The Golden Road Remains Constant

I

One must always be careful to distinguish between a truism, a claim or narrative which is so deeply embedded into the fabric of cultural understanding that it is taken to be an indisputable historical fact, and truth, a continuing, self-evident feature of reality which is available to be observed, reasoned about and tested in the present. Truisms are the handmaidens of convention which, for economic participants, eventually come to replace objective observations. The result is that the ‘science’ of economics is transformed into a battleground for subjective beliefs, where the soldiers are not self-evident observations or testable predictions, but, rather, fashionable claims and politically-correct statements. In recent times, we have seen this to be the case for the Philips Curve, the theory of aggregate demand, and Keynes's inversion of Say’s Law.[1] These, among many similar economic ideas, are modern truisms which, though falsified by present-day economic observation, persist as structures of belief that are dearly held by the economists and politicians who shape our collective future.

In this essay, I will draw the reader’s attention to a truism that endures as conventional wisdom today, even though it can be easily falsified by plain experience and objective examination. I speak of a belief which colors the whole of recent economic history: the judgment that the natural element Gold (Au) is now relegated to its present status as a store of value because payment technology has evolved beyond physical media. The whiggish story goes something like this: just as we humans evolve, so, too, does our civilization progress along the rising road of history; therefore, just as our maturing societies exhibit increased technical capabilities, so do our monetary instruments undoubtedly improve with the march of time. Consequently, the transition from carrying around weighty physical coins made from precious metals to making instantly-settled electronic payments is seen as evidence enough that, in our time, gold no longer has a role to play as a monetary instrument.

This specific belief is unique insofar as opposite factions within the battleground of subjective economics all hold it to be true: while the disparate schools of sound money advocates, mainstream academics, and cryptocurrency evangelists share very little in common, they all seem to agree that physical gold, as a monetary instrument, has been superseded by human innovation and technology. To each of these independent groups, what the car is to the horse and carriage is what modern digital payments are to antiquated gold coins and balance scales.

          In my own experience founding a precious metals payments and savings business, I have always been puzzled by this truism, and I have ultimately come to reject it. I believe that, in this regard, sound money advocates have made a terrible concession. As a result, the frontlines of one of the most important intellectual battles has been relinquished to the economic alchemists and technology-worshipping wizards of cryptocurrency; meanwhile, advocates of sound money retreat to their ramparts, safely guarding their own cherished bedrock upon which it is engraved with the chisel of perennial reason that gold, though no longer money for all, is the premier store of value for man. What results from this fissure is that most people view gold as a historic monetary instrument that remains a store of value today for some mysterious and indiscernible reason. For people like myself, however, gold is money for all times: as practical today as it was at any point in history.

In order to reconcile these two positions, we must first discern what money is. The traditional definition which you find in the dictionary is as follows: money is a unit of account, medium of exchange, and store of value. But what do these words mean? Unit of account refers to an objective, that is to say, unchanging measure which is fungible and arithmetically calculable. For example, one inch is always an inch; one gram is always one gram. Medium of exchange refers to the marketability of the thing, such that it is readily accepted among peoples across time and place. Said differently, the likelihood of any thing to be accepted implies its ease of use or its ability to efficiently move from the hands of one to the hands of another. We can even go further to say that, not only does the thing need to be exchangeable, but it must in itself have some utility or usefulness, lest it fail to be desired by different people at different places and different times. For example, an amount of salt in one place is desired in another place because salt preserves meat and enhances the taste of food; thus, salt could be carried from one place to another and readily accepted by self-interested actors as a medium of exchange. Finally, store of value refers to the relative scarcity of the thing (in comparison with other things) as embodied in the unit of account and medium of exchange. The rarer the thing, the more desirable and exchangeable it will be, from the past, through the present, and into the future. For example, the best house on the best street is a store of value because, so long as it remains unchanging and useful, it will always be more desirable and exchangeable relative to any other house on any other street.

This is the traditional picture that we learn from contemporary economic theory. But we can already see that this definition is perplexing, for it appears to presuppose something with physical qualities which simultaneously satisfies these three criteria. In other words, unless there was already something that is always able to satisfy these three criteria, then the act of defining ‘money’ would prove to be elusive. Now, it would be a difficult task to fulfill these three criteria in all times and in all places. In the case of the house, someone may build a better house, or the house may decay, or the quality of the neighborhood may decline; we also know that people have subjective preferences for different architecture and design, so it may be unclear whether one house is ‘better’ than another. The same is true for salt: while we know that salt may be readily accepted, we can think of many things that are rarer and last longer than salt. We can begin to see that the standard definition of money presupposes an understanding of the order of nature and, more specifically, the irreducible building blocks of all matter – the corporeal elements. For without the unchanging, qualitative, and measurable attributes of the elements, we would be unable to rank potential moneys according to an internal hierarchy, such that we can discern a corporeal thing’s fittingness to satisfy these three criteria. Indeed, as we shall soon explore, attempts to superimpose human ideas into this procrustean definition of money consistently prove to be unintelligible, requiring a tremendous amount of complex, lofty thinking which contradicts the simplicity and intelligibility of the natural world.

Let us simplify our definition of money, in order to understand its nature, its purpose, and its function in light of the importance of these tripartite criteria. We know that these criteria must simultaneously hold true at all times and all places, intrinsically in the thing itself; therefore, any attenuation of these criteria undermines the viability of the thing-at-hand to be money. Keeping this in mind, we define ‘money’ as such: money is a corporeal good which serves as an unchanging measure and reward by virtue of its relative scarcity and temporal endurance when compared with other corporeal goods. With this definition of money, the unchanging nature of a naturally scarce, long-lasting, and useful corporeal good provides the foundation for neutral and lasting satisfaction among self-interested parties in any potential exchange. That the money must be a unit of account renders it an unchanging measure; likewise, that the money must be a useful store of value renders it a satisfying reward.

Money therefore is not simply the instrument that best facilitates payment; but rather, it underpins, reflects, and adjudicates the entirety of any transaction between self-interested parties, from measurement to reward, or from payment to satisfaction. At this point, we may recognise that the desire for convenience and expediency should in no way undermine the nature, purpose, and function of money.

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Disclaimer: The views and opinions expressed in this article are those of the author(s) and do not reflect those of Goldmoney, unless expressly stated. The article is for general information ...

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