I, and probably many of you, have at times come across the following two arguments against using gold as money:
#1) Gold is de facto a fiat money because gold would be useless if it wasn't money. People have agreed to use gold as money, or states have decided so. Only therefor does gold have value. So there would be no real difference if the same was agreed upon by people, or decided by government, about PAPER instead of gold. Before Gutenberg, kings printed their faces on gold coins. After Gutenberg they print their faces on paper. Fiat as fiat. Same same.
#2) Using gold as money imposes on society the alternative cost of not being able to use gold industriously. With gold being money, gold metal would be laying around in bank valves instead of doing good use out in the factories. Therefor, a society which could replace gold with paper money would be better off. The GDP would increase by the industrial productivity of gold metal.
I'd say that argument #1 is basically correct. One only needs to be aware of the vast difference between government commandos, and the choice of free individuals. And the huge risk of paper being mass produced by commando, which would be impossible with gold, being as it is a basic element. But indeed, if people really prefered paper over gold on a free market, then so be it, no Austrian would argue about that. I basically brought up anti-gold argument #1 because it states that "gold is useless" in contrast to the next anti-gold argument.
Argument #2 is basically true, I'd say. But one must understand the PROPORTIONS here. Gold IS actually almost totally useless from an industrious point of view! It is not chemically reactive (there cannot exist any molecules with gold in them), so that leaves electric applications. But there both silver and copper are better conductors, and since they exist in thousands of times greater quantity, a total withdrawal of gold from the market of conductive metals would give negligable impact (actually, none at all). Sure, gold doesn't oxidize, so there are some applications for switches in corrosive environments. But there are alternative technologies for that and human kind doesn't really stand and fall with the maintenance costs of outdoors electric switches. And yes, there are some exotic atomic nucleous properties of gold which accounts for the kilogram or so demand a year for research laboratory uses.
What about jewelry then? I'd say that gold is jewelry BECAUSE gold is money! The purpose of jewelry is to symbolize wealth. A gold painted iron ring won't make your bride very happy on the wedding day! Why? It LOOKS exactly like a solid gold ring? Well, precisely because it isn't solid money, and that is what your bride wants (no offense meant for you and your wife though, it's cultural, you know!) But sure, if gold wasn't money, it would still have some artistic value. Just like some "artists" collect funny looking stones and roots today.
I would like to suggest that the uselessness of gold was a key competitive advantage for it becoming money on a free market! Because gold is useless, there are no alternative costs for withdrawing it from industrial uses. Gold as a substance not only have the famous practical "money properties" (homogenous, recognizable, dividable, portable, indestructable et cetera), but gold is also THE CHEAPEST METAL!
I never saw this argument being made before (does anyone have a refernce to it?). Do you think it is valid? Should "uselessness" be added to the traditional list of "competitive properties which made gold money" in the text books?
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ProudCapitalist:If gold wasn't money, it would not be attractive as jewelry either. Gold would lie around like (other) useless stones.
like rubys, jades shapphires,emeralds and pearls; i suppose.
they arent widely considered money and are found in plenty jewellery.
please find another argument.
gold is not 'useless'. perhaps you dont have a use for it, but that does not mean others dont.
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nirgrahamUK:gold is not 'useless'. perhaps you dont have a use for it, but that does not mean others dont.
Really? Then please list all those potential uses of gold!
There are no chemical uses whatsoever. And electrically, gold is a worse conductor than the enormous quantities of copper and silver around. Gold can indeed be used as a "place holder" for a missing tooth. So it does compete with plastics and ceramics, in very very small quantities.
One can't even make useful knife out of gold, nor a shield which cannot be smashed by one blow from an iron sword. It's the most useless metal, and hence it has a decisive competitive advantage over all other metals for being used as money.
dont ask me, I have no use for gold aside from its monetary value. ask a person who has gold who would say that he likes it not entirely because of its monetary value.
you are just being silly and using the word 'useless' in a ridiculously narrow sense.
Well, it seems to be very difficult to make any meaningful conversation here.
But take a look at argument #2 in my first post. What are actually the alternative costs of using gold as money? What would the alternative cost be if we instead used copper as money? Can noone here see the point I'm trying to make???
oh, so now that we arent using gold for money, we can use it for all its non-existant uses. it is useless afterall.
we would use copper if we wanted to use copper.
certainly copper money mght be used to facilitate trades and store value (it has done this in history) where the value of the item(s) are relatively low compared to gold.
ProudCapitalist, you're being a fool. Calling gold the cheapest metal is absurd. It is money because it is rare, and people have, for thousands of years, valued it. You're saying its useless, and therefore good as money. We're saying its good as money, and therefore extremely useful. You make two arguments in your first post, both of which are incorrect, yet call them true. Then you go back and forth throughout your posts either refuting them or claiming them again. I dont think you have a solid position, nor a straight line of thought on this matter. Gold is money because the market desires it to be money, because for thousands of years people have valued the rare, pretty element. No matter how much you want to question the market's decision making, gold/silver are perfect choices as money.
JParker:Gold is money because the market desires it to be money
If you are done pointing out THE BLEEDING OBVIOUS, then maybe you are able to come into the game here, and start discussing WHY precisely gold is prefered by the free market!?
I have argued that a decisive advantage of gold money is that the gold metal is USELESS! I haven't said that it is WORTHLESS. Because gold is useless, there exists no alternative costs for using it as money (instead of using it for what it's good for: nothing at all). Thus far, no one here has even commented this argument. Why? Has no one here understood it? Is my English that bad?
