I hear some economics arguing that currency should be pegged to gold as a way of ensuring that its value isn’t arbitrary / volatile but I don’t understand how this would solve the problem. I understand that gold is a scarce resource that is difficult to mine but is it this alone that gives it intrinsic value ?
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I think it’s easy to confuse different things here.
Inherent value means something has value for itself rather than what you can exchange it for (you could also call it “use value”). When it comes down to it, people like shiny things and gold is really shiny. But it’s also good for things like making jewelry, decorations and for electronics.
Some of this value does comes from the fact it’s fairly rare: people like rare things, they feel special. Other aspects don’t depend on its rarity: if gold became super common people wouldn’t stop using it for electronics.
The second aspect is gold’s exchange value: what you can get in exchange for something. Gold has a fairly stable exchange value. That *is* closely linked to its rarity, or perhaps more accurately how *stable* the supply of gold is.
The fact that gold has inherent value to people is much less important to its exchange value than this stability in the supply. Imagine if the amount of gold suddenly increased by 50%. It would still be useful and it would still be a relatively rare metal, but its exchange value would crash.
When it comes down to it, a lot of the exchange value of gold can be viewed in the same way as regular money. It has value because people believe it will continue to accept it in exchange for things and believe the supply will be fairly stable. The inherent value of gold is a red herring. It’s almost impossible to imagine a world where gold is only valued for its inherent value and not also as a kind of money. Because gold has been used as money for thousands and thousands of years.
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