> From James Turk: > >>Yes, gold is a fantastically stable currency. Leaving us with the > >>question of why? > > > >The reason begins with its inherent physical attributes of ....[snip] > >It's much simpler than that. The aboveground stock of gold grows by >around 2% per annum, which is approximately equal to world population >growth and the annual creation of new wealth. Therefore, the supply of >gold and the demand for gold relative to goods and services tend to stay >in balance with one another over long periods of time. We lose sight of >this reality when we think (perform economic calculation) in terms of >national currencies. This insight is not new.
James: That's an excellent observation. I've heard it before, but the more I think about it the more I realize how crucial that property is in maintaining the exchange value of gold. The inherent physical properties of gold, specifically durability, divisibility, and recognizability, are necessary properties of anything called "money". That much is obvious -- anything that is not durable, divisible, and recognizable will certainly not function well as money. Those properties are necessary, but not sufficient. Something more is needed, and I believe you have identified it. I called it "scarcity", but as I think more clearly, scarcity isn't really the key property. Something can be scarce today and abundant tomorrow. That in fact is the very risk we encounter with fiat currency. The property you are talking about is, if I may summarize, "guaranteed slow growth". That 2% growth rate in the aboveground stock of gold is apparently very hard to budge. The only way to change the growth rate is through difficult innovations in mining technology and just plain hard work in general. Even then, I would guess that the growth rate tends to regress toward the 2% mean. In contrast, there is no way to guarantee any limit on the growth rate of fiat currency. The growth rate is determined entirely by the procedures and rules established by whomever is in power. It can be -10% one year, 0% the next, and 10000% the next. It has happened before, and will happen again. I now summarize what I think are the core required properties of anything that purports to be a medium of exchange with a stable value: 1. Durability 2. Divisibility 3. Recognizability 4. Guaranteed slow growth (approx 2%) This puts aside all considerations of practical utility and aesthetic beauty. Any substance or thing having these properties can qualify as a stable money. With regard to aesthetics, I would simply say that the substance cannot be revolting or downright dangerous to handle, but would impose no further requirements than that. An interesting question to consider might be, what substances other than gold possess these four properties? Silver and platinum qualify somewhat, but silver may not have (4), and platinum only has (2) with some difficulty (not malleable & high melting point, whereas you can divide gold by pounding it with a hammer). Another interesting question to consider might be, does it have to be a physical substance? Is it even possible to devise some informational "substance" with no physical basis that has these four properties and thus qualifies as a stable money? Is the restriction to a homogenous "substance" even too restrictive? What about heterogenous, diversified things traded through Ricardian contracts? Will people find these systems too cumbersome because there is no simple unit of account like a gold gram? Or can they conduct their business like "Terry the Trader" on a regular basis? (See http://www.systemics.com/docs/ricardo/trading/a_day_in_the_life.html .) So of course there's nothing magical about gold that makes it the only basis for money. Just go find something else that's durable, divisible, recognizable, and has guaranteed long-term scarcity. Let me know what you find, and good luck with that. :-) Regards, Patrick subscribe: send blank email to [EMAIL PROTECTED] unsubscribe: send blank email to [EMAIL PROTECTED] digest: send an email to [EMAIL PROTECTED] with "set [EMAIL PROTECTED] digest=on" in the message body --- You are currently subscribed to e-gold-list as: archive@jab.org To unsubscribe send a blank email to [EMAIL PROTECTED] Use e-gold's Secure Randomized Keyboard (SRK) when accessing your e-gold account(s) via the web and shopping cart interfaces to help thwart keystroke loggers and common viruses.
