Get Gold

The usually intriguing and insightful Mencius Moldbug has an excellent discussion of gold and uses the "stock-flow" ratio, 28 February 2008, at his website, http://www.unqualified-reservations.blogspot.com/2008/02/return-to-castle-goldenstein-gold.html. Way to go Mencius.

I think one reason gold is money instead of say, platinum, silver or palladium, all "near monies" in my opinion, is that each of these metals has too many alternative uses, i.e., each is too useful to mankind to "waste" as money. As Fred Cederholm would say, think about it.

One thing people need consider in determining what is money, is whether or not the good is endogamous to the economic system or exogenous from it. Gold will be produced when it can be at a profit, hence if too much gold is produced, and its' value falls, which we see as high prices of other goods in gold terms, the mines close until gold production is profitable again. This is clearer in the case of the approximately 400,000 US "stripper wells" which were closed because of low oil prices, some of which are being reopened. Gold mines closed in 1942 by government order, many of which stayed closed after WWII since gold's "price" was fixed at $35 and WWII inflation had reduced the dollar's value, making mining costs too high to be profitable. If too little gold is produced, the gold price of other things falls, mining costs drop and the mines reopen. Again, this is more visible in oil production. The "cost" of oil production is increasing as royalties to land owners go up, countries like Venezeula demand higher severance taxes and salaries to oil workers increase. In effect, the "oil price" of other things falls.

People conjur up demons about new methods of producing gold which might make it a poor store of value. The only time I know of in which gold's value was significantly reduced, except by government inflationary policies, was in about 1500-1540, when the Spaniards came to the New World. The Spaniards found much gold and silver here, which they brought back to Europe leading to a reduction in the metals exchange value for other goods, i.e., "inflation".