The Hindu Business Line : Fool’s gold

When the curtain rises, we see this clown sitting sadly at one end of a see-saw, while its other end, empty, is on top of the world. Even as we watch a tonne of gold descends from the skies on the empty end, pulls it down to the depths – and catapults the now ecstatic clown into orbit.

Fantastic? Definitely. But believe it or not the story is a true one.

Spain turned south in the mid-15th century because North America, discovered earlier, proved a huge disappointment. The continent had nothing to offer. No ready money was in sight.

South America, however, proved a gold mine. A hundred years after the docking of its first ships, Spain had amassed gold and silver worth $1.5 trillion at 1990 prices. Twenty times as much as world GDP.

This sudden spurt in Spain’s wealth did wonders for world GDP, the growth of which had long been shackled for want of money.

But as fate would have it, the income of Spain itself spiralled down.

Inflation triggered by the large and sudden influx of good-as-gold money caused a serious setback to domestic production.

Till just the other day, Spain was as competent as anyone else. It still was. But it was no longer as competitive.

It was cheaper to import goods into Spain than manufacture them domestically. Exports, too, were no longer an economic proposition.

So, the country found itself forced to let her silver flow from her ‘as rain from a roof.’ This torrent created millions of jobs in other countries, helped them build up their productive capacity.

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Fool’s gold