For years, I have wondered how India has been the home of spiritual, material, aesthetic and architectural highs (not to mention gorgeous women) but managed to evidence such extreme poverty. When I asked about it growing up, my rural Midwestern community's answer was "they don't eat their cattle." Another great example of our frame of reference driving perceptions. More recently, many of the public traded companies that I follow are lead by Indians. And it's not just leadership as apparently per capita income exceeds any other identifiable American group. So what in going on?
Later, I was reading a book on the history of India. The historian discussed a common perception from the Roman writings. India was already the go-to place for fabrics, art, jewelry, building materials and all things man-made. However, the Romans found that the Indians desired nothing but gold in return. Indians could care less about weaponry, swords and shields - only gold did the trading trick.
In reading BRK's 2011 annual report, a light went on. It states "Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond."
It's sad to think about. Indians have tied their national wealth up with an inert object rather than focus on productive assets. The tragic result is that gold is the likely cause for poverty in India as gold ownership really became a form of high social consumption (for dowries etc) rather than capital as an investment for productivity and employment.
