value to me. This is why we don’t—or shouldn’t—use things like scraps of paper for money, no matter how impressive the inscriptions upon them might be.

Actually, there’s a sixth reason Aristotle should have mentioned, but it wasn’t relevant in his age, because nobody would have thought of it…it can’t be created out of thin air.

Not even the kings and emperors who clipped and diluted coins would have dared imagine that they could get away with trying to use something essentially worthless as money.

These are the reasons why gold is the best money. It’s not a gold bug religion, nor a barbaric superstition. It’s simply common sense. Gold is particularly good for use as money, just as aluminum is particularly good for making aircraft, steel is good for the structures of buildings, uranium is good for fueling nuclear power plants, and paper is good for making books. Not money. If you try to make airplanes out of lead, or money out of paper, you’re in for a crash.

That gold is money is simply the result of the market process, seeking optimum means of storing value and making exchanges.

*  *  *

Doug thinks the price of gold could hit $5,000 in the coming years. To help you take advantage of this rare opportunity, he’s sharing the specific method he’s used to make gains as large as 487%, 711%, and even 4,329% in previous gold bull markets. The “Casey Method” is unlike any other investing strategy. If used properly, it could make you HUGE gains over the next few years. Doug explains it all right here. You’ll also learn how to get instant access to a special report that names 9 gold stocks with huge upside. Each of these stocks could rise 100%, 200%, or more in the coming years. Click here to get started.

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wee-weed up's picture

 

 

Duh!

No shit!

Schlump's picture

My hair is gold, my skin is gold. I can dig it!

And my fingers are long and beautiful, as, it has been well documented, are various other parts of my body.

Troy Ounce's picture

 

 

....the price of gold is not manipulated downwards... - Doug Casey

This is it's picture

Something to help put u to sleep on a long weekend. He must be equally bored to write that too. 

MaxThrust's picture

$5,000-$10,000 /oz should be a reasonable starting point once the major countries of the world are forced to print even more fiat to cover the interest on their current debt.

canisdirus's picture

No government demands gold or silver in taxes, therefore their only value is in jewelry and practical applications, which are the only major remaining drivers of price expressed in fiat currencies.

You're pricing it in fiat based on a belief that it holds intrinsic value that will grow relative to it, which simply isn't the case.

The only reason gold was ever seen as money is due to ancient governments demanding tax payments in these metals, which are scarce. This, in turn, pushed traders to prefer it in trade for goods. In an ancient sense, it went viral, and that viral nature has persisted for thousands of years. The problem is that the chain has been broken and modern people really don't need it for much, which comes full circle to my first point.

saldulilem's picture

sounds good, but gold has bad divisibility (change for a 1 oz coin please?) and is therefore not very convenient.

Rock On Roger's picture

I guess you've never heard of grams, eh?

Or milligrams?

And attograms are likely too small for your imagination.

saldulilem's picture

wow, a milligram gold coin, why didn't they think of that before?

debtor of last resort's picture

Well, they thought about a quadrillion dollar coin. Maybe this is it.

Cloud9.5's picture

As long as the system holds your position is correct.  History suggests our current system is an anomaly. Rather than lambast the obvious it would be wise on your part to research surviving without money.  Ferfal Aguirre is a good place to start.  Look around the web.  There are numerous recounts of trading bits of gold chain and other jewelry for necessities in collapsed economies.  There is a YouTube video of Zimbabweans panning for gold to buy bread.   The ongoing propaganda against gold and silver coinage beginning with the great depression has been highly successful.  I suspect that you are a victim of that success.

 

Shortly after the 08 crash I went to my favorite coin shop in Largo and bought a hundred ounces of silver.  My son had some loose cash so he bought a couple of ounces of gold.  We left the coin shop and went to Publix to buy buns, hotdogs and beer for lunch.  On the way to Publix my son and I had gotten into a argument as to whether or not gold and silver were money. My position was based on the historical fact that precious metals had served as a medium of exchange for thousands of years.  His position was based on the assertion that the general public was clueless and had no concept of the value of gold and silver.  This general lack of knowledge relegated it to the status of a collectible. To prove his point, he attempted to pay for the food with a fifty dollar gold piece.  The little girl who was the cashier told him that she could not accept the gold coin as payment.  He pointed out that it said on its face that it was worth fifty dollars.  She said she could not accept it and that he would have to pay with either a check or a credit card.  She gave it back to him and he paid with a card. Then he turned to me and said point made.  I conceded and then told the little girl that the gold coin was worth more than a thousand dollars.  The wisest thing she could have done was accept it as payment and then redeemed it from her register.  She would have made a thousand dollar profit.  She said with some sadness that she did not know.  She had never seen a fifty dollar gold piece before.

