© May 6, 2024 R.H. Tamlyn, Jr.
I bought into the idea of sound money many years ago. To me, it made sense that for something to hold onto its value over a long time, the supply of it should be limited. The rarer something was, the more it would probably retain its value, whether we’re talking gold, prime real estate, diamonds, baseball cards, or shares in companies. If things had utility value, say, like, oil, or farm land, then that would be even better, and the rarer it was, then probably the natural law of economics would indicate to me that its price per unit would tend to increase over time, perhaps substantially so.
Conversely, the more supply of something, even if it has utility, the lower the price would trend, over time. This is just supply and demand dynamics at work, which despite many monetary alchemists wet dreams, still actually works. If there are 10 million loaves of bread available at your local bakery, the price is going to be crap, even if everyone in your neighborhood is hungry. But, if the supply is down to 10 loaves, and just 100 people are hungry…the price might get quite high as they compete or bid for that loaf.
So it made logical sense to me, even at an early age, that if you wanted to increase the value of something, limit its supply. If you wanted to make something cheap, dramatically increase the supply of it. I guess to some degree, this is simplistically what supply side economics was all about. Keep inflation under control by encouraging production of…everything.
Well the opposite is also true, and let me tell you what has been being produced in ever growing quantities, which should translate to a collapsing price. PAPER MONEY. Of course in today’s modern world it’s not actually paper dollar bills anymore because we’ve become primarily a digital world. So instead of actual paper dollars today we have computer entries. But it’s the same basic concept, with the same basic result. The money is being produced at ever increasing rates, and subsequently, being devalued. At ever increasing rates.
People around the world are acting rationally as they see this. They are exchanging their devaluing pieces of money for actual goods. Gold. Oil. Copper. Bread… It’s like a shell game where the faster you can purchase something real, the better. If things do not change in this rapid increase in the supply of “money”, you will see the speed of this shell game get faster and faster and the devaluation of “money” increase at a faster and faster rate. At some point, in some countries, you will indeed get “hyper” or rapidly escalating inflation.
For me, I still like using actual paper money. For me, its like a brake on my spending. It helps me avoid overspending and getting myself into consumer debt. It’s a lot harder for me to let go of three $100 bills than it is to put $300 on my credit card. And increasingly, for me, I find myself looking at the change in metal coins I receive back, and thinking, you know, these silly little metal pennies, nickels, dimes and quarters are likely to hold their value better, over time, than these silly little pieces of paper they can print in unlimited supply. So part of my little savings plan now includes just holding onto the metal coins. At least they contain…metal of various sorts, which took a lot of energy and labor to produce at some point in time.
With my bigger savings I am increasingly drawn to saving in things like physical gold, and silver, which have a long monetary history, and which can’t be produced in unlimited amounts. The lack of supply in these metals, along with other things the world needs, like copper, and even oil, should lead to an increase in their values, over time, relative to the money supply which is being boosted in ridiculous and increasing quantities. Of course I can’t store oil, so I’ll just stick with the metals. I can use paper money for transactions, but for storing my wealth, I’ll stick with real tangible things. If I must invest in paper, I think it will be in paper towels, napkins, and toilet paper. At least those have utilitarian value to me. And they won't spoil, so perhaps my inventory of these will even rise, over time.
