Gold! What’s it Good for When the “Economy Goes Full-on Mad Max?”
Via The Atlantic: Why Gold Would Be Useless in an Economic Apocalypse
when an economy goes full-on Mad Max and we’re all reduced to bartering, the survivors are going to be more interested in useful goods than in a soft metal useful mostly for ornamental purposes. Part of gold’s value as a commodity is derived from the fact that it can easily be traded across borders. But if that were no longer an option, and you were reduced to using bullion to buy a baguette, it wouldn’t really matter what people in China or India were willing to pay for your gold.
I would also add that, in a truly Hobbesian state of nature, it might not be wise to keep all your wealth stored in a small, easily pilfered box.
Really, this is a more colorful way of noting that gold has value for the same reason the dollars, euros, and other stores of values do: because we collectively say so. Sure, the reasons vary as to why we assign value to something, but it still boils down to us and not to some magic.
Now, what if it isn’t Mad Max meets Hobbes and just the dollar collapses?
Now, in fairness to the goldbugs out there, I think Marotta is oversimplifying a bit. Let’s say the United States has a bout of Zimbabwe-like inflation, but the international commodities markets stay up and running. Theoretically, if the collapse of the world’s reserve currency hasn’t shocked the entire global economy into paralysis, you might be able to trade your gold for Euros or Swiss Francs or whatever else the markets start denominating prices in and start a nice little import business.
The problem is that if doomsday doesn’t arrive, you’re probably stuck with a bum investment.
Here’s what I want to know: what are the odds that the dollar would collapse into Zimbabwe-like territory, but somehow the euro and franc holds value? This strikes me as unlikely, to put it mildly.
“Here’s what I want to know: what are the odds that the dollar would collapse into Zimbabwe-like territory, but somehow the euro and franc holds value? This strikes me as unlikely, to put it mildly.”
The odds of a US dollar hyperinflation are zero, so the odds of the intersection of that event with another is still zero.
We, as a nation, spend way too much energy on … well “SHTF” is a thing, right? It is arguable that ammunition went rare because it became a SHTF currency.
I get that you are catching a contradiction, but stepping back, the sad thing is that so many people spend time planning for these long tail scenarios. They’d be far, far, better off planning for likely outcomes.
@Barry: Yes, I was being extremely understated.
@john personna: Indeed.
In fairness, “zero” is (are) silly odds. If it has happened more than once it certainly has non-zero odds.
But, since it happens so rarely, it is certainly long odds.
This is why economists are not fiction writers. As usual they don’t understand humans.
Of course gold will be valuable in an apocalyptic scenario because people are not and never have been the rational creatures economists insist on positing. Gold has been valuable forever. Since Hammurabi’s day. It’s valuable because it is pretty, it makes swell adornments, it is rare, and because apocalypse does not mean that human programming will suddenly re-boot. In other words, it’ll be valuable because people will continue to believe it’s valuable because they always have believed it’s valuable.
Duh.
As for not wanting to concentrate all your wealth in one location, what does one suppose the alternatives are in a Mad Max scenario? You either carry it or you hide it. That applies whether you’re talking gold or food or sleeping bags.
None of this is to say other items wouldn’t be very useful for barter. For example, the aforementioned sleeping bags. Or plastic bags. Or bags of rice. If everything is rare, everything is valuable. But it’s kind of tough to transport 200 sleeping bags across the radioactive waste lands and a hell of a lot easier to carry something that cannot be destroyed by moths, rats, exposure, etc. You know what won’t be eaten by a rat? Gold.
Many of the same people are planning for the rapture.
I don’t think they’ll be swayed by he long odds argument.
But I do wonder how many additional factors, beyond the several that were concurrent, it would have taken to push the 07 Recession into Zimbabwe territory.
@michael reynolds:
Show me an economist who actually said gold will not be valuable in the future.
(The economics glass may only be half full, but no rational observer thinks it is empty, without proven ideas. One such, the demand curve, says what you say, that gold will have value as long as people want it.)
Steven, people who plan for such scenarios are not rational. That is why they are planning for such scenarios.
In a Mad Max economy, I suspect gold would be used by warlords for trading among themselves. Nobody else would dare use a currency that warlords covet.
It has been a while since I checked the “Permanent Portfolio” (25% gold). It is looking pretty good. Not that I would recommend 2013 as the year to establish that 25% stake.
@DrDaveT:
Don’t think about it, man. 🙂 It will suck you in.
(Seriously, like preparing for home invasion, the rumination is self-reinforcing.)
If we did have some sort of apocalypse, I suspect gold would have a low value …. at first. The most valuable thing at the outset, IMO, will be drugs and medical knowledge.
And fuel…
@john personna: yes, but it’s sooooo less likely than getting killed in an auto accident.
@JWH:
Are you pulling me in? … Gold would have value, but be difficult to divide. Silver dollars would be way better for barter. And then, pure copper? The old hierarchy of gold, silver, copper, isn’t a bad one.
