3 ms·

Gold will always be valuable... How do you know? While I'm all for world & class asset diversification, the whole reason is because I/we don't know.

patrickg-zill 18y ago
1. It is needed for industrial/electronics purposes. 2. It is internationally recognized as being valuable, regardless of culture. That is, cultures as diverse as India, China, England, Russia, pan-Arabic (i.e. non-Jews in the Middle East) have all viewed gold as having value, and that over at least 1000 years of recorded history each. 3. It does not corrode or rot the way paper money does. In Israel they recently found some Byzantine-era gold coins, aside from the obvious numismatic/collector value they still retain value for the gold itself. 4. Gold does not require a government to enforce its value. It's value is innate or intrinsic to the thing itself. As such if a government falls or decides to modify the value of a paper dollar (as Mexico, Argentina etc. have done in the past) then the value changes. Gold that you have in your pocket cannot have its value modified by a government order.
- fallentimes 18y ago
  Great answer - thank you. If you have a blog/site you should definitely write about this.
  - davidw 18y ago
    The internet is full of gold bug blogs. Here's one response to the gold bug arguments, by Nobel prize winner Krugman: http://web.mit.edu/krugman/www/goldbug.html http://web.mit.edu/krugman/www/goldbug.html Even libertarians like Arnold Kling don't really have much time for the gold standard: http://econlog.econlib.org/archives/2007/01/the_new_deal_an.html http://econlog.econlib.org/archives/2007/01/the_new_deal_an.... (and in other articles) Generally, it's not regarded as territory for "serious economists", although of course it is always possible that serious economists are wrong.
    - bokonist 18y ago
      The two most interesting posts I've read in defense of gold are these two: http://unqualified-reservations.blogspot.com/2007/11/who-heck-is-benn-steil.html http://unqualified-reservations.blogspot.com/2007/11/who-hec... and here http://unqualified-reservations.blogspot.com/2008/02/return-to-castle-goldenstein-gold.html http://unqualified-reservations.blogspot.com/2008/02/return-... Both are much better than the Krugman piece.
    - Prrometheus 18y ago
      Selgin and White wrote some papers in defense of the gold standard. Hayek was sympathetic to a commodity standard, though not the classical gold standard per se. The gold standard, having been around for 2,000 years, is the constant subject of serious study by economists.
      - davidw 18y ago
        There are certainly a few serious, respectable economists who favor the gold standard - I said only that "most don't", not that anyone who does is a not a "serious economist". Incidentally, I think the "because we did it that way for a long time" argument is a terrible one. There are plenty of things we've done for a long time as humans and as societies that aren't very good, and are worth discarding. I don't think the gold standard is a good idea myself, but in the arguments for it, there are better ones than that one.
        Prrometheus 18y ago
        That's not a good argument for the gold standard, but it is a good argument for studying it as a serious monetary policy.
      - curiousgeorge 18y ago
        Not really. The last nail in the coffin of serious research on the gold standard was "Golden Fetters" by Eichengreen. It has a phenomenal and indisputable country-by-country timeline showing the cycle of deflationary behavior stopping during the Great Depression in country after country shortly following (4-6 months) the effective abandonment of the gold standard. One can argue that N=20 is not significant research, but there is a reason no-one will take you seriously if you do. I personally haven't met anyone who has argued for the gold standard and has read it although that may be a comment more on the academic backgrounds of the people who used to write pro-gold stuff and stuff it into my inbox back in college than the theoretical basis of the argument. So while gold may have a place as an investment (especially as a hedge against inflation) in large part people who spend considerable breath on extolling its virtues using words like "intrinsic value" and "stability" and "natural" are kooks. Their choice of the word "natural" is also odd since gold coinage is hardly more natural than paper and in fact is less easy to control the asset base. When economists talk about not repeating the mistakes of the 1930s, they are by and large talking about the importance of maintaining liquidity in the system to prevent deflationary spirals, and avoiding liquidity traps. They are also cognizant of Keynes' proof that Say's Law does not work once people want to start doing things like holding liquid assets, and the dismal performance of things like the zero-inflation policy in Canada and other countries through the 1990s. I'm amazed by the number of Internet libertarians who have jumped on this bandwagon.

