Gold Is Still the Best Money

Gold last traded at $1,776 an ounce. Silver at $26.29 an ounce.

NEWS SUMMARY: Precious metal prices steadied Tuesday - despite rising consumer confidence - as the Fed policy meeting began. U.S. stocks dipped as investors braced for a big batch of tech earnings.

Casey/Rogue Economics-"It's an unfortunate historical anomaly that people think about the paper in their wallets as money. The dollar is, technically, a currency. A currency is a government substitute for money. But gold is money. Now, why do I say that?

Historically, many things have been used as money. Cattle have been used as money in many societies, including Roman society. That's where we get the word 'pecuniary' from: the Latin word for cattle is pecus. Salt has been used as money, also in ancient Rome, and that's where the word 'salary' comes from; the Latin for salt is sal (or salis)....

Over thousands of years, precious metals have emerged as the best form of money. Gold and silver both, though primarily gold. There's nothing magical about gold. It's just uniquely well-suited for use as money among the 92 naturally occurring elements available... in the same way aluminum is good for airplanes or uranium is good for nuclear power.

There are very good reasons for this, and they are not new reasons. Aristotle defined five reasons why gold is money in the 4th century BCE (which may only have been the first time it was put down on paper). Those five reasons are as valid today as they were then.... A good money must be all of the following:

1. Durable: A good money shouldn't fall apart in your pocket or evaporate when you aren't looking. It should be indestructible. This is why we don't use fruit for money. It can rot, be eaten by insects, and so on. It doesn't last.

2. Divisible: A good money needs to be convertible into larger and smaller pieces without losing its value, to fit a transaction of any size. This is why we don't use things like porcelain for money - half a Ming vase isn't worth much.

3. Consistent: A good money is something that always looks the same, so that it's easy to recognize, each piece identical to the next. This is why we don't use things like oil paintings for money....

4. Convenient: A good money packs a lot of value into a small package and is highly portable. This is why we don't use water for money, as essential as it is - just imagine how much you'd have to deliver to pay for a new house....

5. Intrinsically valuable: A good money is something many people want or can use. This is critical to money functioning as a means of exchange; I know that someone, somewhere wants gold and will take it in exchange for something else of value....

Actually, there's a sixth reason Aristotle should have mentioned, but it wasn’t relevant in his age, because nobody would have thought of it... Gold can't be created out of thin air....

That gold is money is simply the result of the market process, seeking optimum means of storing value and making exchanges."