Gold is Timeless Money and Enduring Value
Introduction
Gold has been a natural money since pre-history. As a rare and distinctive element, our ancestors eventually determined thousands of years ago, and after perhaps millions of experiments, that gold is the single, best way to save, store, and exchange value. No other money has been so broadly desired amongst both rich and poor, “East” and “West”, and so universally treasured.
Why is gold such good money? Why save (or spend) gold in today’s modern global economy with its abundance of new technologies, innovations, and cutting-edge ideas? Can elemental gold really function as money even today? Should it?
Before answering these questions, we must first understand our present global financial system and the sub-optimal money which powers it: debt-backed currencies.
Understanding the Difference between Debt-Backed Currencies and Gold
For most of modern history, national currencies were linked to or redeemable in gold. Most of the great technological achievements we embrace today, from the Internet, to the car, to harnessing electricity, to modern medicine, can trace their roots of invention and innovation back to an economic system based on gold.
Our ancestors embraced gold as a superior natural element because of its distinctive and timeless radiance, which unveiled for them basic scientific properties that this element was qualitatively different from everything else around them. Finding or producing gold was difficult. It required the exhaustion of more time, energy, labour, and information to extract from the earth than the by-product of any other meritocratic activity. This established gold as rare in relation to the other building blocks of life. There would always be less of it in relation to everything else. Second, once the gold was extracted, it naturally lasted, whereas everything else would diminish given enough time. Gold is not only rare, but also eternal. Relative rarity and timelessness are essential qualities for any good money.
As we explain below, the logic of using gold as money is that it functions as an intermediate, non-consumable commodity with an actual production cost in time, energy, labour and information which we call gold’s “energy proof of value.” Therefore, when a good or service is exchanged for gold the transaction is settled. The gold can be stored or used in future transactions by the receiving party. Most importantly, gold’s production cost is directly linked to the laws of physics.
In 1971 the United States de-linked the dollar to gold and, due to the dollar’s dominant role as an international reserve currency, this effectively de-linked the entire global monetary system from gold and thus placed it on a ‘fiat-currency’ basis. Fiat currency is debt-backed currency, meaning that it is backed by debts owed to banks (including central banks). Transactions between two parties using fiat currency do not settle. The party receiving the fiat currency in exchange for a good provided or service rendered is left on the hook owning a debt issued by a specific government or country that might, under a wide range of possible conditions, devalue or default on the obligation.
It follows then that the longer one fixes their time, labour, goods, and services to these debt-backed currencies, the more exposed they will become to the specific policies of the underlying government issuing the currency.
There are presently 196 fiat currencies around the world. Remarkably, while most maintained some relationship to gold in the past, they are now entirely un-anchored. Thus each of these 196 currencies is a debt-backed currency representing the credibility of the government in power and the sustainability of its economic policies at a given moment in time.
The Proof is in the Math – Gold Always Wins
For those individuals who already understand gold and appreciate its usefulness, the proposition is simple, and it is supported by all available history. When looking back 10, 20, 50, or 5,000 years, there is not one debt-backed currency or banking system that has preserved its purchasing power over time as well as gold. (Indeed, the vast bulk of them have failed ignominiously.) You can explore gold’s unparalleled ability to preserve your purchasing power by using our gold performance calculator.
Gold Value Chart
While the technological revolution of the past two decades has led to an explosion of prosperity for a substantial segment of the global population, rural Indian farmers buying gold for family dowry (as their ancestors have done for thousands of years) have preserved their wealth better than most developed-world pension funds and middle-class savers. For individual savers, gold has always stored long-term value better than any other debt-backed currency.
The historical record is thus clear, but is this simply tradition and luck? Or are there other factors that enable gold to be the best money?
