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Mahmoud the merchant bought camels and paid for them in gold. Then, as his business expanded, he would write on slips of paper, "I promise to pay an ounce of gold." Then, inspired, he simplified the wording and wrote, "This IS an ounce of gold." He sent one of the new notes to market, and back came another note which read, "This IS a camel." Mahmoud had the joker beheaded, and from then on his own notes passed unquestioned. 

By now, Mahmoud's invention (first described by Hilaire Belloc in The Mercy of Allah) has been taken up by governments and central banks across the world. A dollar bill is simply a dollar bill, and its holders are encouraged to trust in God. A Bank of England note still carries a promise to pay, but all that this will get you is another note. Gone are the days when these pieces of paper stood for claims on the gold in Fort Knox or Threadneedle Street. All they are now is Monopoly money, with the Bank or the US Treasury as the monopolist.

From that point of view, they have many advantages. They are cheap and profitable to produce, and more can be run off at the press of a button. In this way the Bank could conjure up £375 billion and ease it out into the British economy. Other central banks — Zimbabwe's, for instance — have taken this process to its limits and beyond. Gold, which used to be their guarantor, is now their rival: a monetary asset whose value does not depend on any minister's or central banker's signature.

As a store of value, it has certainly left paper money behind. Fort Knox, half a century ago, was selling gold — though only to official buyers — at $35 an ounce. (Charles de Gaulle urged the Banque de France to fill its boots.) More recently, Gordon Brown sold half his nation's gold reserves at a price close to $275 an ounce. Those who bought it and held it saw the price quintuple. Conventional investments had marked time. Nothing seemed to be as good as gold. 

Then the price stopped rising, and then, in the spring of this year, it took a spectacular tumble. In one day's trading, gold lost one-twelfth of its market value. What was happening? The conspiracy theorists were full of explanations, and the perennial doubters emerged to misquote Keynes and call gold a barbarous relic. Another way of looking at it was to say that paper money was looking a little more credible. 

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