Why do we place such high value to things such as gold and diamonds? Wouldn’t it make sense to put that value on things that are more “useful”?
In: Economics
Gold is the key one here. Why is gold valuable? Three factors come together: it’s pretty, which drives demand for jewelry, etc. It’s scarce but not _too_ scarce : demand can easily outpace supply, but there’s enough for everyone to know what it is and for it to have cultural significance. It’s inert: it doesn’t rot or rust, and it can be melted down and reformed over and over again. You can bury it in the ground and dig it up 1000 years later and it will still look the same.
All these things come together to explain why gold has been valued as a method for storing wealth for ages. It starts out with people digging up and refining gold in the early days of metalworking, and valuing it for its beauty. But it’s rare, so it’s extra valuable because more people want it than can get it. This just puts it on part with a huge amount of rare-but-valuable luxury goods that people have valued down through the ages.
But because gold doesn’t rust away or rot, it’s just really convenient as a store of wealth. If you have some gold you can be sure when you come back to it it’s still all going to be gold, even if you chucked it in a hole in the ground, even if it got wet, even if it got dropped or otherwise mistreated. There’s not a lot of things that work that way.
Try to store your iron coins and you may come back to a lump of rust, that’s not happening with gold.
Another really handy thing about gold is that you can melt and cut and recombine it without losing value. The mass of gold has the same innate value no matter what shape it’s in.
Gemstones in general are in a similar position as gold…they are relatively rare, pretty, and relatively inert. That gives them some of the same value. But gemstones (and diamonds in particular) are subject to more trends in fashion and supply changes (and monopolies) and they are also not as infinitely dividable and recombinable as gold. They are more of just your standard luxury good that people value because it’s rare and pretty. ”’
Now as for why we don’t put value on useful things:
We do put a lot of value on things that are useful…there are a number of metals that are more valuable than gold and have some niche industrial use. But things that are useful tend to not be as good for _stores_ of wealth. For one thing, useful things tend to be too common to make a good store of wealth. You don’t build an industry around a super rare material unless you have no other choice. More importantly though, the value of a useful thing depends on how useful it is, and that’s variable. Maybe someone finds a new way to make a widget without your expensive material, and the value plummets because that was most of the demand. Maybe widgets just get replaced by some new technology. The value of your useful thing could plummet at any moment due to technological change. Gold, on the other hand, has a few thousand years of appeal to people, it’s not likely to lose its demand due to some market shift
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