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Ronald Stoeferle

Ronald Stoeferle

Ronald is a metals analyst at Erste Group. Erste Group is the leading financial provider in the Eastern EU. More than 50,000 employees serve 17.4…

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Premium Content

Gold is Money, Nothing Else

Money is usually credited with three essential functions :

- Means of exchange
- Value storage
- Value measure

Gold fulfils these three central functions without a problem. Gold is universally accepted money. People from all sorts of races, classes, cultures, and religions regard gold as money. Sometimes the terms money and currency are confused with each other. People have needed a stable medium of exchange for as long as people have existed. Cigarettes, seashells, salt, or dried fish have all fulfilled this role temporarily, but in the long run gold and silver asserted themselves. Murray Rothbard realised that the market had chosen gold and silver as money over the centuries. Currencies are by definition mediums of exchange, but do not store value nor do they come with an intrinsic value.

Further essential functions of money:

- It has to be easily divided into standardised units
- It has to be negotiable
- It has to be durable and practically indestructible
- It has to be easily recognisable and fulfil standards that can be easily validated
- It has to have a high ratio of value per weight and volume unit
- It must defy random multiplication
- Aggregate supplies have to be high in relation to annual increase
- It has to be mobile, and storage costs have to be low
- Transaction costs have to be low

The advantages of a gold standard  

In his highly recommended essay “Gold and Economic Freedom” from 1966, Alan Greenspan pointed out that without a gold standard there was no way of protecting savings from the devaluation caused by inflation, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”

Currencies covered by gold should also contribute decisively to economic, political, and social stability. Many eras (the Roman Empire, the Republic of Venice) experienced centuries of price stability. It was only when they reduced the content of precious metal in their coins that the decline began.

England introduced a gold standard in 1815, and 50 nations followed the example over the next decades. The period of 1880 to 1914 is sometimes literally called the “Golden Era”  . The time of the classic gold standard was characterised by continuous economic growth, free flows of capital across country borders, peace in the largest part of the world, political and economic democracy, and cultural and social progress. The standard of living of the working class increased massively. Slavery and serfdom were abolished. Gold and freedom were inseparably linked. In 1914 the world ended up leaving the gold standard as the European governments could not afford to fight a world war under its limitations.

A gold standard would also help regulate the public budget – it basically forces the government into producing balanced budgets. This is probably also why politicians hate it so much. And a gold standard is also independent of the varying economic opinions of the governments. Gold means freedom – a notion also highlighted by the fact that Lenin, Mussolini, and Hitler banned private gold ownership at the outset of their dictatorships.

By. Ronald Stoeferle of Erste Group

Erste Group is the leading financial provider in the Eastern EU. More than 50,000 employees serve 17.4 million clients in 3,200 branches in 8 countries (Austria, Czech Republic, Slovakia, Romania, Hungary, Croatia, Serbia, Ukraine). As of 31 December 2010 Erste Group has reached EUR 205.9 billion in total assets, a net profit of EUR 1,015.4 million and cost-income-ratio of 48.9%.

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  • Anonymous on March 16 2011 said:
    It is obvious, monetarily speaking, we do not need an 'anything' backed system. It is backed by nothing but a common belief now. The belief accepts that money is debt, and debt is money. We need to change the belief. Money should be a credit.Have you ever thought about how it is the world could be in debt to ITSELF, to the tune of 55 trillion dollars?Ever thought about how much a trillion is?We need to change the belief.
  • Anonymous on March 19 2011 said:
    Regarding the previous comment: One can not separate credit and debt. They are the same. If I apply for a car loan and get credit, then I am in debt. Conversely, if I am in debt, that is because somebody gave me credit. Your second statement does not make sense either. The world as a whole can not be in debt to itself. That is nonsense. The essential property of credit is that ownership is transferred between two parties: From those who have to those who do not have. Any attempt to circumvent this fact is an attempt to circumvent the responsibility to pay the credit (=debt) back.
  • Anonymous on March 19 2011 said:
    There is one point which the goldbugs never address. Every individual is member of a community. When that individual is paid for products or services, than that payment is possible only because the community made it possible (by providing a market for products and services as well as providing a means of payment). It is therefore a legitimate right of the community to take part of that payment away in form of taxes and long term inflation which effectively takes away purchasing power from the original payment. That moral right is never addressed by proponents of gold.
  • Anonymous on August 18 2011 said:
    If gold is money, then so is silver, platinum, palladium, etc., for all the same reasons.However, gold is not money, thankfully. Were gold money, the U.S. could not fund its expenses. Because the U.S. is Monetarily Sovereign, it can fund any expense of any size any time, merely by crediting bank accounts.Those who do not understand Monetary Sovereignty do not understand economics. You can see a 10-minute summary at: http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/Rodger Malcolm Mitchell
  • therooster on July 19 2012 said:
    The FED seems to understand a few esoteric issues that , as a s gold bug, I'd like to point out. 1) Real-time applications are critical to gold's success as money, given its rarity and history of FIXED values 2) You cannot pour new wine into old wineskins 3) Some evils are necessary as part of the written script

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