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?
It's not fascism when the government does it.
“We must spend now as an investment for the future.” - President Obama
Jon Irenicus: 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.
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.
Don't you ever have anything to say???
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...
Do you mean to say that the concept of "alternative cost" is foreign to praxeology?
OPPORTUNITY COST is the correct term in English (not "alternative cost"). Sorry for the confusion!
Proud, why do you think the market price of gold is high, relative to other purchasable/non-toxic substances measured by weight.?
gold is not currently legal tender, in any country with fiat currency. according to you it has no uses aside from monetary use. shouldnt therefore the fact that there are arbitrary barriers against using gold 'as money' have the effect of making gold less 'valueable' than otherwise.?
and of course it is a nonsense by Mises regression theorem (this is the M institute after all), gold could only ever have been adopted as money if it could have facilitated the indirect trade between those that supplied and demanded other goods. It could only do this, if there was sufficient demand for gold, that many people would hold it in the confidence that others would demand it in exchange for real goods, even though they themselves lacked non-monetary demand for it. gold was valuable(to some significant number of people) and so it made sense to adopt it as money. think of cigarettes in prison's. not everyone that trades them smokes them. but they are only trade as money because a significnat number want to be smoking them.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
nirgrahamUK:Proud, why do you think the market price of gold is high, relative to other purchasable/non-toxic substances measured by weight.? gold is not currently legal tender, in any country with fiat currency. according to you it has no uses aside from monetary use. shouldnt therefore the fact that there are arbitrary barriers against using gold 'as money' have the effect of making gold less 'valueable' than otherwise.?
Gold IS money, no matter what politicians say about it! Even today, I consider gold to be money, in spite of all legal obsticals that politicians create against its practical use. Gold has been money for much longer than the very concept of "legal tender" as existed. That won't change overnight. I claim that Gold is today valued for its money function, not for any other function (since there are none!)
I of course need to study this more closely, and elaborate on it, with the help of you guys here I hope, before I can seriously challenge the regression theorem. But maybe other goods than gold were first used as money, goods which had opportunity costs (i.e. alternative uses)? But then gold emerged as a superior standard for money because of its uselessness, its lack of other uses? I doubt that the hopeless uselessness of the gold metal, and the fact that gold is money, is just a coincident. And I think that the opportunity costs of money metals provides a good explanation for it.
As I see it, there are always several different kinds of money in all economies, even if the power of standardization probably makes one money much more dominant than the others. Like today both dollar and gold function as money. When gold, silver and copper all were widely accepted money, I would think that the much lower opportunity cost of gold would be a competitive advantage for it being prefered before the other money metals. With silver being money, interest rates would increase if the demand for (silver coated) mirrors increase. Such spurious correlations between the demand and supply of physical (metal) goods on one hand, and the demand and supply of money/savings/loan on the other hand, are detrimental to an economy (maybe not very seriously, but still it is detrimental to some degree). The uselessness of gold eliminates such correlations as efficiently as any fiat money system could ideally do, because gold is as useless as pieces of printed paper!
The only potential advantage of fiat money, would be that it frees up the money metal for industrial uses. But since gold has no industrial uses, even that is a moot point against gold money!
Its yellow, shiny, scarce, divisible.
Taras Smereka:Its yellow, shiny, scarce, divisible.
As are ALL metals!
Well, copper is more reddish, cesium more beige and the rest of the metals are shining whitish/grayish. But they are all shiny, scarce, homogenous and divisable. Actually many metals are more scarce than gold. And many are softer and therefor easier to divide than gold (for example lead). Gold has no advantage there. I argue that the advantage of gold as money, lies in it lacking usefulness and therefor is (non monetarily) the cheapest metal, the one metal with the lowest opportunity costs for money use.
Proud,
Maybe its because english isnt your first language, but you come off as a complete dick. Maybe work on that?
As to your arguments, they only hold water in modern times (where other metals have more use than gold). As I said in my last post that you seemingly ignored, gold is valued because of its histortical worth. Think ancient civilizations, where gold had more use than other metals, because it was ornamental. Sure, copper was used more in the copper age/iron in iron age/etc, but for thousands and thousands of years gold has been held in the highest value. Further, Austrians dont necessarily want gold to be our money. We want something non-fiat. If you want it to be iron (Completely finite, as it cannot be produced on earth, only comes from asteroids) then thats just fine. The reason gold is chosen is historical preference. We have something in our minds that looks at gold and say 'wow so pretty' and makes us want it.
Your argument about the utility of gold does support how a gold currency wouldn't damage industry, but it is not the reason we value gold.
gold is useless?
No....its one of the best conductors for electronics, thats why its used as wiring in super high end products.
There are other uses for it as well, but i fear it may be pointless to talk about them.
Not when I am addressing baseless assertions.
I'm at a loss to how this is relevant. You claim it is "useless". That is nonsense. Gold has very high value as a status symbol, as well as value in industrial uses. So how do you arrive at the conclusion that it's useless, when utility is a subjective notion to begin with? You may want to claim that it has few uses outside of being money, but that's not the same as saying it's "useless"...