WayPastCaring's picture

Lol - have you ever seen this hilarious video of Mark Dice trying to sell a 1 oz gold $50 Canadian Maple Leaf coin for $25 when at the time in 2012 it was worth $1,500? NO ONE will buy it! People are so fucking ignorant and Dice is great at exposing how stupid they are ...

https://www.youtube.com/watch?v=ndshbH3qZ6Y

canisdirus's picture

They may be ignorant, but I'd argue that Mr Dice is more ignorant for giving someone $1500 for a coin that he can't exchange for even 1/60th what he paid to anyone that doesn't collect them.

canisdirus's picture

And this is exactly why gold will have no value in a post-collapse world. It has no practical intrinsic value and most people couldn't identify the material even if they wanted to, since most have very little exposure to it (mainly in low-content alloys used in jewelry).

The value today is so high that it's a completely impractical medium of exchange. Even thousands of years ago this was already true. Today, I could feed my family for a year on the value of 3-4oz of gold, which makes it completely impractical to exchange for anything you need on a day-to-day basis.

When the 1 in 1000 people turns up with gold coins they plan to use as money, they'll be hit by the exact reality your son exposed you to: The vast majority of the other 999 in 1000 people won't even recognise it, let alone have any use for it. It might have value, but that value will be miniscule relative to almost any reasonably durable manufactured good that you could have stored away for the same amount of fiat currency.

chairman of the bored's picture

Eveyone should watch that vidro....men digging for a few flakes of gold to buy bread for the family....says it all!

opport.knocks's picture

Hold on, Let me get out my scale and mass spectrometer to make sure the change you gave me is correct. Your scale says 1.4157 grams and mine says 1.3986

I agree "Gold as Money" is great for savings and as a store of wealth, but most people want/need stable currency for the day-to-day stuff and gold does not make the cut for obvious reasons.

Isn't someone working on a gold backed digital currency?

0hedgehog's picture

"Isn't someone working on a gold backed digital currency?"

 

Yes, China and Russia. While they train us to hate metals they are being amassed in the east for just that purpose.

canisdirus's picture

As I've argued, that metal is only useful for industrial and jewelry purposes. If some person or country acquired all of it available in the world and we found a viable replacement for use in electronics, the value would drop to zero outside their borders because nobody would need/want it.

Gold and silver only have value because ancient governments demanded them for the payment of taxes, which created demand for them among average people.

From a practical perspective, high quality steel was (and still is) far more valuable. I'd bet that well over 99% of the adult population in the US has worked or spent more wealth on cars than on precious metals. The reason is obvious.

Dame Ednas Possum's picture

Hey dopey... best not to use a good delivery bar to buy a loaf of bread. 

foxenburg's picture

@saldulilem. I'm a Kruggerrander. Over the years I've accumulated, besides full Krugers, half-Krugers, quarter-Krugers, quite a few tenth-Krugers...these last ones are gorgeous little fellows, slightly smaller than a dime. Whereas full Krugers klink heavily with satisfying weight, the little tenths sort of trickle through your fingers like ....I might just have to go and remind myself. Nothing like gold coin counting therapy. Count them and count them again...perhaps one last count before putting them away.

(the dime was originally called a disme, pronounced dime, old French word for tenth, as it was a tenth of a silver dollar.)

 

Juliette's picture

Jesus, you can always get smaller gold coins or silver coins as change -- or just divide your gold coins into small pieces and weigh them. You can use a simple tin snips for that - gold is a very weak metal.

sinbad2's picture

You can now buy credit card sized gold cards that allow you to snap off 1 gram pieces, worth about $40 at the moment.

0hedgehog's picture

Once again, that is where silver comes into the picture.

saldulilem's picture

From the article, verbatim: "A good money needs to be convertible into larger and smaller pieces without losing its value, to fit a transaction of any size." I'll just leave it at that.

enfield0916's picture

Looks like we have another clueless Keynesian "Economist" here who thinks paper is money.

Please go back to your overlord Krugman and tell him I said - fuck off!

wattie's picture

Gold is money, but some have been tampering with it!!

www.goldclassaction.com
www.silverclassaction.com

DON'Tlet them get away with it. JOIN Today.

quasi_verbatim's picture

Gold is a store of value but governments have been propandizing it out of existence as a medium of exchange for two hundred years.

