Want to see the world’s financial system at its most dysfunctional? Visit a gold mine. Huge expenditure of human and physical energy; destruction of landscape; poisoning of local people with its polluting by-products; lots of horrid, dangerous jobs. All for what? Digging up something that the world doesn’t need, and adds no value to anything.
Gold has real value as a decoration. It is soft and easy to work; best of all it is inert and does not lose its shine in the air; it is virtually indestructible. But most of the world’s gold is not used for decoration; it sits unseen in vaults. It is used as money. And the thing about money is that producing more of it (printing paper money or digging gold out of the ground) does not make the world any richer. It is just an attempt by one person to pull a fast one on somebody else.
Money is a confidence trick, literally. Things can only act as money by mutual agreement and confidence. Money has no intrinsic value of itself. Gold has been used as money since Croesus in 550BC, with widespread acceptance in both Europe and Asia. But not everywhere. In the American cultures found by European explorers gold was valued as a decorative resource, but not as money. The explorers could not buy anything with gold coin. In the modern age of paper and electronic money, there is no good reason why gold should fulfil this role. Its advocates point out that, unlike these modern forms, its supply is physically limited, with just those hateful mines and the melting down of works of art adding to supply. Some suggest that it is real money compared to potentially valueless “fiat” money. Well yes, but how to value it? Just what law of nature says how much wheat, or wine, or how many haircuts an ounce of gold should buy? At least proper money is hardwired into a mass of contracts; and the fact that we can regulate its supply more easily is a benefit, as well as a risk. Gold as money is obsolete. Or, as economist Willem Buiter put it (in his days as an FT blogger) Gold is a 6,000 year old bubble, with no more inherent value than cowrie shells (though according to Neil MacGregor of 100 objects fame it is only been going 2,500 years) .
Gold is an emotional investment. Its advocates feel some sort of connection with the ancients who originally started to use it as money. It is in the Bible. My emotions are at least as strong. Gold is the essence of evil when used for anything other than its beauty. And that view has plenty of biblical support too. I will not pay real money to invest in the stuff.
As gold shoots through $1,500 an ounce it is time to question what it is for. Let’s stop using it as money. Let all central banks sell off their stocks for use as jewelry and gold leaf. The world would be a much better place.