Letter to the Financial Times (21 January 2008)
I’d rather have the comfort of a chocolate bar in the nuclear winter
Published: January 21 2008 02:00 | Last updated: January 21 2008 02:00
From Mr Kai L. Chan.
Sir, The argument Chris Kniel sets forth (Letters, January 17) as to the intrinsic value of bullion-backed currency falls into a common fallacy that blinds gold bugs. The current system of fiat money does display inflationary bias, so no disagreement on that point. However, to believe that gold has special value is pushing the argument.
Gold-backed currency has less inflationary bias only insomuch as the supply of gold is limited and has a real cost of production (ie extraction). If money were backed by salt, water, sand or whatever commodity one desires, it would have the same anti-inflationary effect. The only special qualities for gold are its relative scarcity and high cost of extraction. In that case, uranium would probably serve as an even better storage of value and be less prone to debasement, a common flaw of gold coinage.
Personally, I’d still rather have my currency backed by chocolate bars. In the case of a worldwide catastrophe – such as a nuclear winter that destroyed all crop and livestock production – I could eat my chocolate bars, while colleagues who hoarded gold would have only the comfort of its shininess.
Kai L. Chan,
New York, NY 10001, US
Copyright The Financial Times Limited 2008