Richard Wyckoff - Mag of Wall Street on Gold - July 11, 1931

A friend of mine brought this article to my attention. It came from a magazine published back in 1931.

Gold Does Not Make Prosperity To men, as to nations, the possession of gold is a symbol of prosperity. Let's see. The United States has more gold than it ever had-and less prosperity. The banks are bursting with gold and barely meeting their dividends. Our great corporations have immense reserves of gold and their business is dwindling. All the nations are sending gold to us and our business with them is fading away. The truth is that large accumulations of gold are an inverse measure of prosperity. Probably four-fifths of the gold in the Federal Reserve banks is idle - and nobody ever contended that idleness makes for prosperity. The fact is that except as it is used as the basis of bank credit, gold has no relation to prosperity. But when there is no business, there is no credit and gold is useless. In other words, business gives gold a utility value. Gold is dead until vitalized by commerce. The piling up of gold in any country does not signify that is is prosperous; it merely shows that the country is giving other countries more goods than it receives; that it is parting with more usable wealth than it is getting back. Today the United States is receiving gold and going without goods it would like to have. And because it is receiving gold it is selling less than it would liike to. When we are prosperous, which means that credit is being freely extended, we need gold because it is the one commodity that mankind has agreed to accept on balance in place of the goods it would rather have. It is merely a balancing item in the offsetting of credits against debits. It might be epigrammatically said that prosperity "makes" gold and "unmakes" it instead of gold making or unmaking prosperity.

The highlighted section can also be applied to export policies, in which a nation sends away its real wealth for a worthless asset, namely, a non-convertible currency of another nation. And this is exactly the direction we are headed because of false beliefs about debt and deficits.

The idea that gold's value comes from economic output and wealth creation, not the other way around, is instructive. You can substitute "money" in place of gold and then you will understand that money is created from the growth in the economy, not by the cental bank. That is to say it is created endogenously: the monetary authorities MUST supply the amount of money demanded by the public. It has no choice. The public, therefore, has control over the money supply.