- 02 January 2019
- by Blogger
It’s one thing to invest in gold. It’s another to understand the logic of gold in a free economy. You should do both. But understanding the economic logic of gold is more important than investing in gold. One of my goals is to make the economics of gold clearer to people. If you don’t understand why I recommend gold as an investment, you may decide to buy gold just because you take my word for it. Don’t do this. Buy gold or gold-related investments (i.e. gold shares) only when you understand the economics behind gold. Gold is a commodity. That’s why it has functioned as money for thousands of years. Ludwig von Mises argued in his book, The Theory of Money and Credit (1912) that money is the most marketable commodity. This is another way of saying that money is the most liquid asset.
Liquidity consists of the following:
Instant sale without offering a discount
Instant sale without advertising costs
Instant sale without paying a commission
Historically, gold functioned as money. It no longer does. Gold is not liquid any longer. The general public has gotten used to credit money issued by banks. It is used to pieces of paper with dead politicians’ pictures on them (United States) or live politicians’ pictures (Third World countries), or a missing politician’s picture (Iraq). But until World War I led to the universal confiscation of depositors’ gold by commercial banks, followed by the gold’s confiscation from the commercial banks by the central banks, gold was money. Why? Because gold had four crucial characteristics: