A Reminder of How Different Gold Is

Courtesy of Sandeep Jaitly @ Fekete Research:

Should gold be considered an ordinary commodity like copper or lead? At first blush, this might be a reasonable assumption to make, but on closer inspection it doesn’t quite hold up.

Gold has constant margin utility. This means that, for any individual, the satiation point is so far removed as to be infinitely far away. Each ounce of gold is accepted on the same terms as the previous ounce of gold already owned was accepted. A consequence of a substance having constant marginal utility to us will be a large ‘stock to flow’ ratio. The stock to flow ratio is the ratio of global (above ground) finished inventory to annual primary production.

Assuming a total gold inventory of around 150,000T in 2002, it can be seen that this as a multiple of annual primary production is currently in excess of 65X. According to the World Bureau of Metal Statistics (WBMS), primary production of copper was 19.8Mt in 2011 and total copper inventory was around 0.78Mt. This puts the stock to flow ratio for copper at 0.04X (in 2011) – over 1,600 times less than gold’s stock to flow ratio. What about wheat? Total global wheat inventory (from United States Dept. of Agriculture) was around 175.6kt at the end of 2011. This compared to primary wheat production that year of 418.5Mt giving a stock to flow ratio of 0.05X.

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The following is a (not exhaustive) list of common views on gold:

1. Gold is a useless commodity compared to, say, oil.

2. Gold is a rare metal.

3. Backing money with gold prevents inflation.

Each of these statements will be examined for their merit. Continue reading

Positivism and The Quantity Theory of Money

I believe that within this world we are forced into boxes and categories, believing we should act and behave within certain parameters and fit into models created on previous action. I posit that this is not the case, that we are human beings with souls and we can act in an infinite number of ways on a finite timeline, not in a finite number of ways on an infinite timeline. Positivism has no place in a free thinking and flowing world but one entrenched in a blockaded and statist world.

Courtesy of  Sandeep Jaitly @ FeketeResearch.com:

What is positivism and how does the quantity theory of money fit in with it? The doctrine of positivism is a form of arch-empiricism that tries to crystallise the supposed process of ‘scientific thought’. An adherent of positivism believes that there are general ‘laws’ of cause and effect in the natural/social sciences and the only way to uncover these ‘laws’ is via the tool of research. An adherent of positivism believes that objective analysis – whatever is meant by this – is the only form of analysis; indeed there exists a zero possibility of the observer influencing the observed. Nature is orderly and regular; scientific knowledge is cumulative in character and all objective phenomena are eventually knowable – all characterize the approach of positivism.

Whilst it may seem to be a sound basis for a doctrine, positivism is utterly flawed and mischaracterizes the process of natural/social scientific thought. Simple examples shall be described to show why the approach of positivism is flawed. Take Newton’s ‘law’ of gravity. Newton’s observations of the movement of the visible planetary bodies seemed to fit with a certain type of mathematical relationship related to the masses of the bodies, and their distances apart. In slightly further detail, the relationship involves the inverse square of the distances apart. In the context that Newton was working, this ‘law’ was more than adequate. Indeed, centuries later, the ‘law’ was sufficient to send rockets into (near) outer space and back. However the nature of the establishment of this ‘law’ should not be mischaracterised – as a positivist approach did indeed cause with the observations of Einstein at the turn of the twentieth century. Newton’s ‘law’ is invalid over super-massive distances. When Einstein changed the context further beyond Newton, Newton’s observations did not quite fit the bill and scientific squabbling ensued. To the benefit of the physicists however, this supposed dichotomy was resolved – Einstein is appropriate in a broader context than Newton. Continue reading