But I’m not worried. I’ve said my dark prayers to the Great Kraken and will be ruling all you fools in the times to come!
@Barry:
Absolutely. Or my personal favorite, a heart attack. I used to tell the peak oilers that, rather than TEOTWAWKI, they’d be better off thinking of diet and exercise.
@C. Clavin: “But I do wonder how many additional factors, beyond the several that were concurrent, it would have taken to push the 07 Recession into Zimbabwe territory.”
I’m always amazed by those people; the USA just had the closest thing to a replay of the Great Depression, and they f-ing worry about *in*flation?
In 1943 my mother was an inmate in the concentration camp at Lodz. The Germans would surround a building early in the morning, roust the inhabitants, and march them off to the railroad station to ship them elsewhere. Often, the inhabitants were surprised by the raids and sometimes left some stuff behind. The other camp inmates would try to salvage the goods under the watchful eye of the camp guards. In this manner, my mother got hold of a bar of soap which was small enough that she could conceal it on her body and sneak it home.
After she got the soap home, she started to use it and felt something hard concealed in the soap. The hard object turned out to be an American eagle, a ten dollar gold piece.
After her initial happiness about this windfall, she started to worry about using the gold. Anyone, guard or fellow inmate, that saw her with this gold would assume that she had more, and this would lead to interrogation and torture of her entire family either by the Germans or the inevitable internal gangs that arise in anarchies.
Turning gold or over valuables into food, shelter, or protection in a world without law is not easy.
Eventually, a clever relative was able to arrange an exchange with one of the internal gang lords that shielded her identity. Interestingly, the gold was traded for cigarettes; the cigarettes for food.
Add tobacco to the list of guns and booze that are useful in a crazy world.
I have ZERO use for economists. Most of the time they do not really have a clue. I have been buying silver as gold is overpriced.
The gold holdings of my acquaintances at this point are directly aligned to the likelihood they voted against Mr. Obama and were genuinely surprised at his victory. This is one (perhaps the only) scenario in which having a stockpile of guns makes some sense to me.
One advantage of capitalism – it is hard to imagine our corporate overlords allowing a Mad-Max scenario to set in.
Even people in mad max weren’t after gold, they wanted gas.
@michael reynolds: “In other words, it’ll be valuable because people will continue to believe it’s valuable because they always have believed it’s valuable.”
Except that an increasing number of folks in any post-apocalyptic future will have grown up and lived their lives without little to no use of physical currency. Will a generation that’s paid for just about everything their life with either a credit card or their phone or their signature still have “gold fever”?
Mike
One point: anthropologists have yet to identify a single example of a barter society, even among those which do not use money. So the available evidence tells us barter economies are likely a fiction and that debt has in fact been an integral part of human culture since the beginning.
Some of you will probably note this contradicts the narrative put forth by the mainstream economics profession; that the earliest economies were purely barter, developed money solely to facilitate exchange and then institutionalized debt. The field has almost completely ignored both anthropology and history, and it shows.
The only place where “gold? go ahead, take all you want, for us it has no value” happens is in black and white sci-fi television shows.
(And as Slugger notes, in real SHTF, it had real value, if anything too much value.)
@john personna:
Browne repeats the fallacy that the price of gold is correlated to inflation, and the historical data just do not bear that assertion out. Gold,like any other commodity, has speculative value (in that it allows one to profit from the Greater Fool), but it is a relatively lousy hedge against inflation.
Gold is, at present, the next bubble waiting to pop. It has already started deflating.
@HarvardLaw92:
He says it tracks inflation, with high volatility. That has been true so far. Every run-up to a record has been followed by decades in the doldrums.
@john personna:
That is mutually exclusive. Either it trends with inflation, or it doesn’t. Plotted over the short term, the gold prices versus year to year changes in inflation data is all over the map. It is a random cloud. That holds true for the year to year cycle, the 10 year cycle, the 20 years cycle, and so forth. There just is no correlation. At all.
Interestingly, consider the period forward from 2011 – the price of gold has fallen by over 30%, while we have had mild to moderate inflation (depending on the basket of indicator commodities one selects). Were gold to be an effective hedge, the price would have gone up in tandem. It didn’t – it went down.
and it went down not because of inflation, but because the market dynamics that have been fueling the bubble pricing are now going off the tracks.
In truth, the short-term volatility of gold is precisely what makes it a bad hedge over the short term. It’s far too subject to fear buying and positive price elasticity. Gold is a great inflation hedge over an operative period like centuries, but few of us will ever live long enough to benefit from that. If people are that worried about inflation that they feel the need to hedge, which is in itself sort of silly IMO, then just buy TIPS.
@Ben Wolf:
Oops, non-sequitur there at the end. Not-barter and not-currency does not imply debt. Even today, societies like the !Kung have neither currency nor debt. Property is communal, and minimal (since it all has to be portable). My understanding of the current consensus in anthropology is that this kind of arrangement predates both property and government.
