The Color of Money

Is gold money?

That’s the question Ron Paul asked Ben Bernanke a couple years ago when he testified before the House Banking Committee. Rather than lecturing the congressman on the proper role of a central bank in a modern welfare economy, Dr. Bernanke punted, feigning surprise at the question, graciously letting Dr. Paul pontificate on the manifold virtues of the yellow metal.

In any economy, money serves three functions: a store of value, a medium of exchange, and a unit of account. In the US the only tool that satisfies all three is our fiat currency, the dollar. But 90 years ago, that wasn’t the case. People regarded gold as money. If folks had a $20 bill, they’d probably take it to the bank to see if they could exchange it for “real” money—gold. Kind of like the way we look at a personal check. Now, we take a check to the bank and see if we can exchange it for “real” money—cash.

Money is the ultimate social network. It ties people together who might not have anything in common except a desire to effect a transaction. And our social fabric has changed. After a century of depression, recession, inflation, and regulations and executive orders, cash is king. There’s nothing more liquid.

Gold used to be money, but it isn’t any more. What it really is today is a symbol—of stability, value, and perhaps a bygone era.

Douglas R. Tengdin, CFA

Chief Investment Officer

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By | 2017-07-17T12:34:41+00:00 March 26th, 2013|Global Market Update|0 Comments

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