GOLD: Is It Really All In The Name

By: Douglas V. Gnazzo | Sat, Aug 20, 2005
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Wealth

Gold! The sovereign of sovereigns. When gold speaks, all tongues are silent. There is something special about gold. Its luster has cast an aura of mystique across the ages.

Many consider gold to be the only real form of money. Others say it is wealth itself. For more than 5000 years man has used gold as the most common medium of exchange - money.

It has been said that the most atrocious acts imaginable have been perpetrated to obtain gold; and so they have. Which begs the question - why? What is it about gold that makes it so coveted? Is gold really wealth itself?

The word wealth is derived from weal and implies a state or condition thereof. Weal is synonymous with well as in well-being. The primal state of man is that of being, or of having life. Life is the first order of wealth, as without life man is unable to experience the world in which we live, move, and have our being in.

All other considerations of wealth must be in accordance with true wealth or well-being. Whatever contributes to man's well-being contributes to his true wealth, and as such can be considered a secondary form of wealth.

Hence the importance of health in our lives. If we are not healthy we are not well. If the condition persists and cannot be corrected then our greatest wealth is taken from us - life itself. The word disease clearly signifies this as it expresses dis-ease, the missing of the state of ease or wellness.

Money And Value

With the use of money man was able to expand trade and commerce. Instead of the direct exchange of one good for another, commonly referred to as barter, man took a leap forward and employed indirect exchange. Indirect exchange is just another name for the use of the most common medium of exchange - money.

The market in its infinite wisdom, subjectively determines by consensus of agreement, which good is the most preferred commodity best suited to be the monetary expression of value. Value is the raison d'etre for the use of money.

Man determines value according to utility or usefulness. The most basic value is life itself. We all must sustain life by obtaining life's necessities. To accomplish this task we employ our labor to either gather, grow, provide or produce that which we need to maintain life: food, clothing, shelter, water, and health care. All of these goods are of value to us - as they keep us alive and able to experience our greatest asset of wealth - life.

So the greatest value is life. Life is also true wealth. The next order of value are the goods and services needed for the continuance of life. Man's labor is of the greatest value as well, as it provides life's necessities.

Labor is the means - goods and services the end. Money is the middle man that facilitates labor's production into the consummation of its supply. Goods are only produced to be consumed to sustain life. Money is the conduit from production to consumption.

Money is but a medium of exchange that expresses a receipt or obligation to be fulfilled by the trade of buyers and sellers in the marketplace. The seller sells his goods in exchange for money from the buyer. The buyer sells his money in exchange for the goods he receives from the seller.

Hence it is the goods needed for survival that is the value behind and represented by money. Man's labor stands behind all goods and services, as without the power of labor the goods could not be had.

Value And Wealth

Gold is both real money and honest money, however, it is the goods that can be exchanged for gold as money that is the true and ultimate value. The well-being that these goods and services provide and maintain for man, is our true and ultimate wealth.

Gold or any other form of money has no intrinsic value, it simply represents the value of the goods and services for which it can be exchanged. The most important quality of money is that it is able to be exchanged in value for any other good or service. Money is only good for one thing - to exchange for any and all goods in the marketplace.

When one buys goods with money, they are selling their money. When one sells goods, they are buying money. Because the only purpose that money fulfills is to be a medium of exchange, it follows that money represents a measure of value - of purchasing power to be used to exchange for other goods.

Even gold as money is actually backed by the value surrendered by the seller and potentially backed by the value in the possession of the next seller, and so on. In other words trade creates money - money does not create trade.

The market creates and stands behind money, as the market is the sum total of all producers of the goods that are the real value behind the money. Men as producers provide both the goods and the labor needed to produce the goods.

Quality Of Money

The quality theory of money focuses on the purchasing power of money, not on the quantity of units of money. It is most important to remember that when you buy other goods you are selling your money, and when you sell other goods you are buying money.

The number of units or quantity of money is not what is most important, it is the quantity of other goods that the money can be exchanged for that is most important. The only thing that money is good for is to exchange for other things. The more goods a unit of money can procure, the better off you are. The greater will be your wealth.