It is no 'unfortunte historical anomaly' that we use fiat paper and digitals. It is intended so and will continue.

 

0hedgehog's picture

"......It is intended so and will continue"

....until it becomes worthless, as all paper currencies have throughout history.

canisdirus's picture

Your belief in gold is archaic. We deal with practically nobody that operates in gold and it only holds intrinsic value for it's unique properties that have nothing to do with it's usefulness as a currency.

Today, since no government demands it in payment of taxes, demand comes from industrial uses (including jewelry) and misguided gold bugs. Average people couldn't conclusively identify pure gold even if they wanted to.

Soul Glow's picture

The definition of money.....

1)  It must be a unit of account and a measure of value

2)  It must be a standard of deferred payment

3)  Medium of exchange

4)  Store of value

Gold meets all of these definitions.  FIat only meets 3.  Fiat currency is not a store of value, as it is either just paper or a digit and it loses to inflation on a constant grade.

brushhog's picture

Gold is a store of value but not a medium of exchange, so I dont consider it money. I consider it a financial asset. The US dollar is a medium of exchange but not a great store of value....it's still a store but not a great one as the stated goal of the fed is to create inflation, however that has proved difficult in the past 8 years.

sinbad2's picture

It worked as a medium of exchange for the Romans. The British used the gold sovereign coin(1 pound) up until 1932.

canisdirus's picture

The British use of gold is a throwback to Roman conquest. It holds no value if nobody is seeking it.

The main reason people sought it was because the Roman Government (whom inherited it from more ancient governments) demanded gold and silver for the payment of taxes. It's the same reason the FRN has value while any completely rational person would see that it is merely paper with something printed on it.

0hedgehog's picture

"Gold is a store of value but not a medium of exchange"

 

That's where silver comes in!

UnschooledAustrianEconomist's picture

Sure gold is a medium of exchange. For big stuff.

DaveA's picture

Gold's intrinsic value is actually very low; it has few industrial uses, none of which require large quantities. That's a good thing, because the hoarding of an essential metal in bank vaults could seriously cripple our industry.

If people used something useful as a long-term store of value, such as real estate, homes would become ridiculously expensive, young people wouldn't be able to afford them, they couldn't marry and start families, and in a few decades the nation's workforce would go extinct.

Oh wait, that's actually happening.

Soul Glow's picture

A house is a horrible measure of wealth.  A house needs constant upkeep, never mind it could burn down or be flattened by an act of god in an instant.  And for the actual land, how long is land valuable?  The sand under the Great Pyramids was once great soil for crops as it was flooded by the Nile, but the Nile changed course and now the land is just, well, sand.  So the fact that gold never rusts, breaks down in decay, and keeps its fucking value is what makes it timeless, and timelessness is priceless.

sinbad2's picture

Actually gold has many industrial uses, but its cost restricts its use. Gold makes an excellent electrical contact, it makes an excellent infrared reflector, and can be used as a lubricant. Gold teeth are still the best kind of false teeth

I worked for Xerox back in the 70's, and gold was used on the fuser surface to reduce the amount of toner sticking to the fuser.

canisdirus's picture

Exactly.

I see the gold bugs have downvoted you, too. They just can't accept reality.

They'll learn one day (if they live long enough) when their horde's value is so low that they can't even buy a loaf of bread with a bar of the stuff.

Expat's picture

Wow. WTF is up with all the downvotes?  What was the issue here? disagreement with intrinsic value? Or the other bits.

Maestro Maestro's picture

Don't be jealous. Here's yours. Up yours.

Maestro Maestro's picture

Gold actually sells for production cost, you stupid asshole. Roughly $1300 in manipulated fiat. What's low about that, idiot.

If the bankers had any balls, they'd try $130 an ounce.

Fuck you all kindly.

DaveA's picture

The gist of my comment was that if you feel like hoarding something, please hoard gold, not real estate, because hoarding real estate has very bad long-term social consequences. Some industries would benefit from a lower gold price, but in most cases a very thin layer of gold does the job.

Sandmann's picture

Paper Money is a Non-Interest Bearing Treasury (Bearer) Bill which is why "In God We Trust" or "Promise To Pay the Bearer on Demand"

Maestro Maestro's picture

Pay what, you insidious asshole?