Written by Tony Deden
In the end, the consequences of monetary folly have not been addressed but only postponed. The errors have not been cleared but merely covered up with money and false accounting. Money printing can buy time but not wealth. All roads lead to default and impoverishment of some sort. The only question that remains is what road will be taken.
The relevance of gold is not in its price but in its ownership. This is precisely important for those who wish to make a profit from gold by purchasing certificates, ETFs and the like. Participating in a price movement is not the same as owning an asset. Owning a piece of paper and thinking you own gold is no different to a farmer who insists to being in the dairy business by owning cattle futures.
As I said earlier, gold is not a drug that cures the disease but merely a symbol of the flight from dishonesty âˆ’ a symbol of independence, honest money and permanence. We value it subjectively, and we ought to be concerned with the motivation of its ownership more so than that of its price. The same must be the case for our general predisposition to our capital pool. Our investment portfolio should not be a function of the last bid on some stock exchange. It should not be merely promises or claims on uncertain events. It should be tangible and have economic value. It should not be hope, illusion or euphoria. Our purpose in the ownership of assets should not be that of making money but simply the very ownership in tangible and economic goods in itself. That is the essence of wealth.
Far more importantly than financial calculation, the judgment that is necessary in any honest investment practice presupposes, in my view, a thorough understanding of economics, history and a sense of substance. Economics gives us tools with which to think. History gives us a sense of perspective, and the focus on substance is but a moat to separate us from our own folly.
Economics, the classical and honest variety, is vital when reflecting on money, credit, banking, saving, investment, entrepreneurship and a host of other topics. At the minimum and for no other reason, having a modicum of literacy in economics helps us to avoid being fooled by economists.
A sense of history is indispensable. History shows us with unmistakable clarity all of man’s folly throughout time. It is dotted with the failure of experiments in economics, money printing and man’s desire to consume without first producing.
Having a sense of history reinforces the theory of such sapient observers such as Ludwig von Mises who wrote in 1949: “Money and credit growth can never make a nation prosperous. It may bring about a shift in income and wealth from some groups to other groups, but it inevitably tends to impair the prosperity of the whole nation.”
History is a record of man’s failure to understand the difference between money and capital. He seeks the former, while all the while he needs the latter. Thus, understanding history helps us avoid our fellow man’s inescapable habit of putting his fingers on a hot stove.
And finally, our focus on substance sets us apart.
Dishonest money has created a culture of speculation out of ordinary producers and savers. As a result, we confuse financial markets for the source of wealth. Our time preference has been altered so that we seek returns incompatible with the real risks we take. We focus on market activity rather than on the substance that it fails to imply.
Substance is something that is real. It does not necessarily have to be tangible, but that would be preferable. Whether it is in gold — a form of money — or honest entrepreneurship, substance is rooted in economic reality. And so, understanding substance, whether it is in money or in entrepreneurial and wealth creating activity, is the most important practical skill we must acquire.
Indeed, the price of gold in money may increase. It may also decrease. When do you sell it? You ought to first decide why you own it. But even then, let me ask: “What sort of substance will you acquire with the proceeds from the sale?”
One of the greatest lessons in classical economics is that value is subjective. It is subjective to the aims and criteria and judgment of the person doing the valuing. And frankly, in our dishonest world, such subjective value is the cornerstone to what kind of capital you are likely to command in the future.
I trust that I have given you some objective arguments to help with your subjective assessment of such value. Thank you.