Not withstanding the recent price decline, gold is indeed an inflation hedge, and a good one when long-term trends are considered.

The graph below reveals gold's ability to hedge money-supply inflation. Going back to 1998, you can see that the price of gold has increased in near-lockstep with the growth in the world's money supply.

Gold is a good inflation hedge because its price appreciates with money-supply growth. But gold has one major shortcoming, it doesn't generate cash flow, and that's a weakness because it limits gold's ability to generate wealth. Gold, properly speaking, is an asset, not an investment

Given gold's inherent shortcoming, I believe there is a better asset to hedge inflation. The asset maintains purchasing power while building wealth.

A solid dividend-growth stock is the better inflation hedge, and the better wealth-producing asset. I'll demonstrate by way of example, though data-mined as I'll freely admit it might be. 

An investor can chose from a multitude of quality dividend-growth stocks, but I’ve chosen ExxonMobil (NYSE: XOM) because investors understand its business and because of its longevity.

When investors think of inflation hedges (consumer-price or monetary), gold, silver, hard commodities, and real estate spring to mind. Rarely does a dividend-growth stock. Yet a dividend-growth stock just might be the best inflation hedge. 

Returning to ExxonMobil. In 1971, the energy giant (then not ExxonMobil, or even Exxon, but Standard Oil of New Jersey) paid a $0.118 per-share dividend based on a split-adjusted average price of $2.30, which produced a 5.1% yield. Today, ExxonMobil pays $2.76 per share in annual dividends, which yields roughly 2.9%. ExxonMobil’s annual dividend has increased an average 7.4% over the past 44 years.

ExxonMobil’s dividend growth isn’t spectacular, but it’s good. Sometimes good is good enough. An investor who bought and held ExxonMobil shares for the past four decades receives more in dividends today than the initial cost of his investment in 1971. In other words, each year the investor realizes a 120% return on his $2.30-per-share investment on dividends alone. Then. of course, there's the cumulative dividend income received over the years. 

As predictably as night follows day, share price follows income when income rises. Investors rationally bid up the share price to capture a rising income stream. ExxonMobil again proves my point. Its shares exchange hands at around $97 today, and have appreciated at a roughly 9% average annually since 1971.

Now, I chose 1971 as my anchor year for a reason. In 1971, the United States officially abandoned the gold standard – the Federal Reserve was free to print money (or at least it abandoned  the charade that it previously wasn't able to freely print). That year, you could have bought an ounce of gold for $40. Through 2014, gold has appreciated at an 8.2% average annual rate. Gold has beaten consumer-price and monetary inflation, to be sure, but not as well as a share of ExxonMobil stock. 

One protest assured to arise is that gold is no one's liability. The shortcoming in that argument is that it comes perilously close to imbuing gold with an intrinsic value. As all good Austrians know, all value is subjective, including gold's value.  For the vast majority of us, gold's subjective value is based on its exchange value. 

Though we can debate whether gold is an actual commodity, I'll slot it into that category nonetheless to embellish a point.

All commodities outside of food and fuel have very little use value to consumers. A commodity's value is primarily determined by someone else manipulating it to raise its subjective value to consumers and higher-level producers. Copper, silver, palladium, even timber hold no use value to me.  Without an ExxonMobil, oil would hold no value. Without ExxonMobil, U.S. Steel, Intel, or any number of companies that turn raw commodities into higher-level production or consumer goods,most commodities hold no subjective value.  . 

Many investors view commodities as haven investments. They view them as inflation hedges and stores of value, particularly in times of extreme economic turmoil. I disagree; I don't view them as havens in the least. If society were to so devolve that it became devoid of ExxonMobil and all other commodity-elevating companies, most commodities would end up worthless. They would serve as neither inflation hedges nor stores of value.  

The Federal Reserve (and every other central bank) can inflate till its heart's content, but a commodity's value will not outrun the value off the companies that elevate that commodity to either a consumer or higher-production goods. 

When Tesla Motors announced intentions to build a $5-billion battery factory somewhere in the Southwest this past March, I knew -- as sure as a politician will arrogate another person's accomplishment -- government operatives of the states in play would respond with a cornucopia of tax breaks and other monetary incentives. I'm sure Tesla executives were equally prescient on the political Pavlovian response, because that's exactly what happened -- and a bidding war ensued. 

