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Why do we value gold?
- dschiptsov 13y agoIn evolutionary biology and anthropology "Everything is the way it is because it got that way".) Gold was cross-culturally "evolved" (due to ancient trade and customs) to be recognized as a precious metal suitable for garments, wealth storage and, consequently, payments for no other reasons but being good enough.
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- Heliosmaster 13y agoI like to think that Bitcoins are much more similar to gold than dollars, and yet everyone makes comparisons with modern currencies.
- notahacker 13y agoSure, because people don't buy and sell things with gold, they buy and sell things with modern currencies. They do so because well-established legal frameworks ensure future demand for the currency to pay taxes and meet debt obligations, and also keep the supply in line with demand. Sure, Bitcoins are similar to gold in being relatively, rare, but so are tulip bulbs. What matters isn't the restriction in the supply, but the sustainability of the demand. Gold sustained its demand over millenia not just because it was rare, but because people needed gold to meet future tax and debt-repayment obligations, or to purchase things from foreign lands. The number of people needing to receive BTC-denominated income in future, on the other hand, is negligible; virtually anyone [considering] providing real goods or services in BTC can cease to transact in BTC at any point they have doubts about its future value or liquidity.
- jere 13y ago>So what does this process of elemental elimination tell us about what makes a good currency? First off, it doesn't have to have any intrinsic value. A currency only has value because we, as a society, decide that it does. As we've seen, it also needs to be stable, portable and non-toxic. And it needs to be fairly rare - you might be surprised just how little gold there is in the world. >The demand for gold can vary wildly - and with a fixed supply, that can lead to equally wild swings in its price. Most recently for example, the price has gone from $260 per troy ounce in 2001, to peak at $1,921.15 in September 2011, before falling back to $1,230 currently. That is hardly the behaviour of a stable store of value. Basically describes what are and are not the problems with Bitcoin.
- eli_gottlieb 13y agoActually, that pricing behavior sounds a lot like bitcoin. The evidence is adding up that deflationary crypto-currency can behave a lot like bullion currency, and perhaps help us usher in a new sort of Bretton-Woods system to finally get the financial sector back under control.
- judk 13y agoWhat evidence is that?
- eli_gottlieb 13y agoMostly the consistent long-term rise in value punctuated by periodic panics that send prices crashing. As I understand, it was characteristic of bullion economies to behave that way.
- thetwiceler 13y ago> A currency only has value because we, as a society, decide that it does. For some reason, many people believe that this is true. I believe that it is not. Technically, yes, if people all decide the currency has value, then it will have value. But this is a ridiculous argument! How much is this currency supposed to be worth? According to this argument, any number is potentially valid! This means that there is absolutely nothing that should hold the value of the currency fixed, and with a few "no free lunch" arguments (anyone can claim any random thing has value and try to trade with it), we see that things with no intrinsic value should NOT have value. So why does the US Dollar have value? It's just paper (cotton), right? Not true! If the exchange rate of the dollar decreases, you'll see the Federal Reserve will start trading some of its goodies from Fort Knox (gold, etc.) for US Dollars, in order to maintain the dollar's exchange rate/value. So in reality, the US Dollar is backed by holdings that have intrinsic value. EDIT: As pointed out, I should mention that another important backing of the USD is taxation. Also, what I said about the Federal Reserve isn't technically true. What's important is that they have a mission to moderate the rate of inflation of the USD (i.e., maintain its value), and their asset holdings are critical in allowing them to do this.
- agumonkey 13y agoIf I'm too off-topic feel free to ignore this question. Isn't it more valuable to have knowledge and energy sources ?
- seanhandley 13y agoYes, but they don't operate well as exchange mediums.
- achamayou 13y agoHow so ? Gold isn't just a currency/exchange medium, it's a valuable material on its own in many ways. Neither bitcoins nor dollars are, they're not commodities turned currencies, they were always meant to be currencies and nothing else.
- knowitall 13y agoBy that logic the whole computer industry is worthless because it's comprised of worthless ones and zeros.
- agumonkey 13y agoBy own material value do you mean for electronics, and thus for us now ? But what about centuries ago ? Someone suggested me that gold doesn't rust and that stability was interesting as a long time token. But I don't find any usage beside the social status gem.
- achamayou 13y agoIt works particularly well as a social status gem, because it's at the same time malleable (ie. easy to work with), shiny-looking, and not easily corroded. It's relatively easy to authenticate (compared to a bitcoin for example), and seriously hard to fake (unlike, say, a dollar). Anyway the point wasn't the merits of gold over currencies, just pointing out the fact that it has a real status as a useful commodity, in a way that purpose-built currency doesn't. That means, among other things, that demand for jwelery in India for example, or changes in electronics manufacturing processes are bound to affect its price. That makes it quite different from other currencies.
