Why is Gold Worth Anything!?

Grek

What about will we here?

sabretoothtigger

If you are lucky Mr Peston might pop up on tv and say something maybe but here is a bloomberg story

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aI4fr1DhjXRc

The International Monetary Fund’s executive board approved gold sales of 403.3 metric tons valued at about $13 billion and pledged to avoid disrupting the market with the transactions. The IMF said it would “stand ready to sell gold directly to central banks.” The sales could also be conducted in the open market in a “phased manner” over time, the Washington- based lender said in an e-mailed statement today.

I didnt know they were washington based, the last vestige of a gold standard

Grek

Very interesting! Thanx for this link.

biderex

Goweld!!! All goweld!!!

jdemaistre

In response to the OP, this excerpt from a conversation between Louis James and Doug Casey might be of interest:

Aristotle defined five reasons why gold is money in the fourth century BC (which may only have been the first time it was put down on paper). Those five reasons are as valid today as they were then. A good form of money must be: durable, divisible, consistent, convenient, and have value in and of itself.

L: Can you elaborate on that?

Yes, and from them, we can draw inferences that will help us anticipate the fate of the dollar.

First, let’s take durable. That’s pretty obvious – you can’t have your money disintegrating in your pockets or bank vaults. That’s why we don’t use wheat for money; it can rot, be eaten by insects, and so on. It doesn’t last.

Divisible. Again, obvious. It’s why we don’t use diamonds for money, nor artwork. You can’t split them into pieces without destroying the value of the whole.

L: If I paid for a new Ford GT with the Mona Lisa, what would be my change – a small canvas by Picasso?

[Laughing.] That’s right. Maybe you’d get millions of those paintings of Elvis or Jesus on velvet.

Consistent. The lack of consistency is why we don’t use real estate as money. One piece is always different from another piece.

Convenient. That’s why we don’t use, for instance, other metals like lead, or even copper. The coins would have to be too huge to handle easily to be of sufficient value.

Value of itself. The lack here is why you shouldn’t use paper as money. Actually, there’s a sixth reason Aristotle should have mentioned, but it wasn’t relevant in his age, because nobody would have thought of it…

L: It can’t be created out of thin air.

Right. Not even the kings and emperors who clipped and diluted coins would have dared imagine that they could get away with trying to use something essentially worthless as money.

L: I think we can forgive Aristotle for the oversight.

I think so. At any rate, these are the reasons why gold is the best money. It’s not a gold bug religion, nor a barbaric superstition. It’s simply common sense. Gold is particularly good for use as money, just as aluminum is particularly good for making aircraft, steel is good for the structures of buildings, uranium is good for fueling nuclear power plants, and paper is good for making books. Not money. If you try to make airplanes out of lead, or money out of paper, you’re in for a crash. That gold is money is simply the result of the market process, seeking optimum means of storing value and making exchanges.

Casey is Chairman of Casey Research, LLC., publishers of Casey's International Speculator. James is Editor of International Speculator. The rest of the conversation can be read at Lew Rockwell's website.

donshale

jdemaistre wrote: »

In response to the OP, this excerpt from a conversation between Louis James and Doug Casey might be of interest:

Casey is Chairman of Casey Research, LLC., publishers of Casey's International Speculator. James is Editor of International Speculator. The rest of the conversation can be read at Lew Rockwell's website.

Aristotle defined five reasons why gold is money in the fourth century BC (which may only have been the first time it was put down on paper). Those five reasons are as valid today as they were then. A good form of money must be: durable, divisible, consistent, convenient, and have value in and of itself.

L: Can you elaborate on that?

Yes, and from them, we can draw inferences that will help us anticipate the fate of the dollar.

First, let’s take durable. That’s pretty obvious – you can’t have your money disintegrating in your pockets or bank vaults. That’s why we don’t use wheat for money; it can rot, be eaten by insects, and so on. It doesn’t last.

Divisible. Again, obvious. It’s why we don’t use diamonds for money, nor artwork. You can’t split them into pieces without destroying the value of the whole.

L: If I paid for a new Ford GT with the Mona Lisa, what would be my change – a small canvas by Picasso?

[Laughing.] That’s right. Maybe you’d get millions of those paintings of Elvis or Jesus on velvet.

Consistent. The lack of consistency is why we don’t use real estate as money. One piece is always different from another piece.

Convenient. That’s why we don’t use, for instance, other metals like lead, or even copper. The coins would have to be too huge to handle easily to be of sufficient value.

Value of itself. The lack here is why you shouldn’t use paper as money. Actually, there’s a sixth reason Aristotle should have mentioned, but it wasn’t relevant in his age, because nobody would have thought of it…

L: It can’t be created out of thin air.

Right. Not even the kings and emperors who clipped and diluted coins would have dared imagine that they could get away with trying to use something essentially worthless as money.

L: I think we can forgive Aristotle for the oversight.

I think so. At any rate, these are the reasons why gold is the best money. It’s not a gold bug religion, nor a barbaric superstition. It’s simply common sense. Gold is particularly good for use as money, just as aluminum is particularly good for making aircraft, steel is good for the structures of buildings, uranium is good for fueling nuclear power plants, and paper is good for making books. Not money. If you try to make airplanes out of lead, or money out of paper, you’re in for a crash. That gold is money is simply the result of the market process, seeking optimum means of storing value and making exchanges.

I have to say that is the most comprehensive and practical answer on this thread!

The only point on which I would take issue with Aristotle (intellectual light weight) is the point about "of value in itself" as in the context of asking why gold is worth anything, that is a circular argument. But otherwise it seems sound.

jdemaistre

That's true - what I posted is more about why gold is money. The real point is that gold has uses in and of itself (jewellery, industry, electronics, medicine). Paper money has a little value, too, since it could e.g. serve as fuel, or as (not very good) notepaper. But generally the value assigned to it by the Government is much greater than its value as a piece of coloured paper, so you'd be nuts (and breaking the law) to burn your fivers for warmth.

DiggerUK

Quote
"Value of itself. The lack here is why you shouldn't use paper as money. Actually, there’s a sixth reason Aristotle should have mentioned, but it wasn’t relevant in his age, because nobody would have thought of it…"

L: "It can’t be created out of thin air."
.............................................................................

This is were Aristotle failed to complete his argument.
Instead of clearly explaining that it was the labour used in the production process that gave anything value. He just claimed it as some magically imparted gift of nature, not exactly taking it out of thin air, but as good as.

It wasn't just that it was a long time ago and we have developed since then, you have to keep in mind that he lived in a Slave Society.
It would have been inconceivable to the ruling class at the time to acknowledge that an article not even considered one of "the people" a real human being, could impart value to anything. Slaves were the untermensch of the day don't forget.

We had to wait for the classical economists of the 18th and 19th centuries for "Labour Theories of Value and Wealth Creation".
That explains why anything has value, and why gold is valuable.

laehc

Yes gold has value through a kind of general agreement about it, but it's worth bringing up the three functions of money:
1 a medium of exchange
2 a unit of measure
3 a store of value
Cash is usually better than gold at 1 & 2, but not so good at 3, partly because it's easier for governments to make new cash than it is to dig up more gold.
Gold is regarded as more recession-proof than silver (for instance) because it has less industrial use, and because it's regarded as more recession-proof than silver because... etc.
Finance is often a bit circular. If you're ever stuck in a lift with George Soros, ask him about reflexivity.

DiggerUK

laehc wrote: »

... If you're ever stuck in a lift with George Soros, ask him about reflexivity.

I wrote the Encyclopedia Reflexivity.
Who's George Soros?