To darkness I condemn you...
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Pry open your computer right now and look at the processor pins. Solid Gold.
Useless my ass.
ProudCapitalist:Really? Then please list all those potential uses of gold!
It is used as a coating for biological specimins to be viewed with a scanning electron microscope, it is a good reflector of electromagnetic radiation, it is malleable, it is heavily used in industry and electronics for good reason, it can be used as a decent heat insulator in things like engines, etc.
There are no chemical uses whatsoever.
False.
And electrically, gold is a worse conductor than the enormous quantities of copper and silver around.
Those metals aren't as corrosive resistant as gold, either, which explains why it is used in high energy applications that require resistance to oxidation and corrosion. This is one of the primary reasons the metal is used in industry and electronics as an electrical contact, in fact.
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.
Doesn't sound completely useless to me.
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.
It may not have a great application for medieval weaponry, but that hardly makes it useless. It is in fact a quite useful metal for several applications.
ProudCapitalist: (non monetarily) the cheapest metal, the one metal with the lowest opportunity costs for money use.
(non monetarily) the cheapest metal, the one metal with the lowest opportunity costs for money use.
It sure ain't no currency now, but it's damn expensive in terms of paper.
The difference between libertarianism and socialism is that libertarians will tolerate the existence of a socialist community, but socialists can't tolerate a libertarian community.
Who cares what precious commodity is used as a medium of exchange (ie. money)? Sea shells, salt, gold, cows. It doesn't matter! They can even all be used at the same time! THE KEY FEATURE IS THAT THE SUPPLY OF THIS NON-FIAT MONEY CANNOT BE SIGNIFICANTLY MESSED WITH BY THE KING/GOVERNMENT. I dispute your comment "Agreed upon by people or decided by the government...fiat is fiat." There is a HUGE difference between what people (the free market) voluntarily decide to use as a medium of exchange and what the government COMMANDS. A command is fiat. Free choice of individuals is not fiat. It reminds me of a Walter E Williams saying, "It doesn't bother me one bit if people decide they want socialism. Just leave me out of it." Being left out is not an option when the government decrees that pieces of paper must be treated as legal tender and accepted for the repayment of all debts.
Bonus gift. Here's a little story I wrote last week for my 13 & 11 year old kids to help them understand the Austrian business cycle theory. Hope you enjoy it.
The Three Little Pigs and the Federal Reserve Crisis
In their later years, they bought a yacht and sailed the seven seas. The three little pigs each had a bag of gold coins to spend at the various ports of call. The good life. No wolves, no Federal Reserve, no worries. Or so they thought...One dark and stormy night, they were shipwrecked on a deserted tropical island. They spluttered ashore each with their coin purses clutched greedily...
ONE YEAR LATER...
No one came to rescue them and after some trial and some error, they had established a common sense division of labor: each pig specialized in doing one thing so their combined output was more than if each had to do everything for himself. And they were able to trade with each other using their gold coins. It wasn t what you d call the good life anymore, but it was pretty good and it worked. Here is how: One pig cut down trees and fashioned them into good square lengths of lumber stored flat in his lumber shed. He became the Lumberpig and worked day and night making one good square-cut length of lumber every month (he only had one simple stone tool). Another pig, the Fisherpig, specialized in fishing from a small raft and offering fresh seafood for sale on the beach every day before lunch and surfing all afternoon. The third pig used a small bucket that had washed ashore to go back and forth to the spring in the middle of the island to collect water for sale to his brothers. They started calling him Bucketpig, or Buck for short. Buck would often join Fisherpig in the evening for drinks and fish feasts on the beach in front of a roaring fire of lumber pieces. All work and no play made Lumberpig a dull pig although he had saved up a respectable pile of lumber. Not huge, but respectable.
THE CAPITALIST PIGS DREAM...
Like many a businessman over drinks after work, Buck and Fisherpig would brag and tell lies to each other about the expansion plans they had and how they were going to hit it big. The truth was, they did each have a pretty good plan: Fisherpig was planning to plow his savings into new lumber to build a fishing boat with oars and a mast so he could get out to where the big hauls were. That way he could be finished getting a daily supply of fish for the island in the morning and start a tool making business on the side. For his part, Buck had in fact already drawn up plans for a simple lumber aqueduct to bring water in from the spring. He then would be free to work on his wind power idea (he was planning to stay specialized in Utilities). Each dreaming pig just needed 100 lengths of lumber. Each pig just had one problem: Lumberpig charged 1 coin per length and each pig only had about 50 coins in their piggy bank in a good month.
"Who could ever seriously save 100 coins anyway? Ah well," they each thought before going to sleep, "at least dreaming isfree.
FREE MONEY! REAL OR A MIRAGE?
One evening, their stories spent, Fisherpig and Buck gazed in silence over the blue green span of the lagoon. Something caught their eye. Do you see what I see Buck? Buck was already up on his hind trotters and half-way there.
"It s a treasure box washed ashore and filled with 200 gold coins!!...If you promise not to tell Lumberpig, I ll split it with you 50/50."
"Sure. You and I have just inflated the island's money supply."