If copper was money, then the production of electric appliances and power cables would become more expensive, since alot of copper will lie unused in bank vaults. Many electric appliances would not be produced at all, since it would be more profitable to simpy use the copper as money instead. When savings increase (the demand for holding money), so would the cost of producing electric goods. Using copper as money would cause widespread destruction to the economy. But since gold is useless, there are no such side effects for using gold as money. There are no applications which compete for the use of gold.
ProudCapitalist: Well, it seems to be very difficult to make any meaningful conversation here. But take a look at argument #2 in my first post. What are actually the alternative costs of using gold as money? What would the alternative cost be if we instead used copper as money? Can noone here see the point I'm trying to make???
Are you saying that gold has no value, as in it would be absolutely free, if it werent used as money?
If so, you are wrong. Not only is it common sense that gold is shiny and durable, and would therefore have some value to some people, but we can know that it must have had some value regardless. Gold was used as money in circumstances other than by decree, that is, on the free market. Praexology tells us that it is impossible for a valueless object to arise as money naturally. Mises told us this, and his views are summarized in the link i provided that you did not bother to read.
If you agree that gold had some value besides as money, but just very little, then that is something different. I am not sure exactly if this is true, but it is irrelevant that/if gold is less industrially useful than other metals. All that matters is that gold fulfilled the criteria for what makes good money better than the other metals. That is, it is durable, exists in a good amount (not too rare or too common), is divisible, etc. The "usefullness" is not a factor - it only matters that it has some value. Gold and silver are better than copper and iron, for example, because they are more durable and are not too common. They also are/were widely acceptable because of their beauty.
Please read the section in An Introduction to Economic Reasoning I linked you too. This is a very simple section that should only take like 15 minutes to read, and you will understand why people are calling you a fool.
You did not come up with a great new theory, you are just misunderstanding the basics.
ProudCapitalist:If copper was money, then the production of electric appliances and power cables would become more expensive, since alot of copper will lie unused in bank vaults. Many electric appliances would not be produced at all, since it would be more profitable to simpy use the copper as money instead. When savings increase (the demand for holding money), so would the cost of producing electric goods. Using copper as money would cause widespread destruction to the economy. But since gold is useless, there are no such side effects for using gold as money. There are no applications which compete for the use of gold.
Its true that there would be less side effects for industry if gold was used than copper. but that is not WHY gold is the most likely to be chosen by the free market.
I’m going to have to go along with Juan.
I suspect many if not most of our readers here read LewRockwell.com? Here’s an article from our old friend Bill Bonner that supplements this discussion:
http://www.lewrockwell.com/bonner/bonner364.html
Best regards,
Samarami
Because gold has no uses,
Which is nonsense.
there is no alternative cost for using it as money.
More nonsense.
Gold is actually the cheapest metal, the most useless of all metals.
ipse dixit.
Now, aside from trying to ascertain some Objective (TM) value for gold based on some Objective (TM) notion of use, why don't you try look at it from a praxeological POV? If it is of value to an agent, it is because it fulfills a use, whatever that may be. Aesthetic value is not precluded...
To darkness I condemn you...
Gold has some objectively defined uses, none of which in themselves means Gold is more valuable than a loaf of bread by default. It's the situation that defines the value, not the value that defines the situation.
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BobT: ProudCapitalist:If copper was money, then the production of electric appliances and power cables would become more expensive, since alot of copper will lie unused in bank vaults. Many electric appliances would not be produced at all, since it would be more profitable to simpy use the copper as money instead. When savings increase (the demand for holding money), so would the cost of producing electric goods. Using copper as money would cause widespread destruction to the economy. But since gold is useless, there are no such side effects for using gold as money. There are no applications which compete for the use of gold. Its true that there would be less side effects for industry if gold was used than copper. but that is not WHY gold is the most likely to be chosen by the free market.
Correct me if I am wrong, but doesn't coppers don't stay in bank and instead loaned out?
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BobT:All that matters is that gold fulfilled the criteria for what makes good money better than the other metals. That is, it is durable, exists in a good amount (not too rare or too common), is divisible, etc. The "usefullness" is not a factor
Of course the alternative cost is a very very important factor! It represents the cost of withdrawing gold from other uses, and instead use it as money. The uselessness of gold makes it the "cost leader" among all metals compeeting to become money.
Shining, homogenous, divisable et cetera are qualities shared by ALL metals. Sure, the indestrucability of gold is an advantage. And that very property also makes gold useless. It doesn't react, it just sits there. The softness makes gold easier to divide, yes, but it also makes gold useless as a weapon or shield for example. How common a metal is, is of course irrelevant per se. The difficulty of producing more of it, however, is relevant. Since gold is relatively rare, it is more sensitive to inflation in the form of new production. The silver stock is for examle much larger than the yearly new production of silver, and hence the amount of silver is more constant. So rareness is to the DISadvantage of gold. But its uselessness obviously makes up for it.
ProudCapitalist:he difficulty of producing more of it, however, is relevant. Since gold is relatively rare, it is more sensitive to inflation in the form of new production. The silver stock is for examle much larger than the yearly new production of silver, and hence the amount of silver is more constant. So rareness is to the DISadvantage of gold. But its uselessness obviously makes up for it.
Not exactly true, its rarity ensures that it would be hard for the supply to be suddenly inflated. Also, after the harvesting of all the gold near the surface, mining more gold was an extremely difficult task for preindustrial economies thus ensuring that there would be, ceteris paribus, a relatively slow influx of gold into the economy.
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