Six months hence we've been informed that Nevada has won (or lost?) the war, and is working to incorporate the coveted Tesla factory that will manufacture power few of us want within its landmass, but not before committing $1.3 billion of other people's money to Tesla's coffers over the next 20 years. Republican Governor Brian Sandoval, he of the putatively free-market party claimed the "investment" would change Nevada's economic climate and spur $100 billion in economic benefits over the next 20 years.Which Keynesian economist whispered $100 billion into Governor Sandoval's ear, I have no idea. Anyway, it's a nice round, impressive number... even if it is totally fabricated. 

Of course, most large corporations are competent political entrepreneurs, but here Tesla has one up on the competition. Tesla has the advantage of political correctness. Politicians so want Tesla to succeed that Tesla not only has its foot in the door, but three-quarters of the attached leg to boot. Politicians simply want a plausible reason (no matter how spurious it may appear to those without a political agenda) to give Tesla other people's money so the politicians have a big shiny factory to point to come election time. 

That's good news for Tesla, because if it were not for political patronage,the company would be as market relevant to consumers as a whaling harpoon. It continually loses money, so something is amiss in its business plan. Tesla appears to follow the confused merchant's mantra when it comes to selling cars: We lose money on every sale, but we make up for it in volume. And it loses money on every sale despite a $7,500 head-start (federal tax credit) on the competition. When you peruse the 10-K (pages 23 through 58 are particularly enlightening), you get a sense of the extent the business model is built on government largesse and privilege.

To be sure, start ups frequently lose money out of the gate, and then for years afterward, before earning a profit. But most are predicated on reality -- make it in the market, or else. Tesla's business of the battery-powered car (and even batteries in general) is predicated on a chimera and wishful thinking that's existed since the late 19th century. Yes, even then people wanted to populate what roads there were with automobiles powered by Nikola Tesla's new discovery. (This alone should  provide insight to the forward thinking of government and the businesses it supports: 19th-century electric cars, 12th-century windmills, 5,000-B.C. solar power.)    

The same problems that existed in 1899 persist in 2014: the power plant remains grossly expensive and grossly inefficient. To replace the battery pack on the Model S will run over $30,000. And if the battery pack lasts over 100,000 miles, as Tesla claims, the efficiency of the pack on mile 100,001 will be far inferior to that at mile one.

Buy a Tesla, get 300 miles a charge on day one; day 1,500 get 150 miles a charge. Over time, all batteries continually lose their ability to hold a charge. A brand new Honda 2.4L DOHC I-4 engine, on the other hand, gets over 30 miles to the gallon and will easily last to 200,000 miles with little lost of efficiency if properly maintained (which doesn't take much). To replace Honda's clean-burning 185-HP gem (highly unlikely) with a new unit will cost around $8,000.  

Whatever supplants the internal-combustion engine, if anything, is unfounded in 19th, 20th, and early-21st century technology. It resides in the future, and it is likely on no one's radar at the moment. But never mind. As long as investors and politicians continue to believe in unicorns, and have no compunction about funding monuments to unicorns, Tesla Motors will exist. The risk is that one day they will stop believing and stop funding. After all, faddish thought is fickle.

Independent-minded citizens of Scotland, Catalonia, and Venice have amplified their intention to break free of their respective unionist leaders in London, Madrid, and Rome. They no longer wish to tolerate tyranny imposed from a faraway burg by people with faraway ideas. Would it be so bad if their separatist mission gained momentum, crossed the Atlantic, and established a beachhead on U.S. shores? Would many independent nation-states be preferable to one United States? 

Girth has forever been the enemy of utility, efficiency, and liberty. The Mongol Empire and the Ottoman Empire were great vessels of terror imposed to exult glorified thugs. Republicanism and democracy, though less prone to such boundless cruelty, are limited palliatives. The democracy of a large nation is more tyrannical than the democracy of a small nation. Rome the city-state was preferable to the Roman Empire. A democracy of a large nation is depressingly more tyrannical than a benevolent monarchy of a small nation. (Having spent time in Monaco, I speak from experience.)

Massive size necessitates massive conformity – and, therefore, massive deformity. Everyone is fitted with a similar foot-binding shoe. The larger the nation, the more binding the shoe must become. The Affordable Care Act was simply another tug in the continual tightening of the laces.

Binding to conform is nothing new in the great big United States. Over the decades, the U.S. Code has swelled to a shelf-buckling 200,000 pages, and the swelling only progresses. The Federal Register, the great enabler of the dreary bureaucrat, comprises 80,000 pages. Only relentless growth in legislation and regulation can subjugate 3.794 million square miles of territory and 317 million people to the edicts of one tiny consolidated east-coast locale.