"Yeah! I just love inflation, don t you? Especially when you get the new money first and nobody else knows about it!"
They laughed and feasted deep into the night. Each secretly planning to rise early the next morning to start working on their dreams! Dreams that would unfortunately turn into nightmares because of the treasure box's evil inflation that they didn t yet understand.
LUMBERPIG STARTS SELLING OUT OF INVENTORY
Day and night weren't enough time anymore for Lumberpig to keep up his inventory levels. In the past few months both his brothers had been placing about four times the usual volume of lumber orders. More money was good all right, but what he hadn't told them was that at this rate, he was running out of lumber! He kept his lumber shed locked up and no one knew the actual respectable quantity he usually had in inventory but him. Truth was, it was normally only about 100 lengths. And as hard as he worked, he couldn't work fast enough to make more than one length a month. He was down to 20 lengths left and stared up at the ceiling at night,
"What should I do? Fisherpig and Buck are each buying about 2 lengths a month. How many surfboards and bonfires do they need? In less than six months I ll be out of stock!!" He thought of raising his prices. "Hm mm. That would stop frivolous buying wouldn t it? Then the pig who needed the lumber most would pay the higher price, right? Sounds fair and even more extra money for me would be nice. No. I can t do that. I m not a greedy pig. I ll leave my prices where they are .maybe things will work out somehow if ...but...Zzz." And he fell asleep.Meanwhile, Buck and Fisherpig were each 40% done on their respective projects and going full steam. Little did they know, that in 5 months, Lumberpig was going to hit them with news that would have the impact of a 2x4 between the eyes.
FREE MONEY WASN T REAL AFTER ALL. IT WAS A MIRAGE. IT DIDN T CREATE NEW RESOURCES IT WAS EVIL INFLATION EVIL INFLATION THAT CONFUSED CAPITALIST PIGS INTO STARTING PROJECTS THAT COULD NEVER BE FINISHED
"Sorry Buck. Sorry Fisherpig. See for yourself," Lumberpig opened the shed door wide. "The lumber is all gone. I m sold out."
"AGGHHHH!!! NO!!!" said Fisherpig. "I m ruined! I used the raft lumber in my new boat construction that is only half done! Now I have nothing to fish with to make a living!! And Lumberpig, you made it worse! Why didn't you raise your prices right away to stop one of our projects sooner -- especially Buck's harebrained water slide!! So much extra WASTE!! -- just because you couldn't bring yourself to be greedy!!!...If only that phony inflation box had never appeared!!!", he sobbed.
"I m hungry," said Buck thoughtfully. "And you know what? I screwed up too. I've built a water bridge to nowhere. And, Fisherpig, you know what s funny about all this? If we hadn't been fooled by that box of inflation, you and I could have pooled our savings and actually completed one of our projects."
There was no fire on the beach that night. Not even a meager fish dinner. And three thirsty little pigs. Later they burned the inflation box to keep warm for a while.**THE END**Rev.1 Feb.24/09
You need only google or search for gold on wikipedia to find the numerous uses for gold. If you understand how money becomes money you would see why gold is the proverbial rising cream when it comes to monetary substances. My real question is with your two arguments. #1 gold is useless #2 its better gold is not used as money so it can be used by industry. pretty contradictory
I stated in a previous post, it's a matter of the situation that gives rise to the value of gold.
First and foremost, it's relatively stable in its supply, there's not likely to be a massive influx of gold from any current mining interests in a long time (unless any one of them figure out a way to get the nodules on the seafloor in an economical manner...). Second, it's pretty easy to extract for a metal compared to iron and other ore dependent metals (basically, gold doesn't bond to its source rock like iron or aluminium does...), so the cost of extraction is next to zero. Third, the subjective valuation of the metal by others (ex. "OOOOOOh so SHINY!" or "It's rare, therefore it's valuable...") compared to other metals pretty much makes it valuable (and because you as a miner don't have to do much the same complex extraction methods on its source rock, the cost to profit ratio for it is going to be pretty steep in your favor...).
Metals like copper because of perinniel(sp?) use pretty much makes gold the best choice for currency exchange. That doesn't mean it's useless, rather it means it's useless for most things of industry besides currency exchange, which it does damn well (because it's purity can be maintained fairly well, its cost to make portable is low, and its supply is sufficient to meet market demands for its use in exchange). This claim of uselessness is based on what I see as false sense of absolutism applied to utility (hint: utility is not absolute, it's situational/contextual), so I think it's best to disregard it entirely on the grounds that it misses the mark by a wide margin on the essence of utility.
If there's anything absolute, then if the market needs to be able to bear the changes in supply, technology, and demand, then at minimum it needs a means of exchange that can resist the changes. In essence, it needs something simple to acquire, cheap to make portable, and ample enough to be divided into smaller units for variable exchange rates. And it seems gold fits the bill. If there were other sources (which there are and they too have been used in the past), they would fill the same purpose. Today, it's gold, so get over it. Tomorrow, it might be TP if Obama fudges things up any worse.
"The power of liberty going forward is in decentralization. Not in leaders, but in decentralized activism. In a market process." -- liberty student
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