Gold vs Inflation
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The idea that gold is money goes back to the ancient world. But for most of history it was worth far less. In 1348, for example, a pound of gold was worth about 17 ounces of silver, and a pound of silver was worth about 2 pounds of gold. It was expected that the ratio of gold to silver would soon change, though only gradually.
When it did change, it changed abruptly. In 1425, a pound of gold was worth about 3 pounds of silver. By 1258 the ratio was 1:16. By 1360 it was 1:24. The change came suddenly, and historians are still trying to understand why.
Economists, on the other hand, like to assume that change happens gradually. Gold, they contend, is money because people treat it as such. But in fact gold was money long before people thought so; it was only their conscious belief that made it valuable.
Gold, it turns out, has another property economists don't seem to appreciate. It is a good inflation hedge. The ratio is fixed and it changes very slowly. If gold is money, and if money is valuable because it keeps up with inflation, then gold is a good inflation hedge.
Economists are right to be cautious, but not because there is anything subtle about inflation. Inflation is an accumulation of errors which happens to be inevitable and we should take it as an axiom. The inflation rate in the United States today is about 3% every year which increases the value of Gold annually.
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