Gold: A use case for the modern era

Source: Photo by PublicDomainPictures on Pixabay

For decades, physical gold investors have had to contend with superficial, naive and wholly ahistorical “arguments” from the mainstream financial press, from economists and experts of all stripes, claiming that gold is nothing but a barbarous relic. To them, the yellow metal is akin to investment superstition. It has no yield, it serves no practical purpose and the only attraction they could conceive of is merely symbolic, or perhaps, political. Thus, who in their right mind would “imprison” their perfectly good and functional fiat money in a gold bar, and then just let it gather dust in a vault for a decade or two? Well, it might have taken a little longer than many of us expected, but now we have an answer that even the most ignorant and unread of mainstream gamblers can understand.

The inflationary pressures that have gripped most advanced economies are new to most investors, as well as ordinary citizens. We haven’t seen price increases at this rate in a very long time and the scale and speed of the phenomenon has caused everyone to reconsider what they thought they knew about money, budgeting and savings. And while there’s a lot of talk, “theories” and attempts to distract the public from the real causes of this problem, the fact remains that that it’s here and it’s here to stay. Especially for the average worker and saver who knows not and cares not about the academic explanation as to why his paycheck doesn’t suffice to cover his basic expenses anymore, a practical solution to his predicament is much more important than the intellectual debates about whose fault it is. And this precisely where gold comes in.

As reported in a rarely and very surprisingly accurate and honest article by Reuters, “Americans are increasingly turning to gold as an alternative currency as unprecedented government spending and Federal Reserve easing threatens to further erode the value of the greenback.” The article goes on to highlight that “the dollar has lost 86% of its purchasing power since 1971, according to U.S. government data, when President Richard Nixon ended the fixed convertibility of dollars to gold. Gold prices have jumped from around $40 per ounce to $1,900 during this time. Gold’s use as a currency started gaining traction after the financial crisis of 2007–2009 and has accelerated during the pandemic since 2020 as the government spent trillions, and the Federal Reserve bought unprecedented amounts of bonds in an effort to revive the economy.”

The answer to his challenge came in the form of private initiatives and new types of voluntary exchanges, as is always the case, after all. One such example is the “Goldback”: money that is infused with small amounts of gold, and with denominations ranging from 1, which is 1/1,000th of an ounce of gold, to 50, which contains 1/20th of an ounce. The company behind them, Goldback Inc, has already sold around $30 million in the US and its President, Jeremy Cordon, predicts this could grow to around $1 billion over the next few years, with the only constraint being the speed at which the company can produce the new currency.

A lot of small business owners and everyday consumers have already realized and taken full advantage of this solution to their exploding expenses problem. Even if one has no idea about basic economic principles or about the monetary history of the dollar or the gold standard, the concept of a stable means of exchange is now an absolute necessity if one is to plan ahead or run a business successfully. And there’s another layer that is particularly interesting to this growing use of gold as money: Those who adopt solutions like the Goldback are also quick to make the connection about what the real problem is. It’s not “capitalist greed” and it’s not “supply chain breakdowns” that’s making their weekly grocery run a significantly more expensive pursuit. It’s the rapidly diminishing value of their fiat currency. Or, as Ludwig von Mises put it, they come to understand that “the most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.”

As we move deeper and deeper into this new inflationary era, new applications of this millennia-old use of gold as money are popping up, aided by technology and our connected modern world. For example, gold trading and investment mobile apps are seeing an explosion in demand for features that allow user to use their holdings for payments. Peer-to-peer (P2P) physical gold transactions are growing too. As more and more people are willing to accept payment in gold, a widening variety of trades are happening on this basis.

The big picture here is clear and it is essential to understand that it represents a very significant paradigm shift. Whether it is online or offline, whether it is through a mobile app, an exchange or even through physical contracts, ownership titles to gold holdings keep changing hands. And thus, no matter the vehicle that is used to facilitate these transactions, the fact of the matter is that it acts as a gold-backed currency. This alone is remarkable: After eons of having to put up with fiat money, with all our other choices effectively and forcefully removed by decree, an increasing number of people is now once again reclaiming their right to execute voluntary trades with their peers, using what they understand to be real money.

