Faith is the only real money. The only thing money measures is optimism about the future - both micro ("I am optimistic that you can repay this loan") macro ("I am optimistic this country's military spending and worker-hostile environment guarantees my investment will be protected"), corporate ("I am optimistic about the contents of this earnings call"), and specific ("I have more faith in this asset class than in other asset classes.")
Crashes are a manic-depressive devotional cycle. Collective optimism becomes stretched to delusional levels. Then it snaps, pessimism and debt paranoia take over, the central government has to make reassuring noises which reassure the right people, and the hype cycle can begin again.
Gold is a faith-token - valued because it's heavy and shiny and because there's a long tradition of valuing it when investors become pessimistic about more evanescent asset classes, not because of its relatively limited practical utility.
Fiat money is just faith-token money without a tangible base. The process by which it gains/loses trust is the same.
The tangible items that aren't primarily faith-based are land and housing, so they do well as reliable investments. But even they're not faith-free, because they will still lose value in an area if no one believes it has a future.
> Fiat money is just faith-token money without a tangible base.
There is no physical basis for the faith, but a persons interactions with society is a basis for faith in fiat money. If all our neighbors and family and leaders express faith in fiat money through daily actions, then that's a powerful reason to share the faith. Even more so when you realize that faith is the only thing needed to make the system work.
I agree that gold and fiat money are both faith-based, and I want to emphasize that I am not a gold-bug--almost all my assets are in revenue-producing real estate.
There is, however, a massive qualitative difference between gold and fiat: fiat has an adverse selection problem. The government that issues it can print as much of it as it wants, and it's more likely to do so precisely at the times when the country is in trouble.
Gold depends on faith, but failure of faith in gold isn't as correlated with failure in the rest of the economy.
> The tangible items that aren't primarily faith-based are land and housing, so they do well as reliable investments. But even they're not faith-free, because they will still lose value in an area if no one believes it has a future.
They depend on faith even more in that "owning" property only works when everyone agrees with the system of private property that granted you this ownership in the first place. This is usually backed by a government with some kind of armed police to maintain property rights by force if necessary. Without such a faith-based system -- or some other way of defending it by force -- your claim to any acres of land is not worth much.
Functionally, gold serves as a lack of faith in fiat currency - almost as a short. When you expect inflation in your local fiat currency, you start looking at gold as a way of preserving your value.
Yes, and don't forget faith in the government's ability to collect taxes. This helps to stabilize money's value, since it ensures that everyone who pays taxes needs their government's money, regardless of whatever other kinds of money they might use.
As a result, faith in money becomes tied to faith in the government's ability to keep functioning, and this can be thought of as a base.
> The tangible items that aren't primarily faith-based are land and housing, so they do well as reliable investments.
Why are you ignoring commodities? Wheat, iron, oil etc. are all commodities that are much more useful as a monetary base than land and housing because they are orders of magnitude more liquid (meaning you can acquire it and subsequently sell it while incurring a smaller loss).
The commodities you mentioned work better as a "currency" than "stored value" for an individual. For a physical object to work as a stored value, especially over longer periods, it's got to be durable and convenient to store and protect. Real estate/land satisfies all those as long as the surrounding political situation remains stable.
If the state turns rogue or falls apart then you are better off hoarding (or running away) with gold.
I don't remember the details, but someone asked a member of a rich European family how they had managed to preserve their wealth over centuries. The answer was "one third art, one third gold, one third land". Any of those can fail due to seizure, political instability, etc, but most of the time at least one will maintain value and remain under your control.
Crashes are a manic-depressive devotional cycle. Collective optimism becomes stretched to delusional levels. Then it snaps, pessimism and debt paranoia take over, the central government has to make reassuring noises which reassure the right people, and the hype cycle can begin again.
Gold is a faith-token - valued because it's heavy and shiny and because there's a long tradition of valuing it when investors become pessimistic about more evanescent asset classes, not because of its relatively limited practical utility.
Fiat money is just faith-token money without a tangible base. The process by which it gains/loses trust is the same.
The tangible items that aren't primarily faith-based are land and housing, so they do well as reliable investments. But even they're not faith-free, because they will still lose value in an area if no one believes it has a future.