So much for the federalists, who believed a large landmass populated with people holding contrary opinions would lead to permanent political gridlock, and thus widespread equanimity. Quid pro quo reigns instead. This dull game of reciprocity has a homogenizing influence on society. The political class is best served when the United States is a melting pot, when a tossed salad would better do.

Over 3,000 miles separate Bangor, Maine and Bakersfield, California. Nearly the same distance separates Amsterdam and Abu Dhabi, yet few people recommend that all the turf and the subjects occupying the turf between Amsterdam and Abu Dhabi come under one central authority.

So if not between Amsterdam and Abu Dhabi, why between Bangor and Bakersfield? People of Maine and people of California have some leeway on the margin for self rule, but not much: Highways, drinking age, education, occupational laws, licensing, wage rates is an infinitesimal sampling of how Maine and California are tightly bound, whether they like it or not.

But if people of Maine and California were free of a centralized United States government, why should they still be bound by legislation and regulation covering their respective land mass? Portland and Bangor should wish to be tied together by roads and aircraft, but why by legislation? The same holds for Bakersfield and Sacramento, or any metropolitan combination. Why demand conformity and ensure discord?

In my home state of Colorado, Boulder and Colorado Springs are less dissimilar than Amsterdam and Abu Dhabi, but more dissimilar than Bangor and Bakersfield. In Colorado Springs, the number of conservatives easily exceeds the number of liberals. Boulder's government, in contrast, is awash with democratic socialists. Only 100 miles separate the two cities. The state of Colorado envelopes both. As it is, citizens of Boulder and Colorado Springs can only hinder each other, because all must wrangle to satisfy their wants in the state political maw in Denver. Unsatisfactory compromise and enmity ensue.

It need not be that way. A Colorado Springs cattle rancher might frown upon a Boulder software developer's position on gun control, while a Boulder software developer might frown upon the rancher's position on abortion. They disagree on most issues, even all issues. So be it, go your own way.

But despite their differing views on morality and convention, cooperation is still possible – and very probable. Commerce is the great civilizer. Because Colorado Springs and Boulder are each small land masses, political demands for autarky would never arise. Trade would be a necessity to satisfying wants. The cattle rancher values the developer's inventory-management software; the developer values the rancher's filet mignon. Where they agree, they come together. In the process, comity blooms.

Of course, permanence is fleeting, as is taste: Should Boulder become too democratically socialist for the software developer, or Colorado Springs too conservative for the cattle rancher, each could more easily decamp to a nearby competing jurisdiction. Perhaps neighboring Fort Collins offers a more appealing mix of socialism and market incentives for the Boulder socialist's changing preferences. (A few citizens in Weld County, which is home to Fort Collins, openly pushed to break free of Colorado to form a new state.)

Simply put, smallness enables mobility when compromise becomes intolerable. The United States declares war on Germany and Japan, what is a U.S. conscript living in Kansas to do? Perhaps he could escape, with great effort and risk to life and limb, to Canada or to Mexico, where it's likely the culture and social structure in both countries would be unsatisfying. The choice between being miserable and possibly dying and simply being miserable is hardly optimal.

In a world of many self-governing metropolises, war would be an infrequent event whose impact on the world at large would be minimal. War between Boulder and Colorado Springs would be implausible, if not laughable, as would war between Andorra and Monaco or San Marino and Liechtenstein. And if a strain of people are continually seduced into belligerence, the conflict remains meaningless to most of the world. Who outside the South Sudan cares (and by “cares,” I mean endures sleep-loss worry) if the Dinka tribe and the Nuer tribe are again warring?

On the other hand, war between Spain and France, or Germany and Italy, or the United States and Russia is a matter with grave consequences. I might not want to care about a war in Europe, but with the collateral damage so extensive, I have no choice but to.

A quote (possibly apocryphal, but insightful nonetheless) attributed to Barry Goldwater speechwriter and libertarian philosopher Karl Hess distills to one crude but cutting sentence why smaller is better. Though it unfortunately adheres to Godwin's law, it's worth repeating nonetheless: “Hitler as chancellor of Germany is a horror; Hitler at a town-hall meeting is an a**hole.”

If nations were formed so everyone in government were readily knowable and accountable, open to scrutiny and ridicule, effortlessly replaced, no one could easily ascend beyond Hess' latter observation. As it is in large nation-states, too many can ascend beyond both.