The Trouble With Gold

by Jimmy Walter

You can have your cake and eat it too – providing you keep making cakes. Gold does not allow you to keep making cakes. Why? Gold is limited by nature. Humankind is limited only by our minds. It is our minds, our attitude about gold that makes it valuable, that induces people to work and do other crazy things. You cannot use gold for clothing. You cannot eat it for nourishment. You cannot make a house out of it. It will not cure diseases. It is heavy and hard to transport. It has to be tested and protected. Etc. Yes it is pretty, but it does not work or do anything necessary.

Because Gold is limited by nature, it cannot expand to meet human production expansions and needs. To make it simple, suppose that an economy has 1,000 ounces of gold. This economy has 10 people. They average 100 ounces each and spend it on what they need and want. This gold goes around and around, but on the average, they each have 100 ounces. (We are going to ignore hording or saving for now, but see “Paradox of Thrift” by Keynes) Now one of the ten decides he/she wants to produce something new. But there is no extra gold in the economy to buy it. Since everyone is buying what he or she needs and wants already, they will have to give up on something to buy this new item or not buy it all. With paper and electronic money, however, a wise government expands the money supply along with production so people can buy the newly produced items. With an economy based on gold, you either have to conquer someone and take theirs or go prospecting. As a result, all ancient and many modern economies stop(ped) when the gold ran out or was horded. The discovery of the New World's gold resulted in an economic expansion in Europe that had previously stagnated due to fixed supplies of gold. Nature is an uncaring, unthinking taskmaster. At least some men and women can reason and make responsible decisions. Some chance to control the economy is better than none.