September 04, 2003

The Case AGAINST Gold

So you're a gold skeptic? The always insightful Dan Ferris responds to a challenge: what is the case AGAINST gold. Dan says (emphasis mine): During the California Gold Rush, all that new money supply created some inflation. In San Francisco, at one point, a single egg sold for a whole gold dollar (about $23.50 today). But the scarcity was soon solved, and eggs were $1.50 a dozen by the end of the 1850s. Bank failures were fairly common throughout the country, but there was a big banking panic in 1855 that shut down the two largest banks in SF and brought Wells Fargo to prominence. Page, Bacon & Co. suspended operations in the midwest (St. Louis?) Feb. 1855, and when news hit its San Fran offices, a panic resulted. The other big SF bank, Adams Co. went belly up, too. A lot of miners were wiped out. The fact that gold was money didn't save anyone from losing money in a banking panic. I think it was Doug Casey who wrote about how there's more gold in a cubic mile of seawater than presently exists above ground. (Remember, all the gold ever mined would form a cube only 20 meters, about 21.67 feet, on a side). That technology would create a new gold hyper inflation. Saying "gold doesn't do anything" strains credibility, though. Gold is quite useful. Gold is unmatched as an electricity/heat conductor. The touch tone phone on your desk employs 33 gold plated contacts. No metal is more malleable than gold, giving it an inherent usefulness. You can extrude a 35-mile (no typo) wire from a single ounce, or pound it into a paper thin sheet 300 feet square. Though soft and malleable, it is virtually indestructible, impervious to seawater or acids. The only real case against gold is the same as the case against heroin use, prostitution, or cursing on television: the U.S. government pretends not to like it. I say pretends because, besides the fact that the government uses heroin, employs prostitutes and curses, owning 261 million ounces, the largest single gold hoard in the world, is an odd way of showing its disdain. (#2 gold hoard is Germany; #3 IMF) But if you insist on a "Case Against Gold" essay, someone should find the original Keynes (was it?) "barbarous relic" reference, and WJB's "cross of gold" speech.


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