Today, we find ourselves in San Francisco, taking a delightful pause from our usual routines. We’re enjoying the iconic cable cars along Powell Street and wandering through the city’s sun-kissed neighborhoods, such as Chinatown, North Beach, and Fisherman’s Wharf, accompanied by my wife and son.
As we survey our surroundings, signs of economic distress are nowhere to be found. People are on the move, hotel prices are steep, and restaurants are bustling with activity. Perhaps a stroll through the Tenderloin would cast a different light on the situation, but even during prosperous times, that area remains a challenging environment.
The weather is cool and enveloped in fog. It’s said that inhaling the damp bay air can ignite creativity and enhance mental clarity—much like it did for Frank Epperson in 1905. At just eleven years old, he inadvertently invented the Popsicle when he left a stirring stick in a drink overnight, only to discover it frozen by morning.
With that inspiration in mind, we took a moment last night to breathe deeply of the cool, misty air, hoping to unlock our own creative spirits akin to Jack Kerouac or Jack London. Yet, it seems that no matter where we go, we always end up confronting our own selves.
This time, our thoughts drift towards gold. The recent fluctuations in price may have spurred this line of thinking. After all, we are once again situated in a city that witnessed one of the greatest gold rushes in North American history. Between 1846 and 1852, San Francisco’s population soared from 200 to approximately 36,000 as fortune seekers flocked to the area.
With this invigorating breeze in our lungs, we turn our focus to the concept of money and gold…
What is Money?
If you had asked someone a century ago, “What is money?” the answer would have been simple: gold.
A query from 200 years earlier would yield the same response: gold.
And even a millennium ago, the answer would remain unchanged: gold.
However, if you pose this question today, you would likely encounter confusion. Answers would vary widely: one might say, “Dollars”, another could respond, “Euros”, while yet another might say, “A promissory note”, or even “Available credit” or “purchasing power.” Are these responses incorrect? Let’s delve deeper.
Money is undeniably a cornerstone of human civilization. It facilitates trade between individuals and businesses, and it fosters commerce between nations. It allows markets to transcend mere barter and serves as a mechanism for accumulating capital. According to William Stanley Jevons in 1875, money fulfills four essential functions:
- Medium of exchange
- Common measure of value
- Standard of deferred payment
- Store of value
Today’s money falls short particularly in its role as a store of value.
To illustrate, consider the dollar—it has lost an astounding 95% of its value in less than a century. Many currencies that existed a century ago have since disappeared, rendering them utterly worthless.
Hell Bent on Destroying the Currency
For nearly the past hundred years, the dollar has been under the management of the Federal Reserve. During this period, both the money supply and government influence have expanded alarmingly.
At Economic Prism, we advocate for a stable and sound monetary base—one that grows in line with economic development, not dictated by the whims of government officials, but shaped by a free market economy.
When government intervention distorts the economy, free markets become as warped as a reflection in a funhouse mirror. The ultimate answer to the challenges of paper money and central bank interference is, of course, gold.
Gold has historically been the asset of last resort. No government can manipulate its supply; it cannot be fabricated or conjured out of thin air. There are no IOUs attached to it—it’s wholly independent. In times of uncertainty, such as now, people turn to gold for wealth preservation, as trust in currencies and the governments that issue them wavers.
Nonetheless, gold, like cigarettes or seashells, derives its value from collective belief. Presently, it holds a worth exceeding $1,800 per ounce; eleven years ago, it was valued at merely $300 per ounce. Admittedly, we find greater satisfaction in purchasing $300 gold than $1,800 gold.
Currently, central bankers worldwide, including the Federal Reserve, appear determined to devalue their currencies. They believe that excessive money printing is the antidote to potential economic downturns. Their fervent desire for inflation may ultimately prove detrimental.
However, they may just get what they wish for. In the end, perhaps $1,800 per ounce gold might not seem so daunting after all.
Sincerely,
MN Gordon
for Economic Prism
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