Warren Buffett’s Father on Gold

You probably don’t want to read a history lesson, so if reading about history bores you, I apologize. Tune in tomorrow for your regularly scheduled programming.

But I’m extremely interested in history, especially as it pertains to money – for the simple reason that there’s a whole lot of monetary history behind us, and much of it is vastly different from the status quo of money we use and understand today.

You might be familiar with Warren Buffett’s recent diatribes against gold, specifically this quote which compares gold to other assets:

"I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side… Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion dollars – that’s probably about a third of the value of all the stocks in the United States… For $7 trillion dollars… you could have all the farmland in the United States, you could have about seven Exxon Mobil (NYSE:XOM), and you could have a trillion dollars of walking-around money… And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally… Call me crazy, but I’ll take the farmland PowerShares DB Agriculture Fund (NYSE:DBA) and the Exxon Mobil."

I disagree fundamentally with Buffett’s view on gold, and I’m in pretty good company.

Because Warren Buffett’s own deceased father, and former Nebraska Congressman Howard Buffett disagrees too.

I urge you to read his entire essay on the subject, titled "Human Freedom Rests on Gold Redeemable Money," because even though it’s 63 years old, it’s as true today as it was when it was originally written in 1948.

It includes such prescient quotes as:

"…paper money, gives the individual who owns it no independence, because it has no redemptive value. Under such conditions the individual citizen is deprived of freedom of movement. He is prevented from laying away purchasing power for the future. He becomes dependent upon the goodwill of the politicians for his daily bread. Unless he lives on land that will sustain him, freedom for him does not exist."

And he closes his essay with this grim warning,

"…unless you are willing to surrender your children and your country to galloping inflation, war and slavery, then this cause demands your support. For if human liberty is to survive in America, we must win the battle to restore honest money. There is no more important challenge facing us than this issue – the restoration of your freedom to secure gold in exchange for the fruits of your labors."

Now, why might Warren Buffett disagree with his father?

I suppose it’s because Buffett the younger is possibly the greatest beneficiary of a dishonest money system that rewards business interests ahead of all else. Moreover, Buffett’s now a significant shareholder of some of this nation’s biggest banks – many of which would be non-existent were it not for a fiat currency that politicians use to wholeheartedly support the banking industry above all else.

Today, all of the terrible things Buffett the elder feared have come to pass.

One of the most brilliant things that he pointed out was that there’s a huge disconnect between the taxpayer and the legislative branch of government – and it has EVERYTHING to do with our money system.

Buffett says, "When the people’s right to restrain public spending by demanding gold coin was taken from them, the automatic flow of strength from the grass-roots to enforce economy in Washington was disconnected."

And it makes perfect sense if you think about it. When there’s a run on the U.S. Treasury’s gold because of reckless spending by the Congress, the common man can trade his dollars in for gold.

Congress is then FORCED to mitigate the run on the Treasury by balancing its books – or risk completely bankrupting the country.

I completely agree. Without a real tie between taxpayer and "tax-eater" as Buffett calls Congress and folks on the dole, there’s no practical limitation, no limitation at all on spending, and ultimately no constraint on the total destruction of the currency.

That’s where we are now. We’re looking at the destruction of the Euro unfold before our eyes, and trust me – the dollar is not far behind.

Good investing,

Kevin McElroy
Editor
Resource Prospector