You’re right that debt doesn’t require currency or barter, though. The feudal system ran on a combination of owed service and ‘rent’ (tax) in the form of a portion of the land production. Early cuneiform inscriptions from the Fertile Crescent exist because a record of debt was required.
@Tony W: “One advantage of capitalism – it is hard to imagine our corporate overlords allowing a Mad-Max scenario to set in.”
Note that they didn’t expect the Crash to happen, either.
@HarvardLaw92: “Interestingly, consider the period forward from 2011 – the price of gold has fallen by over 30%, while we have had mild to moderate inflation (depending on the basket of indicator commodities one selects). Were gold to be an effective hedge, the price would have gone up in tandem. It didn’t – it went down.”
No, we have not had ‘mild to moderate inflation’.
@HarvardLaw92:
Actually, “tracks inflation, with high volatility” is a little joke, that says the same thing you do.
Very high volatility, sometimes lasting a decade, but ultimately returning to trend.
The cruelty in the joke is that you can’t just buy in 2013 and assume that gold will track inflation. Your long run probably isn’t long enough.
(On the other hand, buying at say $800/oz might not be a bad bet. If you can get $600, even better.)
@DrDaveT:
I think I’ve read that, while anthropologists agree that David Graeber has done good work, he might have oversold the debt-first story a bit.
(And going back to the original claim, about what economists think about money origins … economists never have been anthropologists, and so it was probably a mistake to give their musings too much time at all. Especially if they mused on man-in-isolation, and not man-in-tribe.)
(I actually own no gold, and my girlfriend thinks I should, so I made a deal with her that I’d buy at $1200, and at $1000, and at $800. If this goes they way I think it will, I’ll buy a little at all three prices. We’ll see. We are very close to my first trigger.)
@Barry:
By all means, expand on that assertion with some of those fact things.
@john personna:
The problem is that the “trend” doesn’t hold even at a 30 year horizon. You have to stretch it closer to a 200 year horizon in order to achieve effective hedging in gold, and, as I said earlier, none of us will ever live that long.
As a speculative investment, sure, it has value, like any other volatile commodity. That takes us back to the greater fool I spoke about earlier.
@michael reynolds:
Well no. Not every culture that has known gold has given it the value, particularly monetary value, that European or Eurasian has. EG Americas, West Africa – both instances where gold was quite common – relatively.
I would hazard the opinion that it is not the 100% foregone conclusion gold proves particularly useful in an apocalypse scenario (except perhaps to the Apex Authority), versus barter goods (the assertion supra about non-identification is simply bollocks).
@michael reynolds: The issue isn’t that gold (or other stores of value) would not exist in some Mad Max scenario. The real point is that if one invests in gold in the pre-Mad Max scenario, having a bunch of gold will not protect one when the Mad Max era dawns.
Really, it is all rather tongue-in-cheek about those who think that gold would protect against the total collapse of the dollar (and the global economy in general).
@HarvardLaw92:
The weird thing about a gold chart though is that it shows the “doldrums” very clearly. It is possible to buy gold when it’s boring. It’s just that few do, because it’s boring.
When it gets interesting, it is too late.
Looking, gold traded at around $400/oz for ten years, 1988 to 1998. That is in all our memories. We could have taken a little, possibly up to the 25% of a Permanent Portfolio, and then scored big-time when the mania (there is always a mania) rolled around.
Even better, it sat around $300/oz from 1998 to 2002.
So, next time gold is boring, and cheap, buy a little. It won’t hurt.
@DrDaveT: Not sure what you’re point is, as nothing you’ve written contradicts my comment.
No one said it did. Please don’t attack an argument no one is making.
To draw this conclusion one must accept an exceedingly narrow definition, which I do not. Any social obligation is a debt; contrary to orthodoxy, money arose as a means of satisfying them rather than as medium of exchange. Whether it is simply expected obedience to the law, a favor owed, or the basis for a financial transaction, debt has always existed and all societies understand the concept.
@Ben Wolf:
Go back and read what you wrote. You said “A, so B and C”. If you weren’t intending to imply that A implies C, then you should have written something different.
Not in standard English. Debts are a subset of obligations. They have to be enforceable, for one thing. In particular, Graeber’s application of the word ‘debt’ to slavery is a way of coining a misleading jargon term (like the way economists use the word ‘rent’), not a standard English fact. If you want to argue that “if you define debt to mean any social obligation, then it includes any social obligation”, go ahead — but make it clear that you’re redefining ‘debt’ away from its normal English sense.
Gold Bugs are more annoying than one billion mosquitos in Minnesota. These are people who believe, either: (1) that we’re already in a period of high inflation, and if you point out to them that inflation is currently at 3%, they then tell you, (2) no matter, since 2009 we’ve been running trillion dollar deficits and printing money, and it’s inevitable that hyperinflation will visit us.
There are people who love to be scared, love to be freaked out – and Gold Bugs re some of those people.