Social status is far more important than wealth. Social status allows one the opportunity to acquire wealth. Being wealthy is frequently correlated with high social status but doesn’t automatically elicit the respect of the community.
However, individuals who have acquired high social status because of intrinsic abilities and are, as it were, thrust into the limelight by their fellows, find it difficult — nay well-nigh impossible — not to comport themselves differently from the rest of the community. Among other aspects such as voice or bearing, high status individuals, being rare themselves, are allowed — indeed, encouraged — to wear clothing or ornamentation that is also very rare. As far as can be determined from recorded history and, archeologically, from pre-history and, anthropologically, from the few remaining hunter-gatherer groups observed today, personal ornamentation with rare objects has always been the case.
Rare metals (e.g. gold), rare gemstones (e.g. rubies), rare coloured rock (e.g. lapis lazuli or chrome), rare natural objects (e.g. particularly rare sorts of seashells or snailshells) or rare natural byproducts (e.g. amber or jet) have all featured as personal ornamentation for at least the last 100,000 years. But gold, being almost infinitely malleable, is the only rare material that emerged in all civilizations and thus universally desired.
The majority portion (about 70%) of all gold that’s mined and refined today goes into jewellery for everyday wear. However, well within a few generations, it will subsequently recycle from there as it becomes overwhelmingly concentrated in individual hands due either to the dowry effect (India) or the primogeniture effect (China) or death duty avoidance (in the West) and becomes too much for one individual to carry around. A proportion of unfashionable jewellery is then scrapped-out every year and then melted, re-refined, re-purchased and then cast into bullion ingots (international currency for governments only at the present time) or (in the last century) minted into tablets or coins (potential high-priced currency for individuals who are worried about banknote inflation in the coming years).
Today, jewellery is 50% of the total stock of the world’s gold. Because of annual scrappage this is steadily declining. It will never be a one-way street, however. Even if in the years to come when jewellery comprises only 20%, say, of the world’s visible gold, we’ll still see gold rings, bracelets and Rolexes. Its main use will be as a stored buffer against inflating banknotes and occasional financial catastrophes.
Of course, given the immense size of today’s world’s economy, gold coins can never be used again as a practical everyday currency as it was two centuries ago. It then began to be stored as the ultimate guarantee in case banknotes failed when panics arose. And then, of course, banknotes became impractical as the sole currency and had to be bolstered with personal bank cheques, And then, in turn, cheques had to be bolstered with personal credit cards. Very shortly (in 10 years’ time?), cards will have to be bolstered by the use of mobile phones when making transactions.
All the way through, however, gold has maintained its fundamental (albeit disguised) use as international currency. It is now quietly re-emerging as the basic world currency. Two years ago, Robert Zoellick, President of the World Bank was the first to explicitly suggest this. The Bank for International Settlements (the central bank of central banks) has deleted gold’s previous risk factor from 50% to zero. It is now given Tier 1 currency status. The largest investment bank in the world, JPMorganChase, are now treating gold as currency.
What is China doing? So far, in copying the products of the West on a massive scale, China has shown itself to be the ace reverse engineer of the world. No wonder! Every year, its universities disgorge more engineering graduates than the rest of the world put together. But also, its universities produce more economists every year than the rest of the world. We can’t possibly think otherwise than that, even with odds of 1,000 to 1 against, many hundreds or thousands of Chinese economists thoroughly understand the financial engineering of the West since the first year of Capitalism (1694 in the UK, 1811 in the US — the first legislation allowing joint-stock, limited liability corporations).
Before too long, China intends to expand its Pan Asian Gold Exchange (PAGE) into Europe and America when gold shops and depots will be set up. Purchasers on the Internet can either pick up their tablets or coins from the shops or store them in secure depots. There is no other conclusion in my mind that the Chinese know which side of the future world trading currency is going to be buttered. It’s not going to be the inflating dollar or euro. When the gold standard is restored as a basic, albeit invisible, discipline, as it was prior to WWI, governments will not be able to print money beyond which their economies need from year to year.