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 ?
In: 115
Unlike other metals, it does not tarnish. Also, it’s very dense so it just feels significant.
It has certain qualities that other metals don’t have. It doesn’t oxidize, it looks pretty and it’s quite sturdy. That gives it inherent value. The reason why it’s often seen as “stable” is because there’s a finite and steady supply of gold in the world.
Why it serves as an economic standard has lots of reasons. Gold is a tangible thing which you can easily exhange for money in nearly every country, that makes it a very steady investment. It’s similar to real estate in that way because there will always be a demand for gold. In times of economic crises, people turn to gold because it’s generally unaffected by market fluctuations. Also, because investors know this and will buy up more gold, its value rises in bad economic times.
There’s not a lot of gold on Earth. So finding it is special. Gold has a shinny and attractive color that people like to wear as jewelery. Unlike other metals, gold doesn’t rust because its not craving to give away or gain electrons in order to be stable. It’s also hefty but maleable. Gold’s melting point is low, requiring the amount of energy that even non technological civilisations can afford.
Finally, gold is an excellent electric conductor while an excellent thermal conductor as well. Gold has been used for trade for centuries. So people are used to consider this element as something special.
Edit: sorry, wrote insulator instead of conductor in a hurry. My bad.
For the most part? Because it’s pretty.
It’s relatively easily found in it’s “native” form — that is, as a metal and not a rock that must be smelted before you can get the metal. Not in great quantities, sure, but it was probably one of the very first metals we ever worked. But it wasn’t *useful* – it couldn’t be used for armor, weapons, clothing, or tools. It was just pretty.
So you have an uncommon and unique material that is easily shaped (compared to stone and gems) and not really able to be used for anything particularly useful related to survival. Look at that, you have a status symbol.
Gold has become pretty useful in the modern era due to its relationship with electricity, but that’s pretty recent. Historically gold has been valuable because gold has been valuable and we’ve never been able to mine enough of it to make it less valuable.
There’s a *lot* of stuff that’s valuable because it’s rare/uncommon and of little utility, and thus boasts of your ability to waste resources on something other than utility.
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.
Gold is liked everywhere where there is civilization. It’s used for lots of things everywhere, even in places where U.S dollars are worth less than they are in America.
Its inherently valuable because of supply and demand, gold is worth $100 since someone out there is willing to pay $100
so really I’d argue no more or less inherently valuable than anything else. obviously gold has been valuable for.. all of recorded human existence? so does make it more ‘inherent’ than some random currency that has only been around for a couple hundred years or so
I mean obviously, its shiny, doesn’t tarnish, etc etc etc but that all just boils down to supply and demand in the end, if people want it, if it can be traded for other things, etc..
50 people with no food stranded on an island with tons of gold but limited food wouldn’t value it at all and it would be pretty worthless, the value isn’t REALLY inherent
There’s nothing inherently valuable about gold. It’s just that it’s less volatile than currency due to the fact it needs to actually exist in the physical world to be used – it’s not just numbers printed on paper or miantained in a computer system. That makes it less prone to change in value, both because it’s more difficult to add more gold to the market, more difficult to destroy it, but also because this unwieldiness has a psychological effect: gold is more stable because people consider it to be more stable. And all that contributes back to its value as a stable form of wealth in a volatile world.
> I hear some economics arguing that currency should be pegged to gold as a way of ensuring that its value isn’t arbitrary / volatile
Are you sure it was an economist who said this? There are some fringe political movements that want to do this, but it isn’t really something you hear from academic economists. There are very few things economists agree on, but a gold-backed currency is just a strange and arbitrariy choice and it’s difficult to make an argument that it would help achieve an outcome that anyone wants.
The main arguments you hear in support of the gold standard from non-economists are (1) rose-tinted-glasses views about how good life was in the 50s and 60s, and (2) weird conspiracy theories about how the current monetary system works (to be clear, financial institutions are often engaged in nefarious conspiracies – Enron, Libor, Wirecard, the entire cryptocurrency industry, etc., etc. – but the ones alleged by these people don’t make any sense).
> I understand that gold is a scarce resource that is difficult to mine but is it this alone that gives it intrinsic value ?
It has value because it is useful for a variety of purposes, such as making jewellery and electronics, along with all kinds of niche industrial and medical applications. However, much of its value comes from people believing that it is valuable and wanting to invest in it.
Besides the other properties mentioned, gold is also relatively hard to fake, thereby reducing counterfeits.
You can add silver which was hard to detect until Archimedes was handed the problem by a king who gave a jeweler some gold to make a crown. The king suspected the jeweler added silver and kept part of the gold for himself. Archimedes knew silver and gold have different densities, but since he didn’t know calculus he couldn’t determine the volume of the crown. That is until one day as he was getting into a bath and realized that he displaced the same volume of water. Legend has it he jumped out and ran naked down the streets of Athens shouting:”Eureka!” (I’ve got it!)
Apparently the crown was adulterated, but it is unclear what happened to the jeweler.
Latest Answers