Monday, October 5, 2009

Why Gold?

For roughly 90% of the 5000 years of recorded history, gold has functioned as civilization's primary transactional currency.  One of mankind's perpetual questions is, "why gold?"  Jim Grant, of "Grant's Interest Rate Observer" dug up this quote from one of the foremost authorities on the pricing and role of gold over several centuries in national and world economies (kudos to for posting excerpts from Grant's newsletter today):

"Gold has two interesting properties. It is cherished and it is indestructible. It is never cast away and it never diminishes, except by outright loss. It can be melted down, but it never changes its chemistry or weight in the process. Its price has been remarkably similar for centuries at a time. Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventeenth century" (source:  Jim Grant via

I'm guessing that it's a given that the fine people at Zerohedge have nary a clue as to who Roy Jastram was. Jastram was an economics professor, among other things, at UC Berkely from 1946-1983.  Jastram's signature work on the subject is a book entitled "The Golden Constant," which earned him many accolades of distinction, including election to the venerably aristocratic Athenaeum Club in London.  I have not read this book yet but it is near the top of my reading list.

Just as a point of reference, Jastram's empirical work on the value of gold through the centuries goes all the way back to 1343 A.D.  For an excellent numerical example of how gold maintains its value against the dollar, see my post here from September 30:  LINK

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