If Aristotle and Aquinas team-taught an economics seminar, they might have put the textbook case this way:
All booms end up a bust.
Gold is in a boom.
Therefore, the gold boom will end up a bust.
Investors, however, have not been reading their textbooks.
The price of gold, which many analysts thought overvalued when it hit $300 an ounce two months ago, crossed the $400 barrier this week and shows no signs of an imminent decline. In fact, some analysts say that unless things change, the price of gold could hit $500.
A rise in the price of gold, by itself, is no reason to fret. While gold is important to some industrial processes, it is hardly a key industrial metal.
But because gold is in short supply -- in large part the result of investor hoarding -- it is hard to come by these days at any price. So, in increasing numbers, investors are buying other metals like copper and zinc as well as non-metal commodities such as sugar -- with grains, soybeans, cocoa and other foodstuffs beginning to feel the frenzy.
These metals and commodities are important to the overall economy. Unless the spillover of the gold spiral to other markets is slowed, there could be a serious impact on overall inflation.
In other words, gold, which conventional analysis says is the current hedge against inflation, is becoming a vehicle for inflation.
The U.S. has the power to stop the rise in gold prices.
Witness the steep, albeit short-lived drop in gold prices Tuesday when Federal Reserve Board Chairman Paul A. Volcker left the International Monetary Fund meeting in Belgrade amid rumors the U.S. was readying a package to halt the rise in gold prices and the flight from the dollar.
It appears now that those rumors were unfounded.
Standard analysis has it that gold interest has been piqued by the inability of Western nations to cope with inflation in general and oil prices and consumption in particular. Investors no longer want out of just the dollar. They want to flee all paper currencies.
And when they shuck those currencies, investors turn first to the yellow metal that has obsessed Egyptian Pharoahs and French peasants.
Investors began to buy gold in earnest several months ago, analysts say, because its price was going up faster than the rate of inflation.
Treasury Secretary G. William Miller, as part of the administration's policy of benign neglect toward gold, gives support to the standard argument. The price of gold will decline, Miller says, when the nation gets its inflation under control.
But as long as gold drives up other commodities, benign neglect may insure that inflation never abates.
Nor can the rise in the price of gold be explained satisfactorily, any more, in terms of hedging. Since August the price of gold has risen more than 30 percent. Consumer prices have gone up just over 2 percent.
It is more than a hedge. Possession of gold has become an investor mania, a psychological problem that must be dealt with by government.
There no longer is a gold market. To have a market, there must be buyers and sellers. As Leslie Deak -- of the major gold trading firm Deak Perera -- laments, "There are no sellers." Instead, gold is being bought and hoarded.
No one knows for sure who is doing all the buying and stashing. Today, in what must be considered the early stages of a gold panic, investors large and small are sitting on their gold bars and coins.
But the latest gold price spiral was touched off by the very same Middle East interests that brought you the 1973 oil price spiral.
In 1973 those interests colluded to restrict the supply of an otherwise plentiful commodity, aided by some wasteful and panicky practices among the industrial consumers.
They need not have colluded to orchestrate a gold price spiral. Unlike oil, gold is not a plentiful commodity. As one trader put it, "You could take all the gold that has ever been mined throughout history and it probably would fit in the auditorium of the New York Met."
So a few months of buying and hoarding by oil-rich Middle East and Far East interests could remove enough of the metal from the market to make supplies tight. And when the supplies got tight, prices began to rise, sharply.
Then the psychology took over and the gold price boom began to feed on itself.
More than one trader has recounted privately how he was burned betting that gold was overpriced and would decline. "I still think it's overpriced," one said. "But so are houses. I've become a true believer."
Small investors are now joining the bandwagon, undoubtedly egged on by morning rush-hour radio reports of the lates record gold-fixing in London or Zurich.
There are enough days that gold jumps $10 to $15 an ounce that most investors are not tempted to sell even on those rare days of late that gold posts a small decline.
There is so little gold around for trading, says Deak, that it takes quantum jumps in price to get anyone to sell.
The textbook economist has a solution to the gold psychology: Increase the supply.
Each year the gold mines in Russia and South Africa churn out millions of ounces of the metal. But production does not keep pace with industrial demand, let alone satisfy the swelling demand from investors.
Only the nation's governments -- with huge supplies left over from the days when gold was the base of the international monetary system -- could push enough supply into the gold market to break the psychology.
And indeed, both the International Monetary Fund and the U.S. Treasury do make regular sales of gold to the public. But the amounts are not large enough, in today's market, to do anything to the price.
But a large gold sale, or merely the threat of it, could serve either to break the gold fever or to keep it from getting worse.
Treasury Secretary Miller has maintained that the Treasury has no plans to boost the sale of gold beyond the 750,000 ounces a month it has sold since last April (half what it was selling last March when gold was $230 an ounce).
So, the administration that professes inflation as its chief concern does nothing while gold fever spreads to other commodities faster than lava ran down Mount Vesuvius.
Aquinas and Aristotle might have had something to say about that type of behavior. So might have Freud.