Cooperation Requires Settlement of Transactions – Where Debt Fails
In a free-market, people cooperating with each other frequently require a means to settle transactions and trade without the use of credit and debt. In this way, the goods or services produced from your labour pay for the purchase of goods and services produced by others. Money is the medium in this exchange, and nothing else fills this role so effortlessly and safely as gold. While credits or IOUs can work for a short while among trusted parties playing by agreed rules, over time the value of past promises will always change with changing circumstances, sometimes abruptly and unpredictably. The changing value of goods or labour will change the redemption value of the IOU, and the rules enforcing the credit can also change.
Gold is often criticized as a “useless” commodity because it is not consumed, but this glibly ignores that a $100 dollar bill is not consumed either. Value results from an item’s usefulness, so gold, like dollar bills, is valued for its usefulness as a means of exchange and as a timeless measure of value. But gold is fundamentally different from dollars, euros, pounds and all other debt-backed currencies, which are essentially financial assets with a degree of credit and/or devaluation risk that changes over time (in both rules and promised value), whereas gold is a natural, tangible asset that lasts forever.
Energy Proof of Value – Timeless Maintenance of Purchasing Power
Just like everything else we need to survive, gold has a cost to produce that can be measured in energy, time, labour and information. But unlike the necessities of life that evaporate, rot or decay, or information that becomes obsolete with the passing of time, gold requires essentially no energy to store or maintain, nor does it deteriorate or decay. Gold’s scarcity also promises a greater requirement of energy, time, labour and information to reproduce versus other goods and services. We call this gold’s “energy proof of value” because to its owner, gold holds proof of expended energy, time, labour and information, which can then be exchanged as desired for goods or services requiring an equivalent combination of energy, time, labour or information at any point in the future.
Simply put, gold’s rarity and permanence provides its owner a potentially indefinite maintenance of relative purchasing power. In sharp contrast, this important principle is not true for debt-backed currencies because the collective promises therein embedded are more likely to be broken with the passing of time and vicissitudes of society. Money’s value is always and everywhere a function of passing time and energy, and gold’s tangible attributes of scarcity and permanence hold great advantage over the decay of fiat promises with highly uncertain outcomes.
Gold’s enduring attributes explain why our ancestors organized banking and national currencies on a gold-based settlement system. These attributes have not been lost or destroyed; they are only being ignored or forgotten, as is occasionally the case with various important lessons of history.
Present System Devoid of Choice and Increasingly Risky
Fast-forwarding to the present, national currencies and banking systems have long since lost the natural discipline imposed by gold. The result is a world awash with 196 different debt-backed currencies, each of which is irrevocably tied to a specific government’s ever-changing economic standing and creditworthiness. Even more risky, our global banking systems have been built entirely on top of these currencies with no alternative or backup system.
Foreign exchange rates between debt-backed currencies are becoming more volatile, and online payment systems are expensive and often risky to both merchants and consumers because they contain many frictional layers of settlement. As financial activity becomes increasingly debt-based, the global economic structure becomes dependent upon central bank actions to ‘kick the can’ down the road, issuing ever more units of debt-backed currencies ever faster to make due on past obligations. While our mobile phones and online payment tools have become highly advanced, the debt-backed currencies they transmit are riskier and more unreliable than ever before. These debt-backed currencies have become more volatile and uncertain than the real trade in real goods and services they were supposedly designed to serve.
Alfa Gold® Offers You a Choice in Money
Before Alfa Gold, there was no convenient way for an individual to choose to conduct a meaningful portion of their financial and commercial affairs in gold. Buying gold was both difficult and expensive, and the gold you owned had relatively little practical usefulness as currency to be exchanged for goods and services. There was no gold-based payment system, nor was there a communication network enabling the instant exchange of gold via the internet. Alfa Gold changes all of that.
Alfa Gold’s online platform makes this extraordinary natural money – gold – accessible throughout the world, to rich and poor alike. It is our mission to provide everyone with convenient, economical and safe access to gold that you can earn, save, or spend in line with your personal requirements and preferences, and within the regulatory system.
Join us, and start experiencing the advantages of gold. Open your free account.
To learn more about the physics and science of why gold ascended as money above all else, Please read Why Gold – The Science Behind Gold.