Is the USELESSNESS of gold an advantage for it being money?

Economics Economics Questions
1

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?

2

You have that one backwards. Gold was used as money because it had value before being used as money. It was a commodity before being used as commodity money.. “Gold is de facto a fiat money(NOT)”.

3

Exactly, hence Mises’ regression theorem.

4

I thought you said gold has industrial uses ?

5

Arguments #1 and #2 are not mine! They are arguments I’ve met on less informed forums that this. Those arguments are very wrong, yes. When i say “basically correct/true”, I give them more leeway than they deserve.

But lets not refute those two already refuted arguments here. I want to focus the discussion here on the (relative) USELESSNESS of gold!

Yes, gold HAS industrious uses. But they are so ridiculously unimportant, that it makes gold the least useful metal in the world! (save maybe some very radioactive metals, which anyway are too unstable to function as money). Sure, gold could be used instead of copper wire. But it would have higher resistance and there are thousand times more copper around anyway (although almost all gold has been mined for its money value, not for its industial usefulness). And I did argue that the PROPORTIONS matter.

If iron was money, production costs of many items would be affected by the money use of that same metal. But with gold being money, there are virtually no industrial side effects at all! Even if all gold disappeared from the face of the Earth, industries would continue as if nothing has happened. But if iron, copper, mercury or even silver disappeared, we’d experience huge disruption in the organisation and productivity of our industries.

Let’s say that I am challanging the “regression theorem”! (So I’d better take a look at that one[8-|]) Even though that soundstoo academic for me. But PLEASE spell out in this thread how my proposal is wrong! I don’t know if gold had value before it became money. Did Mises know that?

To me, it seems that the important characteristic differentiating gold from paper, is that the supply of gold is (nearly) constant (increasing only by mining activites). Whether gold has non-monetary value or not, seems quite inconsequential to me. And as I argue, the FACT that gold is the CHEAPEST metal from a purely non-monetary industrial point of view, rather STRENGTHENS its competition against other potential money goods.

6

#1 is nonsense.

#2 is lessened with fractional reserves and credit money.

7

Those solutions solve a non-problem, so those solutions are problems in themselves.

8

Firstly, the idea that money should be useless flies in the face of logic. Nobody is going to trade their homes, crops, or labor for something they esteem as useless.

Secondly, it’s high time we acknowledge that silver and platinum are far more reliable as stores of value than gold.

9

I don’t mean that MONEY be useless! I simply argue that “the metal” gold be pretty fncking useless if it wasn’t for its use as money.

Does that logic fly in your face [censored]Like my cum does on pretty faces?[/censored], mister Quote??? Even then if so, then please tell me HOW!

10

That’s nonsensical. Something can not be “de facto fiat”. Fiat means, by decree. No one has decreed gold to money, it simply is as a result of individual choices.

Gold had value because of its use in jewerly and other metal working. It gains additional value from its use as money. Many (keynesians) believed that when the dollar was unlinked from the gold, that the price of gold would fall to its “non-monetary” value. Of course, the opposite has happened, the dollar has plunged.

11

Yes, both arguments which I presented are false. I’m sorry if THAT wasn’t obvious for all readers. If I failed to make that clear, we might all here waste hours and hours with trying to make that point after the fact. Or ultimately fail to even relate to the point I wanted to make. So help us God, and forum trolls…

"Gold had value because of its use in jewerly and other metal working."

DID I NOT JUST TELL YOU that the value of jewelry is non and zilt, unless the jewelry IS MONEY??? Make an economic experiment if you wish, and give your bride a ring of iron, painted with gold, on your wedding day. Then tell me and the rest of the world about you experiences… (But it LOOKED good, didn’t it? So whats wrong here, hmmm)

“It gains additional value from its use as money.”

“additional value”?? You’ve gotta be kidding me! Additional TO WHAT! How useful would gold be if gold wasn’t money? PLEASE explain that to me! What is the value of gold as a place holder in the mouth of tothless people (and even that can be viewed as SAVINGS rather than industrial CONSUMPTION of gold).

Of course, Yes, and my grand capital investment strategy is still to wait for gold to “bottom out” at $35… (No, I’m just kidding you of course! We two DO live on the same planet.)

And pardon my French, if I ever spoke any of it…

And PEACE to you to (or rather PACE since I’m a bit “forward leaning” right now…)

12

Yes, you did tell us that the value of jewelry is “non and zilt, unless the jewelry is money”

Its just that this is false…

If it did not have any value before being used as money, no one would have chosen to use it as money. This is an extremely simple fact that you would know if you knew Mises’s theory of regression. I suggest you look it up, I believe it will answer your question perfectly

13

The (chemical) INDESTRUCTABILITY of gold makes it almost perfectly non-consumable.

14

Thank you!

I will certainly examine that proposition. And I’ll do it this weekend! And then come back to ya’ all here.

But is it really that hard for anyone of you to explain why a USELESS good wouldn’t be prefered to any useful good as the medium of money? If so, l why didn’t the MOST USEFUL metal, like iron, become money?

15

No, it’s the other way around. Gold is pretty and scarce, that’s why we value it. Then we use it for jewelry. Then we use it as money.

Eh ? All elements are chemically indestructible. They take part in chemical reactions but can’t be chemically destroyed.

16

And THAT is preciely the hypothesis which I challenge!

Why would gold metal be appreciated more than what odd looking stones and roots are? Why? Please don’t tell me again THAT, but please inform me WHY!

Well, I’ve told you twice or trice, haven’t I???

I said, that jewelry isn’t decoration. But that jewelry is symbols of value. I.e. FIRST did this metal become money. And only thereafter did it becom jewelry! Are you spaceman able to relate to that argument AT ALL??? Do you mean that “odd roots” could become money because they are so cute???

Gold never ever “takes part” in any chemical reaction! Please read up on your subject!

If you think about it a moment, you might realize that elements like iron or oxygen are indeed very “destructable” as pure elements. Because they tend to form molecules with whatever comes close to them. You could show off iron as a swrd, or as rust. That’s how iron relates to its world around.

But Gold NEVER does that! Gold is always only available in its pure non-chemical shape.Gold is indeed indestructable.

17

You keep saying this, but it is wrong. Jewelry is not valuable because it is money.

Here: http://mises.org/etexts/EconReasoning.pdf

Read chapters 8 and 9, or at least pages 154-159

18

So YOUR thesis is that “any art” becomes money?!

I doubt it. Why then is copper less beautiful than gold?

Cesium too has a non-“whitish” color, so why isn’t cesium metal money? It too is beautiful…

19

I’ve always thought the fact that gold is rare, difficult to find, so generally one can’t simply gather it at whim to survive made it a valuable medium of exchange. You cannot counterfeit gold easily, and it has properties to identify it - thus why the hypothetical wife would discover an iorn ring and we don’t already just fool her. These are the properties of gold which make it useful as a medium of exchange.

20

if you are talking to me, then no… that is not my thesis at all. I dont even understand what you are talking about

The book I listed had the criteria for what makes good money, and what is therefore most likely to be used as money in a free market (gold and silver)