Rafi Farber is an economist who argues that gold is the only real money.
Gold was first mentioned in writing around 4700 BC in Egypt.
At that time, gold was mostly used for jewellery, art, and gilding. Gold was used to make coins, sculptures, vases, and jewellery in Greece and Rome in the past. In fact, in many ancient American cultures, like the Aztecs and Incas, gold was seen as holy and was used to make religious items and jewellery for kings and nobles.
Jumping ahead in time, the California Gold Rush in 1848 led to a mass migration to California, resulting in increased gold production and the United States becoming a major gold producer. Gold standards were established in the late 19th and early 20th centuries, tying paper money value to gold bullion.
In other words, a cash note was linked to its equivalent in gold.
This was a good thing because it meant not having to carry around physical gold, which is obviously impractical.
The Bretton Woods system tied the US dollar to gold after World War 2, ending in 1971.
Ending it was a poor idea for everyone except banks and governments since it meant that money was tied to nothing but monetary policy.
Why is gold superior?
Because of gold’s intrinsic value due to its practical and industrial uses in electronics, dentistry, and jewelry, it is less volatile than other forms of money that rely on faith and monetary policy.
Modern money is pretty much created out of thin air, backed up by the government’s ‘trust me, bro’ promise that it has value.
Gold’s supply is constrained by what can be physically mined from the earth, making it resistant to inflation and increasing gradually over time.
Unlike fiat, you can’t print gold.
Gold is a globally recognised store of value and a hedge against inflation and economic or political instability, maintaining its worth even during crises.
What other money can offer that?
What about bitcoin?
I am on the fence with cryptocurrency as a whole.
I like that it’s decentralised and outside of state control.
The reality is that bitcoin and other cryptocurrencies are known for their volatility and higher risk, which can make them riskier investments. Bitcoin’s price can swing by more than 20% in just one day, whereas gold’s consistent growth over thousands of years provides greater stability and predictability.
Also, cryptocurrencies don’t have intrinsic value.
They are nothing more than algorithms, although an argument can indeed be made favouring their digital nature.
Nonetheless, the market determines their value, and they lack inherent value-creating properties. For example, with gold, you can make jewellery.
What can you do with bictoin?
If people lose trust in cryptocurrencies, their value might drop to zero, whereas gold’s intrinsic value gives it more inherent worth compared to speculative cryptocurrencies.
Here’s my conversation with Rafi.