| THE DIVISION
OF LABOR...AND GOLD |
| Squash
Gold |
| By Bill Bonner |
| "Look,"
said Mr. Deshais proudly, pointing a finger at the shelf. There were jars
of red balls in some sauce, various shades of jam, green beans, pickles.
Dozens of them. Hundreds maybe.
"Ah,"
continued the gardener, "you won't have to worry this winter."
I had not been
worrying about not having enough to eat this coming winter. It had not
even crossed my mind.
Mr. Deshais
is fighting the division of labor. |
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| It would be
cheaper just to buy the tomatoes and lettuce at the local market.
And Mr. Deshais,
fanatic as he is, produces far too much. I am getting stuffed with radishes,
squash, lettuce, and green beans at every meal. Occasionally, my nose twitches.
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So bountiful is
our garden that Mr. Deshais has taken to canning the surplus.
A caldron of
water boils almost all day long, as various legumes get tortured - scalded,
cooked and canned. We are preparing for famine. |
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| A few years
ago, everyone maintained an inventory of food. Only a fool would have trusted
completely in his ability to buy what he wanted when he wanted it. But
now we all seem to have an unshakeable faith in the division of labor...and
the supply channels upon which our lives depend.
Progress has
made Mr. Deshais's canned golden squash unnecessary.
The question
I raise in this letter concerns not golden squash, however, but squashed
gold. If it is no longer necessary to keep an inventory of food, does it
make sense to store cash? Is gold, the ultimate store of value, no longer
necessary?
"It's over."
Readers of
these letters may recall the words of the portfolio manager, quoted by
Reuters, who explained that gold was finished as a financial asset. |
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| It was easy
to dismiss the voice of 'progress'! The world has been making progress
for thousands of years. But the cycles of greed and fear - and the self-interested
reasoning of central bankers and politicians - do not change. Human wealth
grows. Not always, but usually. Year after year, new innovations...new
technologies...further insights and refinements accumulate.
But homo sapiens
sapiens, an animal of whom taxonomists were so fond they had to name it
twice, are still the same near-ape creatures who wandered off the African
savannah 100,000 years ago. Now, these same creatures fill the seats of
London restaurants, the plastic spectator seats of the Baltimore convention
center when the Worldwide Wrestling Federation puts on its show, and the
benches of sweatshops in Bangkok, where the latest fashions are stitched.
This animal,
whether dressed by Kenzo or Benetton, is still subject to the same hard-wired
instincts that beset and enabled his ancestors. And not just his close
kin in the human species - but the entire line of evolutionary tissue,
from the lowest amoebic bacteria to the most highly refined matron in the
16th arrondissement of Paris. |
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| This animal,
whose collective wisdom priced gold at $825 an ounce two decades ago, now
considers it worth only $280 [and today, $355]. But, an investor's view
of what things are worth is not a consequence of rational, computer-like
analysis. An investment may be worth $15 one day and $30 the next - without
any real change in the underlying asset. An ounce of gold is still the
same element, occupying the same position in the periodic table that it
did when George W. Bush was at Yale. It is not gold that has changed.
These marvelous
animals - investors - episodically become expansive and optimistic...filled
with the hope of riches far in excess of what is likely to come their way.
Then, they reverse themselves, spasmodically, and fear that the sky is
falling.
And yet, progress
continues. And progress, too, is a result of the most basic process of
nature - specialization and the division of labor. |
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| From the
beginning of life, millions of years ago - with single-celled bacteria
floating in a sea of primordial soup - to the crown of creation, the human
being, nature has become increasingly specialized. The human body has
billions of cells - liver cells, brain cells, blood cells - all cooperating
to replicate themselves in a competitive, unforgiving world. If the liver
cells go on strike, or the brain decides to cease functioning, it's over.
Unless the person has already produced offspring, every cell in the body
will soon be history, and the genetic material that gave them life will
have reached an evolutionary dead end. Every cell of the human body depends
on every other cell to do its duty.
A Roman senator,
Menemius Agrippa, used this analogy to head off a revolt of the Plebes:
"Once upon
a time, the members of the body began to grumble because they had all the
work to do, while the belly lay idle, enjoying the fruits of their labor;
so the hands, mouth and teeth agreed to starve the belly into submission,
but the more they starved it the weaker they themselves became. So it was
plain that the belly also had its work to do, which was to nourish the
other members by digesting and redistributing the food received."
Against all
odds, this argument worked. The Plebes were given a couple of seats among
the tribunes and the rebellion was called off.
Not only
do cells cooperate within a single body; individuals cooperate within a
society. The society of bees has been studied for hundreds of years.
Some bees collect honey. Others guard the hive. And one - the queen - reproduces.
Since there is only one reproducing female, all the bees are closely related.
Sharing nearly identical genetic material, they all cooperate to make sure
that it survives - gracefully sacrificing their own lives for the good
of the hive, as necessary.
Humans have
much more diverse genetic material. Most people breed. Still, they have
specialized to such an extent that most are completely dependent on others.
One man produces
bread. Another produces wool. And still another writes the code to produce
electronic games, such as Grand Theft Auto, which Jules was playing this
weekend. (In the game, contestants steal cars and then get points for
running down pedestrians. They get extra points for killing policemen and
wrecking police cars.)
If the bread-makers
and everyone else involved in the chain of food production - from the farmers
to the waiters at the Tour d'Argent - were to go on strike for a very long
time...millions of people would die. But it doesn't happen.
Farmers
go out of business. Waiters quit and become actors. Truckers go bankrupt.
Whole areas of the world suffer droughts and other natural calamities.
But the food keeps on coming. The division of labor in the agricultural
sector expands.
Even farmers
would starve to death if the division of labor were to break down - for
few of them produce more than one or two crops. And few keep an inventory
of their production for personal consumption. Instead, they find it easier
and more economical to drive to the local grocery store.
Likewise,
not even gold-mining companies stock gold. They typically sell it as
soon as they can. As we learned when the price of gold jumped a few months
ago, they actually sell it before they mine it. Many gold mining companies
actually own less gold than you and I do. They've sold everything they've
produced - and then some.
Specialization
has been given a big boost lately - from the Internet and economic globalization.
Do these things mean "it's over" for gold?
Our guess:
when something has retained value for thousands of years, its not likely
to give it up anytime soon.
*See: THE CASE
FOR GOLD
http://www.agora-inc.com/reports/905STCFG/W905D503/
Bill Bonner
is the founder and president of Agora Publishing, one of the world's most
successful consumer newsletter publishing companies, and the author of
the free daily e-mail: The Daily Reckoning (www.dailyreckoning.com
). He is also the author of Financial
Reckoning Day: Surviving The Soft Depression of The 21st Century (John
Wiley & Sons) due out in September. |
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