What Is Value?

By: Alex Wallenwein | Wed, Oct 8, 2003
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Does the mountain subside under the hikers climbing feet? Does it rise, when the hiker descends it?

When thinking about gold and its value relative to paper-money, people generally have a difficult time in figuring out how to determine what is moving, and what is standing still. In other words, whether by simple convenience, or habit, or because everyone else is doing it, or because we never thought through the issues ourselves, we all "value" things according to "how many dollars" (or Lira, or Francs, or Drachmas) something is "worth."

The reason is, of course, that we pay for stuff in our home currency. So, by sheer habit, we tend to value things in terms of paper-money.

Ordinarily, with minor exceptions (except in countries with major inflation), that works just fine, and we can get along just fine in the world by doing this - for the most part.

But when it comes to determining the price of gold, we soon forget that what we are implicitly doing is not just "pricing", but actually valuing. We learn, by our societal and other conditioning, to make economic value judgments in terms of the currency we use, not in terms of the stuff it buys.

And the bankers and politicians just love for us to commit that fallacy.

In reality, however, just a little bit of thinking tells us that in a severe price-inflation environment, it is not really the stuff we buy that gets expensive. It's the currency we use to pay for it that gets cheaper and cheaper.

At the height of Germany's hyper-inflation after WWI, you probably would have had no problems at all in bartering a carton of eggs for a loaf of bread, just like you could have before the depression. But in terms of "Reichsmark", you'd better come up with a wheelbarrow full of RM 10,000 notes to buy that loaf!

So what rose? What fell?

Obviously, it wasn't the loaf that got bigger, and thereby increased its value to the buyer.

We would do well to remember that lesson when we complain that "they knocked the gold price down, again!" No, Sir! That is not what's happening. "They" (whoever "they" are) instead used a whole array of tactics to make it appear as if people value paper-money more than they value gold. That is, they artificially jacked up the "price" of currency.

In the past decade (the "anti-gold" decade), that has been quite successful. Paper assets "made money" then, while gold "just sat there" without bringing in any "returns." Well, it is precisely the fact that gold "just sat there" that confirms its ultimate value-determining function. Gold cannot be made less desirable by itself. Even "they" cannot make it uglier by scratching it, or defacing it, or forming it into disgusting shapes, or whatever. The only thing they can do is deceive people by making them believe that paper-assets are more desirable - at the moment.

The value of paper assets depends on many things. The value of gold depends on - nothing.

People value it, no matter what anybody does to it, how it looks, who owns it, who digs it out of the ground, or whether people hide it or throw it out in the street. Gold may temporaily go "out of fashion", but just wait for a while until economic bad times return, and people will remember real fast what the value of gold is.

Even Alan Greenspan, the de facto ‘enemy of gold', said in 1999 that "gold remains the ultimate form of payment.." He knows exactly what the value of gold is.

Why don't we, who call ourselves "gold investors"?

So people cry: "Gold is up!" and: "Gold is down!" or: "We are being deceived, defrauded by the money powers!" or whatever - and we sell at the slightest price-dip.

If you own physical gold, it is impossible that you could be defrauded by market action such as that of Octoer 3, 2003 - unless you can be tricked into giving your gold up and "cashing it in" for worth-less paper currency. As long as you keep your gold, you own something of ultimate value. You don't really care whether paper is expensive at the moment, or not.

So it turns out that many of us who are screaming for a higher gold price, a "fair" gold price, are the first ones who are willing to give our gold up to "lock in" illusory paper profits when the powers that (would like to) be are rolling out their smoke machines and their cabinet of mirrors..

Gold is the mountain. Fiat-money is the hiker.

Those of us who are writing about gold should form a "cartel" of our own. We should "conspire" to speak the truth, and no longer refer to a "rising gold price" or a falling gold price" - but only to a rise or fall of paper money. How would that change people's perceptions?

The times have changed. The world is no longer what it used to be. This is true as much in the finacial arena as it is in the geo-political arena. Old alliances we all grew up with simply disappear - and new ones rise up. Old valuation standards we all grew up with will likewise disappear - and even older ones will reappear.

The entire world now, minus the US (and a dwindling number of captive dollar "supporters"), is moving toward gold as the ultimate standard of value. The Europeans have created and launched their gold-positive fiat euro. The Chinese are liberalizing the heck out of their gold market and are discretely buying gold wherever they can find it. So do the Arabs and other Muslim countries.

Asian exporters play along with the dollar only for as long as it takes them to create an alternative market for their products. The Chinese got their currency pegged to the dollar, so they don't care how low the dollar goes: their yuan will always remain lower. The other Asian "tigers" do care - for now. But for how much longer?

Who else is left? Russia? They're buying gold whenever they can afford it. Muslims? They are creating their own gold currency. Canada? Canada now has almost as many euro-reserves as it has dollar reserves. Wonder why?

The US now stands alone. What you saw on Friday, October 3, 2003, was a coughing-spasm of a dying currency patient. (A patient who has lost its last physician, I might add.)

No matter how powerful this country is militarily, technologically, productivity-wise, capital-wise, if its political/financial leadership continues to fight gold, it continues to refuse the one medicine that could release it from its tuberculosis. This country cannot fight bed-rock value with military and other might. Gold cannot be created, and it cannot be destroyed. And dominating mid-east oil is proving more difficult than anticipated.

In a future world where every other country, and every citizen of every other country, recognizes the value of gold, and is freed to use it to its maximum, even an entire US population that swears by paper dollars will not suffice to keep the illusion up. We will only continue to delude ourselves.

Reality is never messed with for long without the most dire, most immediate consequences. Gold is the ultimate economic reality. And the emergence of the euro has in effect freed the world to once again recognize this reality for what it is. The neocon US government cannot stand against this with its dreams of an "American Century."

Eventually, even the majority of Americans will recognize this reality again, and will look to their government, and ask: why did you not do something about this? Why did you not let us know about this?

Any US administration (of whatever flavor) that wants to stand a chance of staying in, or coming to power, had better come up with a real good answer to this question - and fast!

Or, better yet, if such an administration has any real attachment to the principles of individual liberty and true capitalism left in it, it had better free the dollar from its unnatural $42.222 per ounce gold-shackles (and thus free gold from its dollar-shackles) to give the dollar at least a fighting chance to compete. Otherwise, the dollar will be "toast" - and the other slice in that toaster will be the US economy.

But alas, in a world where communist nations like China are teaching the United States lessons in free-market capitalism (by buying gold and liberalizing their gold markets), what are the chances for that happening?

Got Gold?


 

Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

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