I read a piece by Keith Weiner a few days ago mentioning bitcoin and Gold. “Whatever the merits of gold may be, going up faster than bitcoin is not among them.”
Readers of this blog will know that I am a big fan of KW; he is that rarest of beasts, an original and clear thinker, and not just on the subject of Gold.
His piece brought to mind something that remains not well understood.
The value of everything is priced by Gold – always. Irrespective of whether Gold is legislated out of existence as circulating money, as is the present situation, it is still performing its role. You just have to understand clearly what that role is.
Gold, when a known weight and fineness, as in a coin or bar, is the measure of value. The determinant of that role is the stability of Gold’s value.
It is because Gold is the most stable value that it is the measure of value. It’s true that bitcoins are valued in fiat – usually US$s. But what are US$s valued in? Why Gold of course. When people see the charts of the ‘price of Gold’ going up, what they are really witnessing is the value of the currency falling.
In all sciences, that which is the most stable is the measure of whatever is being measured. How could it be otherwise? Litres measure liquid volumes, kilos measure weights, etc.
As the value of a currency falls so, all else being equal, it takes more of that currency to buy goods – all goods, everything, including Bitcoins, socks, stocks and real estate. Every good, without exception, is valued in Gold. Gold is the sole metric for all marketplace values. Whether or not people understand that, it just is and, for as long as civilizations last, it will continue to be so.
To suffer from the delusion that Gold’s value is measured by currencies is to misunderstand the nature of what is happening in the world.
That is dangerous at the moment.