By Stephen Buller
Most people know the golden rule: Treat others how you wish to be treated. Here is a lesser-known golden rule: He who holds the gold makes the rules. Most people I meet think of gold as a commodity, a shiny metal, or pretty jewelry, but when I say gold is the best money, they get confused or skeptical.
While there have been countless “currencies” throughout history, I’ll argue gold is and always will be the best “money.” There is a reason money rule-makers, from the fictional Iron Bank in “Game of Thrones,” to the very real Federal Reserve, stack it in their vaults – and you should too.
To work well, money must be a 1) medium of exchange – people widely accept it as payment, 2) unit of account – its quantity is easily defined so it can act as the value measuring stick, and 3) store of value – it maintains its value over long periods of time. The concept of money has become abstract and complicated, I believe intentionally so. A one-word answer to “what is money” would be too simple … wouldn’t it?
To understand why it should be that simple, let’s look at another well-known metal: Steel is arguably the best construction material. It’s used in every aspect of our daily lives, including homes, cars, appliances, equipment, tools, and weapons. This is mainly because of its strength but also its abundance and relative ease of use in manufacturing and recycling.
Similarly, gold has innate characteristics that make it the best money. It is fungible, meaning each bit of gold is identical to the next, and divisible into any size – making it a good unit of account. It is durable and inert, doesn’t corrode or oxidize – making it a good store of value. It has few viable industrial applications, so its stock quantity on Earth is stable, and it has been desired by humans for 6,000 years – making it a good medium of exchange.
Gold as a physical currency is also usually an alloy, with small amounts of silver and copper to add durability. If you compare gold to its competitors – of which it has had many – nothing else can compete. Two interesting comparisons today are Bitcoin and the United States dollar.
Bitcoin is a wonderful unit of account and has a stable stock. It fails as a medium of exchange because it’s so young, and its durability could also be tested in the case of a catastrophic power failure.
The dollar is the greatest medium of exchange ever, used by more people in more transactions than anything else in history. It fails as a store of value because its design mathematically demands it lose value over time.
To be fair, gold has the weakness of being heavy. It’s more difficult to carry than either a one-gram rectangle of cotton and linen, which could have as many digits on it as you can fit, or a digital drive, which could theoretically hold any amount of Bitcoin. With today’s technology, a digital gold standard could give us the best money of all.
That would require a standard where every unit of digital money is supported by a specific measure of gold, not a fractional reserve system, which allows banks to loan out multiples of the value of assets it holds. This detaches money from reality. If everyone demands their money at once, it simply does not exist. Today, we have a fractional reserve system that is completely detached from gold/money and has no limits on how many multiples of the baseless currency can be created.
The value of all our labor – as it can be traded for another good or service – our time and passion, our blood, sweat, and tears, is captured in the form of money. When we use faulty money, the fruits of our labor are easier to steal or misdirect through inflation. Because of this, I believe one of the most important pillars of an enlightened and prosperous society is “sound money.” If everything is going up in price, it actually means your unit of measure is going down in value. All fiat currencies go to zero sooner or later. Gold is still here.
