I once read an economic theory which went along these lines. Nothing has value except for the labour put into it. A tree standing in the middle of the forest has no value, but once it has been felled and made into lumber, there is value.
There is lots of gold in the ground but there, it has no value. Only the mining and refining effort places a value on it. Of course, I am speaking not of a particular mine but in general.
That is why gold is like any commodity, and like any commodity, it can act like money when traded. Fortunately for gold, a small amount is worth a lot of money.
You are right, money is created from debt, and is not a store of value in itself, but just a means of trade. It was not always thus. At one time, you could take your dollar and exchange it for gold, a guaranteed amount, and banks had to have the gold on hand. But as you said, the paper was just too convenient, and banks found out quickly that they needed only a small amount of gold for those die-hards.
But gold bugs will point out that paper money is actually holding debt or someone's liability. And there is a mountain of debt. But of course, money or cash in great quantities was not intended to be held for a long period of time. Gold on the other hand can be held, and because it is liquid, one can get value generations in the future, unlike fiat paper money. But even here it has a draw back...gold pays no interest, and is costly to store.
So as a monetary currency, holding gold is probably not the best investment. But gold is used also in jewelry, and will function as insurance against catastrophic events.
As for me, I still question the importance and consequence of all that exploding debt. |
