the new old role of gold

THE NEW OLD ROLE OF GOLD
Since gold has gone up so much in the last week, I decided to once again visit its irresistible allure. If anyone anywhere with any IQ score above room temperature needs proof that the stock market is no longer in the same universe with the economy, this was it. As gold goes up and up, the stock market matches the trend. And the dollar index stays flat. Something is amiss in FantasyLand. Of course, that is not why we are here today. You’ve heard enough of my extreme paranoia ramblings of Central Bank conspiracies. I’m sure I’m wrong and Helicopter Ben is going to open up all that untapped oil any day now. We don’t need no steenkin non-renewable resources. Nonrenewable resource + wishful thinking = oil forever.
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As I keep repeating ( and it isn’t even my own thought but that of others far more intelligent than I which is why you should listen ) It’s The Energy, Stupid. It all comes down to surplus energy equating to economic growth. Diminishing energy equals contracting economy followed by collapse. In the good old days, wealth was basically land and solar making crops which was the way to generate energy which equated to wealth ( of course, you could generate even more energy by using slaves- the reason why it always existed before coal and why it will return ). Military force and precious metals were about the only way to get that wealth. Before industrialization, precious metals were, well, much more precious. There was a lot less of it and it was a much more concentrated form of wealth. You could buy farmland with precious metal, much more than so today ( Ure over at http://www.urbansurvival.com/ mentioned the other day the historical one ounce gold for one acre farmland price. A good yardstick, but I don’t know if that was pre-petroleum or not ).
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Gold and silver have been historical stores of wealth, at least as long as the Agricultural Revolution made trade feasible and desirable ( the ten percent not working the land needed more than barter soon enough ). Because you can’t destroy it and there is so little of it, it became the universal form of wealth. Ten thousand years of greed have proven its role. From a bamboo hut in China to a city in Europe, every uneducated peasant knew that gold and silver were a store of wealth. Well, that all changed when coal became a viable energy source. Central banks started slowly but surely substituting paper for metal. And I think the basic reason that it was acceptable was not because those peasants with no knowledge off the farm were idiots, they were smart enough about practical matters ( more than urban folk in more than a few instances ). They accepted the substitution because it represented wealth in another form. Paper currency could represent energy. Everyone other than TV brainwashed Americans knows that paper currency in and of itself is worth less than toilet paper ( TP is softer and doesn’t cause paper cuts to your bung ). They also know that governments are liars and thieves and glorified bandits. A government guarantee of paper currency is worthless. What is worth something is the energy that the government controls. That energy equals food, just like land used to represent a future promise of food. Just like gold used to represent the ability to buy that land anywhere there was farmland, regardless of location, government, culture or any other obstacle. Gold was portable farmland.
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For over two hundred years, coal, then oil, represented the new energy. Energy that produced food. Paper currency was a form of trade for that energy, indirectly. A central bank coupled with a central government that issued paper, that issued debt, could raise armies to defend or steal energy. Stealing farmland was secondary, because oil was the new way to eat. I’m not talking about the recent 75 year tendency to turn natural gas into fertilizer into food. That helped, but I’m talking about oil as wealth to buy food also. Oil equaled industry equaled wealth which turned into food. Hence, Japan for instance turning oil and ore into machines which sold for enough wealth to buy more oil, more food, and a nice surplus besides. In the past, Japan was only as wealthy as its farmland. Now, even though it imports all its oil and a lot of its food, it is/was wealthy because it knew how to leverage petroleum into wealth. It wasn’t that the Yen was worth much of anything. But it bought the Japanese form of oil wealth.
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All that, the last two to three hundred years of coal/oil wealth, is coming to an end. The end that is already started. That is why paper currency is not a good bet now. Not because the government suddenly became untrustworthy. They always have been. But because the oil wealth behind the paper is running out.
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Damn, I was good today. Buy my crap at http://www.bisonpress.com/