patrickg-zill 18y ago

1. It is needed for industrial/electronics purposes. 2. It is internationally recognized as being valuable, regardless of culture. That is, cultures as diverse as India, China, England, Russia, pan-Arabic (i.e. non-Jews in the Middle East) have all viewed gold as having value, and that over at least 1000 years of recorded history each. 3. It does not corrode or rot the way paper money does. In Israel they recently found some Byzantine-era gold coins, aside from the obvious numismatic/collector value they still retain value for the gold itself. 4. Gold does not require a government to enforce its value. It's value is innate or intrinsic to the thing itself. As such if a government falls or decides to modify the value of a paper dollar (as Mexico, Argentina etc. have done in the past) then the value changes. Gold that you have in your pocket cannot have its value modified by a government order.

fallentimes 18y ago
Great answer - thank you. If you have a blog/site you should definitely write about this.
- davidw 18y ago
  The internet is full of gold bug blogs. Here's one response to the gold bug arguments, by Nobel prize winner Krugman: http://web.mit.edu/krugman/www/goldbug.html http://web.mit.edu/krugman/www/goldbug.html Even libertarians like Arnold Kling don't really have much time for the gold standard: http://econlog.econlib.org/archives/2007/01/the_new_deal_an.html http://econlog.econlib.org/archives/2007/01/the_new_deal_an.... (and in other articles) Generally, it's not regarded as territory for "serious economists", although of course it is always possible that serious economists are wrong.
  - bokonist 18y ago
    The two most interesting posts I've read in defense of gold are these two: http://unqualified-reservations.blogspot.com/2007/11/who-heck-is-benn-steil.html http://unqualified-reservations.blogspot.com/2007/11/who-hec... and here http://unqualified-reservations.blogspot.com/2008/02/return-to-castle-goldenstein-gold.html http://unqualified-reservations.blogspot.com/2008/02/return-... Both are much better than the Krugman piece.
  - Prrometheus 18y ago
    Selgin and White wrote some papers in defense of the gold standard. Hayek was sympathetic to a commodity standard, though not the classical gold standard per se. The gold standard, having been around for 2,000 years, is the constant subject of serious study by economists.
    - davidw 18y ago
      There are certainly a few serious, respectable economists who favor the gold standard - I said only that "most don't", not that anyone who does is a not a "serious economist". Incidentally, I think the "because we did it that way for a long time" argument is a terrible one. There are plenty of things we've done for a long time as humans and as societies that aren't very good, and are worth discarding. I don't think the gold standard is a good idea myself, but in the arguments for it, there are better ones than that one.
      - Prrometheus 18y ago
        That's not a good argument for the gold standard, but it is a good argument for studying it as a serious monetary policy.
    - curiousgeorge 18y ago
      Not really. The last nail in the coffin of serious research on the gold standard was "Golden Fetters" by Eichengreen. It has a phenomenal and indisputable country-by-country timeline showing the cycle of deflationary behavior stopping during the Great Depression in country after country shortly following (4-6 months) the effective abandonment of the gold standard. One can argue that N=20 is not significant research, but there is a reason no-one will take you seriously if you do. I personally haven't met anyone who has argued for the gold standard and has read it although that may be a comment more on the academic backgrounds of the people who used to write pro-gold stuff and stuff it into my inbox back in college than the theoretical basis of the argument. So while gold may have a place as an investment (especially as a hedge against inflation) in large part people who spend considerable breath on extolling its virtues using words like "intrinsic value" and "stability" and "natural" are kooks. Their choice of the word "natural" is also odd since gold coinage is hardly more natural than paper and in fact is less easy to control the asset base. When economists talk about not repeating the mistakes of the 1930s, they are by and large talking about the importance of maintaining liquidity in the system to prevent deflationary spirals, and avoiding liquidity traps. They are also cognizant of Keynes' proof that Say's Law does not work once people want to start doing things like holding liquid assets, and the dismal performance of things like the zero-inflation policy in Canada and other countries through the 1990s. I'm amazed by the number of Internet libertarians who have jumped on this bandwagon.