- math 13y ago"Most recently for example, the price has gone from $260 per troy ounce in 2001, to peak at $1,921.15 in September 2011, before falling back to $1,230 currently. That is hardly the behaviour of a stable store of value." There are many who believe gold is somewhat of a proxy to the probability that at some point there will be complete lack of faith in fiat currencies (combined with the belief that it will be an acceptable substitute in such an eventuality). If that is the case, the price volatility of gold has in fact a lot to say about the viability of fiat currencies as a stable store of value.
- nhaehnle 13y agoCorrection: The price volatility of gold has a lot to say about contemporary belief in the stability of fiat currencies.
- CmdrKrool 13y agoYeah, that statement suffers from an unquestioned assumption that dollars are the definitive, correct measure of value. It takes two to make a currency pair and if you were to look through the lens the other way it would seem like the dollar that is wildly swinging about in value, not gold. I like the word 'value' as a signifier of what a person or people desire and ascribe worth to; both gold and fiat currencies attempt to measure this, and neither is perfect. I wish people would be more dilligent at keeping these concepts seperate, but y'know, rhetoric. (See also the idea that GDP - which of course exists completely in fiat currency terms as a gross numerical figure - has its flaws as a measure of what humans actually value: http://www.globalexchange.org/resources/econ101/gdp http://www.globalexchange.org/resources/econ101/gdp )
- notdrunkatall 13y agoWe began valuing gold because it's shiny, doesn't degrade over time, and it's rare. We still value gold because we always have.
- akallio 13y ago> Nixon made his decision for the simple reason that the US was running out of the necessary gold to back all the dollars it had printed. That's the whole problem right there. The ~~counterfeiting~~ quantitive easing is simply too attractive to the congresscritters to allow a little honesty to get in the way.
- nhaehnle 13y agoEconomics is not a morality play, and connecting money to gold has nothing whatsoever to do with honesty. Look, the most important point of money is to facilitate economic exchange. Yes, rentiers want to store their savings somehow, but there's a reason that the word rentier has negative connotations. Facilitating economic exchange requires that the amount of money correlates with the size of the economy. Fiat currency can do that (thanks to bank loans, which can shrink and expand based on endogenous demand from the economy), and gold-based currency cannot do that. It's really as simple as that.
- jes 13y agoWith respect, may I ask what the reason actually is, that the word rentier has negative connotations?
- nhaehnle 13y agoBeing a rentier means having income without working. Traditionally, this was because you inherited wealth, e.g. in the form of land. Most people's sense of distributive justice has some aspects of desert theory, i.e. people tend to believe the economic distribution should align with what people deserve, where the latter is typically defined via what their contribution to the economy is. From that perspective, rentiers have undeserved income, hence the negative connotations.
- jes 13y agoI appreciate your helpful reply. Thank you.
- phreeza 13y agoAn interesting, mildly related tidbit is that certain types of seashells were used as currency in large parts of the world until about 150 years ago. [0] Probably occupying a similar sweet-spot: rare but not too rare and robust. An additional feature (or bug) would have been the inherent quantization. [0] http://en.wikipedia.org/wiki/Shell_money http://en.wikipedia.org/wiki/Shell_money
- tokenadult 13y agoThe argument for why a medium of exchange (a currency) needs to be transportable and relatively nondestructible goes all the way back to Aristotle, in the West. (Similar arguments about silver surely must have appeared in Chinese culture, long ago.) I'm sorry not to follow my usual practice of providing references here, but I guess I think it is drop-dead obvious that not all features that give something value necessarily make that thing a convenient medium of exchange for trade. The particular argument in the article kindly submitted here (well worth a read, even if you have read all the comments here) takes a good look at the properties of gold as contrasted with other chemical elements, and points out what features gold (and silver) have that most other elements do not share.
- NAFV_P 13y agoCurrently I'm studying accountancy, so the concept of monetary value has suddenly become important to me. I had pondered it in the past, but not to a great extent. A currency only has value because we, as a society, decide that it does. As we've seen, it also needs to be stable, portable and non-toxic. The second sentence contradicts the first. Portability is very important to the effectiveness of a currency, especially in times past when our modern communication methods did not exist. Currency represents an agreement as well as a quantitative value. The ten pound note currently in my wallet is a liability that the Bank of England owes to me when demanded. This is far more convenient than having to call up the Bank of England and demand a portion of their liability every time I go and buy a pack of ciggies (another viable currency, if you are presently incarcerated). A similar argument applies to another whole class of elements, the radioactive ones: you don't want your cash to give you cancer. Regarding Uranium 238, this has a very long half life (roughly the same as the age of the Earth) and it is an alpha-emitter. Radioactive effects of alpha-emitters are usually only toxic if ingested or inhaled, whereas a strong beta-emitter can burn your skin in sufficient amounts. The chemical toxicity of Uranium is a far more serious issue. If the potential radio-currency is highly radioactive, it would lose its value very quickly. Of the four main decay series, three result in lead.