What’s even more striking about this development is that it is fully and entirely organic and it came as the result of many different people arriving at the same conclusion freely and without coercion, direction or any kind of centralized authority. They were not forced to accept or use this gold-backed solution and they never forced anyone else to do so either. As for the solution themselves, they keep popping up and getting better, in an effort to outdo each other. This whole nascent field is in fact a perfect real-life manifestation of Bastiat’s axiom, that “competition is merely the absence of oppression”.

The decentralized aspect of this grassroots shift is also notable and can provide a multitude of lessons and solutions for other kinds of problems too that we face as individuals and as societies. Real, practical and viable answers never come from a single “expert”, a ruler or a special “committee”. Academics and theoreticians can opine from their high horses all they want and they can provide guidance to the “ignorant public” to their hearts’ content, but they have yet to offer a single useful practical fix for anything that ails us. That is and has always been the job of the individual who is actually and directly affected by the issue and those who agree, voluntarily, to work together with him or her.

This is what we’re seeing now in real time. There is coordination, obviously, but it is only taking place on the lowest possible level and scale. There is no government scheme or subsidy behind all these endeavors and there’s certainly no force involved in managing any of these initiatives. This fact not only ensures that human values are respected, but it also confers some very practical advantages too.

For one thing, the lack of central authority renders any project or movement a lot more robust, sustainable and protected from outside threats. This is the main argument in favor of all decentralized structures and it has been demonstrated clearly in all kinds of contexts and historic periods. From military examples, to the modern-day Crypto revolution, this element of robustness and resilience is simply undeniable. The possibility for “systemic failures” and top-down domino effects are eliminated and one mistake in one part of the network or the system does not affect the whole.

For me, however, while I fully appreciate the resilience advantage, the most important thing about decentralized systems is the way they promote innovation and allow for differences of opinion, of vision, of values and of priorities. In our gold-backed currency example, we see this play out clearly. Competition is fueling the advancement of the different applications and solutions, but this freedom is also bringing very different worldviews to the forefront. For instance, some users might prioritize ease of use and seamless transactions, while others might shun technology altogether and prefer to deal in physical formats, be it actual gold bars and coins or gold-infused paper notes.

But we also see this in very different structures. For example, we see it in political systems like the one we have in Switzerland. Here, decentralization is embedded in our way of life. Without a strong and essentially unlimited central government, like our neighbors have to live under, we get to govern ourselves, directly. Through the principle of subsidiarity and our constitutionally mandated and protected direct referendums, not only we get to keep a lot more of our individual liberties, but we also get a lot more choices.

This is the magic of decentralization, at least the way I see it. It facilitates and sustains true pluralism. The people of one canton or one municipality can have vastly divergent beliefs, sociopolitical priorities and visions for their future than those of the next one. They have different enforcement systems, different redistribution policies, different regulations and legal constraints. And whoever doesn’t like them, is simply free to move to a new community that is better suited to them. This is a very good practical embodiment of the idea to “live and to let live” but also of the free completion of ideas and of the concept of “letting the best idea win”.

We can apply these principles to so much more than the private sector, business and new financial applications. We can use them to guide us socially too, as well as politically. The idea of the majority always being right was inhumane, unfair, and plain statistically wrong to begin with, as many of us who know history have long realized, but especially after the last two years its failure has been clearly demonstrated to the average citizen too. We now have a rare and precious opportunity to rethink this, to revise our preconceived notions and to question all that we were intellectually force-fed though our public education systems and though the mainstream media.

Let us try a different tack this time. Let us all agree to disagree with our fellow citizens who might have another way of looking at life and the world. Let us all respect each other’s inalienable right to decide what’s best for themselves and for their families and if those decisions diverge enough, then let us part ways. And let’s all pursue the path that we think is right and at the end of it all, let us see who fared better and learn from them.

Claudio Grass, Hünenberg See, Switzerland

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