In prepper/survivalist circles, is commonly accepted that one should try to store a bit of gold, silver, or other currency-worthy metals to facilitate barter should we ever be faced with an event that renders fiat currency invalid, destroys supply chains, cuts off utilities, and otherwise heralds the end of the world as we know it. I myself once accepted this as a practical, common-sense truism, but over time have changed my position on the matter.
So, why store gold, silver, or some other nonfunctional barter medium? Gold is indeed an excellent form of currency – it is rare, recognizable, resists corrosion and abuse – certainly practical for this purpose. Historically, it has been a proven store of value. Many survival experts will tell you that it would be smart to invest in some after one has finished covering other basic preparations like food, water, clothing, shelter, defense, hygiene, heating, etc. Reasoning being that if fiat currency fails, people are likely to fall back on gold, silver, or other metals like copper or nickel as currency mediums.
The most obvious problem with gold is that it’s freaking expensive. At the time of this writing about $1300 per ounce (in April 2014 dollars), a coin a bit larger than a quarter. However, this expense is not seen by many in the prepper community as that big of a problem, as the assumption is that gold (and other metals, but for expediency will only use the world “gold” from here on) will more or less retain its value, come what may. It’s a large investment, but one that will assuredly remain sound.
It is that assertion which I’m here to question, and with questions, I believe the argument for gold falls apart.
Gold has very little intrinsic value.
You can’t eat it, drink it, clothe yourself with it, build a house, make a tool, or do much of anything else with gold. You can build some electronics with it and it looks pretty with the work of a jeweler, but neither of these are going to be big concerns once zombies start munching grey matter. The value of gold comes from nothing more substantial than our collective belief that it is valuable, same as fiat currency, though less volatile. There seems to be a perception of gold’s almost otherworldly halo of divine value in certain circles, but like all commodities, how much gold is worth depends entirely on what someone is willing to give for it, rather than what the owner thinks it’s worth.
So, for example, let’s say you spend $13,000 on ten ounces of gold today. The zombie apocalypse happens, and you find yourself short on some commodity, let’s say ammo (though many preppers store enough ammo for several lifetimes, just go with me here). You need ammo. Along stumbles a starving urchin in threadbare clothing, scarcely surviving by hunting with his .22 pistol and stash of ammo (let’s also assume you’re moral enough to not rob him for it). You offer him gold in trade for some ammo, but he doesn’t want gold. He wants food and clothing.
I repeat. He doesn’t want your gold.
He can neither wear gold nor eat it. Maybe the urchin could trade the gold for what he wants at a later date, but he needs food and clothes right now and might starve or freeze to death before he can spend it. The ammo itself is more useful to him immediately. In the early months after an apocalypse, immediate concerns will take precedence. How much canned food, how many sets of clothing, how many boxes of ammo could you have bought with the $13000 you spent on 10oz of gold? But now, in this scenario, those 10oz won’t even buy you one box. You will have to dip into your store of food and clothes to trade for the ammo you need.
Today, gold is expensive and commodities are cheap. After the apocalypse, commodities will be expensive and gold will be cheap. Even after civilization recovers a bit, it will be a long while, if ever, before gold is restored to its pre-collapse market bubble price. Whether you consume them or trade them, $13,000 of goods will be worth much more than 10oz of gold. If you really wanted that gold, you’ll likely be able to buy those 10oz with $1000 worth of nonperishable food from some desperate fool who stored his fortune in gold instead of stocking the necessities of life.
The problem with stocking commodities
Stock eventually runs dry. Once $13,000 of food, ammo, gloves, boots, toilet paper, etc. are gone, they’re gone. The guns, harnesses, textiles, and tools that Jeremiah Johnson brought west would eventually break or wear out, and he didn’t have the resources to create new ones for himself, as they were made by professionals in well-equipped workshops. You can have a whole city of preppers who are stocked to the gills on barter items, and trade will flourish like a desert spring – until the goods dry up. Then you’re back to subsistence living.
So, what to do? Well, as it happens, most people of the prepper/survivalist community tend to lean towards a free-market capitalist mindset. My advice is, practice what you preach. Whereas some would divide and spread the wealth around until they all ran out and starved, we who wish to rebuild civilization must be forward-thinking. Though Jeremiah Johnson had the option of trading with established tribes and outposts, such options won’t likely be available post-apocalypse unless you (or someone around you) establish them yourself.
After you’ve stockpiled your basic supplies, take that $13,000 of capital that you would have spent on gold and invest into improving your capacity for production. For example, no matter how you care for them, your clothes will eventually wear out. But if you buy a loom, and work with local farmers and herders, you can create your own clothes. Stock a workshop, you can build and repair looms. Build a forge, make hammers and saws, indefinitely. When other people run out of supplies, they will come to you, trading from their stockpiles… and their gold. If you buy no gold now, and instead invest in production, you will eventually earn all the gold of everyone who didn’t. And you’ll get it at a much better price. If you still even want it.