- icebraining 13y agoThe ten pound note currently in my wallet is a liability that the Bank of England owes to me when demanded It is? How can you make that demand, and what will they give you in return?
- NAFV_P 13y agoI'm reading that very same ten pound note. On the side which bears the image of Queen Elizabeth II, it says: Bank of England I promise to pay the bearer on demand the sum of TEN Pounds Regarding what is returned... Whatever I buy with the ten pounds is what I get in return from the seller. When I pass the ten pound note over, the Bank of England now has liability towards the seller, not myself.
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- Notre1 13y agoNPR 's Planet Money did a good episode (<20 minutes) on this topic: http://www.npr.org/blogs/money/2011/02/07/131363098/the-tuesday-podcast-why-gold http://www.npr.org/blogs/money/2011/02/07/131363098/the-tues...
- JoeAltmaier 13y agoI imagine some day we will have 'currency' backed in real things - Terabytes maybe, or Petahertz. Something fungible you could use and trade.
- jes 13y agoInteresting article. The article claims that gold has no intrinsic value. I may be wrong, but I can't think of any entity that has intrinsic value, or, "value in and of itself." On the other hand, I can think of countless things that have value in relation to other things, such as, a loaf of bread and a hungry man. Could it be that gold makes a good currency, and a good currency makes trading easier, and people value the ability to trade with one another, and therefore, gold has value?
- rodrigocoelho 13y agoI value gold because you value gold.
- jheriko 13y ago"Chemically, it is uninteresting - it barely reacts with any other element." What a bad start, this is chemically very interesting... :) The whole article comes across this way to me, it starts from a bad hypothesis and then continues to make baseless assumptions until it reaches its desired conclusion. :/ It explains a load of reasons exactly why gold has value, then claims that this is not intrinsic? Interesting read though... I do enjoy that we have abandoned gold and silver standards, although knowing this does make me wonder why our leaders are so terrible at managing the economy. We made it easy for ourselves, and now we have politicians selling us the idea that its complicated to fix...
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- olalonde 13y agoGold's market price is completely disconnected from its simple "intrinsic" value. How much gold would you buy if you were never allowed to sell or trade it? Maybe a pair of earrings? If you own more gold then the amount you answered, you effectively believe that gold is worth more then its "intrinsic" value (for example, you could believe it has value as a medium of exchange or a store of value).
- jheriko 13y agomaybe i just don't know what i'm talking about, but i feel there is a disconnect, but its not clean - its because of the intrinsic value that it is such a 'tradeable' thing. the prices of many things are driven by supply and demand, and i'm not going to disagree with that, but the article gives far too much weight to that side of it imo and poisons me against it with sloppy wording. without the intrinsic value there would be no demand... its not like, e.g. bank notes, EPNS or copper coins, whose value is almost entirely due to trading and very nearly completely disconnected from their intrinsic value. even then they inherit some of their value from their durability and utility in that arena... tbh, i've only ever bought gold for cosmetic reasons... i know very well that gold contacts and radiators are generally a sales gimmick rather than beneficial.
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- drakaal 13y agoThe real history. A Play By Brandon Wirtz: Nearly 20,000 years ago a man said said, "we have to stop trading seashells, they are to plentiful, people just go get more of them, and they break" "Fine what do you propose we use?" "Have you seen this shiny yellow stuff? You can form it with heat and it stays shiny forever." "That Gold stuff? yeah It is pretty. I like Pretty things. But there isn't that much of it, and it is hard to find." "Yes, that way we can control how much of it there is, so it will have value. No one will be able to just wander down to the ocean and pick up more. And we'll make different sizes of it so that we know how much each is worth" This is why we use Gold. Because it was the first metal we could work with, it is scarce enough, and requires enough skill that only certain people (usually a government) can issue coins of it. You can still trade the raw stuff, but to fewer people and with out the trust of the minter you get a lower price for it.
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- mistercow 13y ago>Aluminium is ... just too flimsy for coinage. Nonsense. The Japanese one yen coin is aluminum, and it holds up just fine.