There Is No Money Any More

In 1977, I wrote a magazine article about gold for Medical Economics. The paper money of the US was said to be backed by gold for decades, but this "gold standard" had been abolished. Even foreign governments could not ask for the gold in Fort Knox in exchange for the paper promises of the US Government.

Gold wasn't money any more. 

Some thought this was the time to buy gold. Inflation was high and gold had for centuries held its value -- it would buy as much tomorrow as it did yesterday. 

But people are swayed by emotion -- they fear missing out and they fear getting caught in, so gold was not quite so predictable. The value of gold, as measured in US dollars, rose dramatically. It clearly seemed the ideal way to preserve one's wealth. 

Except it wasn't. In the summer of 1977, gold was worth $700 an ounce in today's currency. By the spring of 1980, gold reached more than $2,500 per ounce. Then, over the next 20 years, gold fell -- dropping below $500 in the year 2000. Then, over the next decade, it rose again above $2,300 in real terms. Then it dropped below $1,400 before rising again above $2,300 as the covid pandemic created turmoil.

In the past month the price has ranged from $1,912-$1,977.

In other words, the value of gold has not been something stable or certain. It fluctuates with the mood of those who might feel comfortable or uneasy about other ways of storing value. As predicted nearly 50 years ago, gold will buy roughly the same thing today as it did long ago. But as noted then, it is a volatile investment -- not to be trusted as if it were money.

Meanwhile, we seem forced to rely on the declining value of our currency. The US Dollar is not money either. 

Money must be a store of value as well as a medium of exchange. Money is something that not only can be used to buy things -- that would be currency -- it is also a trustworthy way to have the same purchasing power tomorrow that you have today. Money will be worth as much in ten years as it is now. 

In ancient times unscrupulous governments and greedy citizens would cut a bit of gold or silver off of coins, diminishing their value. Today it is the policy of the US Government to do just that -- to steal 2% every year, sometimes more. Since the creation of the Federal Reserve in 1913, the theft has averaged just over 3% per year. If a 1913 dollar were money, it buy would $30 worth of goods today. Looked at another way, today's dollar is worth about three cents. Tomorrow it is likely to be worth less.

The Fed creates currency out of thin air -- more at some times, less at other.  As God said "fiat lux" -- let there be light, Government says "fiat pecunia" --  let this [paper, metal, electronic signal] be money. And people believe.

In such a world, what is money? What is a reliable store of value that can be used to buy and sell things?

There is no money.