Oil for Gold - A Historical Prospective

It's the Flow, Stupid
By FOFOA:

"Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises."
(ANOTHER, 1997)

All the gold in the world is a fixed quantity. It always has been. It just gets moved around like poker chips on a table. Some of it is still in the ground and some is above ground, in portable form. But it is all owned by someone, underground or above. If it was sufficient to simply trade paper ownership certificates then there would be no need to pull it out of the ground at all. We could just estimate how much was down there and then trade ownership rights. But it is not sufficient, especially for cross-border trade. Never has been. And this is why we pull it out of the ground.

In the monetary roles of 'numéraire/accounting unit' and 'store of value', this gold has been the most reliable money the world has ever known. But those of us who are savers know from personal experience that gold need not be the medium between every single exchange. We generally work four months out of the year to cover the government's "cost of living," seven months to cover our own cost of living, and one month to add to our capital account, our savings. We really only need the gold for that last month's efforts. Debtors, of course, work those last months just to service their debts. So they don't need gold at all.

But for a saver whose income is derived from depleting his capital, like a gold dealer or an oil producer, the required flow of gold is a much greater percentage of gross receipts than a saver who, say, produces cheap goods for Walmart. While the latter might require a flow of 5% of gross receipts in order to slowly grow his capital account, the former needs a flow sometimes as high as 95% of gross receipts just to stay even!.......read on