Everyone knows that China, the largest nation in the world, has been building itself into an economic powerhouse for the past several decades. Americans are worried about losing status and prestige to the Chinese, who have an actual economy that makes things – as opposed to the decaying U.S. economy that pushes paper around and calls that “productivity.” But many people would be surprised to learn that it’s not China that’s the world’s largest buyer of gold – and it’s not the U.S. either. It’s India.
Indian People: The Smartest in the World?
India is the second largest nation in the world, and while its economy has grown by leaps and bounds, too, it is still a poor nation. India’s GDP per capita is $3,703 – 129th in the world. By comparison, China’s GDP per capita is $5,184, and the U.S.’s is $48,147. Nevertheless, these poor Indians are financially smarter than their richer counterparts in China and the U.S., as they are converting their worthless paper currency into the stuff of real value: gold.
Indian Government: The Dumbest in the World?
Unfortunately for the Indian people, the Indian government is not nearly as smart as its citizenry, and rivals the U.S. federal government in stupidity. Why do I say this? Because the Indian government is actually concerned about its people “buying too much gold.” To combat this, India put a tax on the importation of gold in January – and then raised that tax just recently. Initially, Indians were made to pay a 2% tax on imported gold and silver, and that has now been doubled to 4% for gold. Previously, import taxes were based on the weight of the precious metal, not its monetary value.
Indian Government: Power Hungry Like the Rest
Why does the Indian government want to discourage its people from buying gold? The same reason the U.S. government does: it’s all about power. India’s money is eroding in value even faster than the U.S.’s. Part of this is due to inflationist domestic monetary policy, but another part is the fact that the U.S. exports its inflation to the rest of the world – especially the Third World.
More Dollar Imperialism
This has long been part of the agenda known as Dollar Imperialism – even when it was initially Pound Imperialism. After all, when India first won independence, it attempted to establish a hard-money standard, but was thwarted in doing so by Western Imperialist powers. (See Murray Rothbard’s History of Money and Banking in the U.S.) Now that India has its own fiat-money standard firmly established, rises in the price of gold reveal the worthlessness of its currency. While gold gained 10% in terms of dollars in 2011, it climbed more than 30% in Indian money. This, in turn, feeds Indian demand for gold, which creates a vicious cycle for the Indian fiat note, further depreciating its value.
A Matter of Supply and Demand
Then there is the Indian government’s official reason: its current account deficit. By trading worthless Indian fiat money for gold, India has a net outflow of currency, which is bad for the government’s balance sheet. Think about this: the Indian people are trading paper for gold, and the government actually thinks this is bad! By applying a bigger tax on gold, the Indian state hopes to dampen demand, which it will – to an extent. But insiders acknowledge that the government policy will lead to an increase in gold smuggling, further denying the government revenue and supplying the demands of the Indian people in an extra-government manner: heroic!
India’s Historical Love Affair With Gold
India is one of the world’s oldest civilizations, and gold has long been part of its cultural history. There is an ornamental demand for gold, as it is used in traditional Indian weddings and other ceremonies. But as the Indian people work harder and harder to lift themselves and their country out of the poverty first imposed by the British Empire, and then maintained by their own backwards socialist government, they are turning away from fiat money and losing their trust in the state. This can only be bullish for the Indian economy, long-term.
Thirty years ago, both China and India were large, overpopulated economic backwaters that were barely on the U.S.’s radar. Now, much of the world’s manufacturing has moved to China, and many service industries have moved to India. As everyone has their eyes on nominally Communist China, perhaps they should keep their focus on India, which has skipped ahead of the manufacturing stage of economic development and, which despite being nominally socialist, has a culture of deep distrust of the government (unlike China). Individuals are buying gold in the name of freedom, and everything the Indian nation has done to improve its lot has been in spite of its government, not – as is arguably the case with China – because of government policy. What can Americans and the rest of the West do about this? Emulate the Indian people and buy gold – and silver!