Money is but the proof or evidence of purchase or exchange that the buyer issues to the seller. For a monetary system to properly function, the buyer must fulfill his inherent obligation in the act of buying that at a future date he will offer his own goods for sale in the marketplace.

Likewise, the seller must offer his commitment that he will at a future date act as a buyer in the market. Such reciprocal buying and selling is what makes a market.

As a common medium of exchange and measure of value, money transfers value through space. Money as a standard of value transfers value through time. Money as a store of value transfers value over time. These are all important functions of money. They are attributes of the quality theory of money.

Savings And Quality

When through the course of wise and prudent commerce, one produces more than one consumes, an individual will begin to accumulate the excess production - the fruits of his labor. The same holds true for the group, society, nation and world. This is commonly called savings or the accumulation of wealth.

A saver of money over time knows the importance of the quality of his money versus the quantity of it. The prudent man saves his money for the future, for his later years in life, when he will not be able to work as hard to earn the money needed to pay for life's necessities, when his income will be less. In the later years of life, man uses his saved money or accumulated wealth to turn back into income, to obtain life's necessities.

The more the saver's money has retained its quality or purchasing power, the wealthier and better off he will be. He will be able to procure by exchange, more of the things he needs, to maintain his survival and standard of living.

This is why savings is so important. This is why the quality of money is so important. This is why money must be a store of value.

Why Gold Shines

When money is exchanged for other goods, we do not literally exchange the money for the other goods, but the value that the money represents in other goods. We exchange values for values.

In trade we give goods for goods, evaluating them in comparison to the monetary unit. The money is but the medium of exchange that represents the purchasing power by which other goods can be exchanged for. Money is the standard - for comparison - the measure of value.

Thus money is a receipt for value. The monetary system is an agreement between traders to regulate the issuance of money, to exchange values in terms of the monetary unit, and to keep an account of all such exchanges.

Gold as money is a measure of value. Gold as money is a standard of value. Gold as money is a store of value. The quality or purchasing power of money is more important than the quantity or supply of units of money.

Gold retains its purchasing power through time and over time. Gold cannot just be printed up or made to appear on the ledger by the mere flick of a computer key, it must be mined from the bowls of the earth, by the sweat, blood, and tears of man. This gives gold an inherent discipline from being overproduced at will - by fiat.

Another quality that makes gold so valuable is the fact that it is not consumed. This is best shown by gold's "stocks to flow ratio" - the above ground stock of gold divided by the annual production rate of gold.

This ratio is approximately fifty to one. In other words, it would take fifty years at the present rate of world gold production to produce the present stock or supply of gold.

Gold's stocks to flow ratio is an important reason why it is deemed to be so valuable, it is not just because of subjective valuation. There is also a cumulative process of subjective valuation that has taken place over centuries of market behavior that has by freedom of choice determined that gold is the most marketable commodity. This means that gold has the least declining marginal utility as perceived by the market.

Thus gold is seen to be the best transmitter of value in time, through time, and over time. This cumulative process has caused gold to be saved and hoarded throughout the ages.

Because gold retains its purchasing power, it is the best store of value - the best store of wealth.

Gold has obtained an objective form of valuation based on its stocks to flows ratio in combination with its many other monetary qualities. This objective valuation has given gold an objective exchange value as well. Collectively, these numerous monetary qualities and functions make gold the most accepted common medium of exchange throughout history.

Although gold has no intrinsic value in and of itself, man has chosen to value gold most dearly throughout the ages. He has chosen gold as the supreme receipt and store of wealth - The Sovereign of Sovereigns.

To believe that gold or any form of money has intrinsic value is to misunderstand the concept and theory of money. This is just what the would be rulers of the universe want - illusion and delusion, as the people can't question that which they know not.

Be not deceived. Gold is most valuable and will become of even greater value, but the value comes from what We The People place on it - nothing more, nothing less. Gold represents a receipt for wealth, as long as man so chooses to accept it as such.

Gold and silver are the best choices of money, history has clearly born this out. Nothing else is needed but the return to Honest Money - Gold and Silver.


 

Douglas V. Gnazzo

Author: Douglas V. Gnazzo

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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