Scaling up: Community, Production, Wealth, and Gold
No one man can posses all the tools, skills, and time needed to indefinitely sustain a standard of living much above that of a cave dweller. Like with Jeremiah Johnson, your stuff will eventually wear out, and you can’t make clothes and build looms and forge tools all at once. Maintaining a standard of living will require job specialization, and specialization in all the necessary jobs will require a community. Contrary to a common belief, the nature of long-term survival isn’t about some isolated cabin dweller in the forest or mountains. Most of the popular culture – even many who self-identify as preppers – may believe this to be the case, but it’s not. I repeat, a sustainable standard of living will require an active and productive community.
Just as “spreading the wealth” is a fool’s lie in economics, therein resides the lie of a community stockpiling gold, because in reality money itself does not generate wealth. Having more gold in circulation doesn’t mean there will be more food on the table, it only means that whatever food is available will cost more. Rather, it is the productive individuals of a community who will generate the wealth and improve the standard of living for each other; the gold is just a convenient medium to move it around. A community that, pre-collapse, had invested all their available capital in production will end up infinitely wealthier than one that stored all in gold, or even half-and-half. Furthermore, the productive community will, through trade, eventually end up with all of the gold from those that rely on purchasing power and remain unproductive.
So, let’s go colonial?
Another mentality common among preppers is that, with a collapse, the technological standard of living will catapult backwards to a simpler time, and therefore it is important to learn pre-industrial and primitive skills. Indeed, if electricity, gasoline, and JIT supply lines dry up, preppers will need to fall back on self-sufficient alternatives in many facets of life. But stalwartly believing that one must forego developments in technology and revert to an earlier state may become a self-fulfilling prophecy. If you only stock hand tools, you will only be able to do the things that can be done with hand tools.
The better equipment investments are those that will put you ahead of the technology curve, that take advantage of modern design and machining precision to achieve maximum efficiency, that can be used to create other modern materials and tools, and yet don’t depend on resources that may not be available post-apocalypse. While others are trying to cobble together pre-industrial technology from wood, hide, and schematics in books, if you have the productive capacity to build useful modern things from basic materials, you will have a competitive advantage. A garage-based forge/machine shop that can sustain itself by creating its own tools (and its own power source, like steam engine generators) from raw materials might very well be the backbone of a new civilization. Solar panels, CAD-enabled computing, and other specialized modern tools will allow you to monopolize unique niches in a new growing economy.
Keep in mind that, even if all of the technology of today were hypothetically wiped out, we still have the knowledge that these things existed. Just as the climbers reaching the summit of Mt. Everest became common once Edmund Hillary and Tenzing Norgay proved it could be done, one of the most difficult barriers to invention is conceiving them in the first place; modern society will be re-invented much faster than it took to develop initially. Don’t expect that your horse-drawn plow or manual hand drill will be relevant for more than a generation. Invest in the equipment and knowledge to be part of the initiative that rebuilds the world; you will improve the lot of everyone you trade with, and profit in the process.
Plan for others, because others don’t plan
Unless you are fortunate enough (or proactive and resourceful enough to ensure) that you live in a mostly prepper-populated community, your neighbors will be unlikely to have prepared for – or even seriously considered – survival after a zombie apocalypse.
While you have no objective moral responsibility to provide for the negligence of others, the pragmatic reality remains that the productive capacity of your neighbors will directly impact your own standard of living. If all they can produce is the food to feed themselves (and probably not even that), then economically you are no better off than a mountain man in a cabin – in fact, you might even be worse off, since they’ll want you to share what you have, voluntarily or otherwise. If it is at all possible for you to encourage your neighbors to prepare or take up post-apocalyptic-marketable hobbies, or even for you to simply stock some means-of-production tools and books as barter items to get them started after-the-fact, the initial expense may be profitable for all in the long run.
What if the apocalypse never comes?
Most modern investment advisers are against gold, for the same reason I’ve already discussed: gold doesn’t generate wealth. Buying gold is not an investment, but rather a conversion from an unstable currency to a more stable one. Gold will perform well against cash during inflation, but the stock price of a successful company will inflate along with everything else and grow versus gold regardless. Investing in production/growth (including equipment and personal skills) makes sense not only for an apocalypse scenario, but also in current times. The best investments will yield returns in both.
I hope I’ve made a good case as to why gold is a bad investment for a total collapse. But what of a deep and long-term recession? As a store of value in a hard economy, when even wisely-chosen stocks are falling, gold should hold fairly well. A 30’s-style depression in a relatively free legal environment, however, is not much different from the supply deficit of an apocalypse. Your stockpiles and the ability of you and your community to produce will get you through the hard times, and continue to serve long after the gold would have run out.
But even with the right preps and skills, the worst that can happen isn’t what you thought.
Though my opinion may change in the future, it seems to me that the only good time to invest in gold is when it doesn’t really help all that much anyway. If you must store some form of currency for the long term after you’ve stocked up on basic supplies, then gold is the most stable. However, I think it wiser to invest your capital in growth and production, whether or not you expect economic collapse. He who has money will run out; he who earns money will not.