Gold - a six thousand year-old bubble(blogs.ft.com)
blogs.ft.com
Gold - a six thousand year-old bubble
http://blogs.ft.com/maverecon/2009/11/gold-a-six-thousand-year-old-bubble/
15 comments
What is intrinsic worth anyway, and what does it mean? Some, like Karl Marx, argued that the value of a product is based on how much labour you put into it. Not whether people want it or not.
What is interesting is how much you can trade something for. Now and in the future. The subjective theory of value http://en.wikipedia.org/wiki/Subjective_theory_of_value
How much can you trade 11 US $100 bills for in 20 years? And how much for 1 ounce of gold?
What is interesting is how much you can trade something for. Now and in the future. The subjective theory of value http://en.wikipedia.org/wiki/Subjective_theory_of_value
How much can you trade 11 US $100 bills for in 20 years? And how much for 1 ounce of gold?
Karl Marx took the 'labor theory of value' argument from David Ricardo, who had taken it from Adam Smith, who had taken it from John Locke among others.
Alfred Marshall's 'marginalism' completely displaced the labor theory, insofar as the labor theory is incapable of producing a theory explaining prices. The labor theory is now only kept around by philosophy students and unreconstructed marxists.
Alfred Marshall's 'marginalism' completely displaced the labor theory, insofar as the labor theory is incapable of producing a theory explaining prices. The labor theory is now only kept around by philosophy students and unreconstructed marxists.
Yes, the labor theory of value is, in short, what it means to be labeled a "classical" economist. All economists writing before the marginal revolution took it for granted.
Also, Marx never wrote anything even resembling this: Some, like Karl Marx, argued that the value of a product is based on how much labour you put into it. Not whether people want it or not.
He actually mocked people, like Proudhon, who proposed such ideas.
Also, Marx never wrote anything even resembling this: Some, like Karl Marx, argued that the value of a product is based on how much labour you put into it. Not whether people want it or not.
He actually mocked people, like Proudhon, who proposed such ideas.
I don't think he moved as far away from it as you believe. Marx's particular approach to the labor theory of value is key to his philosophical ideas about exploitation and alienation. And subsequent Marxists placed a great deal of emphasis on it, especially Rosa Luxembourg.
laut is confusing the value of the function with the cost of the algorithm. Short example...
Say a spool of wool has a market value of $5 and a sweater has a market value of $11. Marx's theory is that when you buy a sweater what you're really buying is a package containing:
Marx would say that worker A should be making $6/hour and worker B should be making $2/hour. ie they're creating and selling a specific quantity of socially necessary labor. Since they only get paid $5 for the $6 worth of labor they create they're being exploited by the capitalist who controls their work lives.
Say a spool of wool has a market value of $5 and a sweater has a market value of $11. Marx's theory is that when you buy a sweater what you're really buying is a package containing:
1. a spool of wool
2. a single application of the wool -> sweater function.
Marx would say that worker A should be making $6/hour and worker B should be making $2/hour. ie they're creating and selling a specific quantity of socially necessary labor. Since they only get paid $5 for the $6 worth of labor they create they're being exploited by the capitalist who controls their work lives.
I call shenanigans. His argument fails on two counts:
1) The value of gold IS its use as a value store. A currency, to be practical, needs to meet the following four characteristics: Be relatively scarce, be durable, be divisible, and be impossible to counterfeit. Nothing, in the past 6000 years, has even been found that beats gold on these four counts. That is why it has always been the king of currencies.
2) There are vastly more practical uses for gold today than there have ever been in the past 6000 years. Other than monetary, there have been no practical uses for gold in antiquity.
1) The value of gold IS its use as a value store. A currency, to be practical, needs to meet the following four characteristics: Be relatively scarce, be durable, be divisible, and be impossible to counterfeit. Nothing, in the past 6000 years, has even been found that beats gold on these four counts. That is why it has always been the king of currencies.
2) There are vastly more practical uses for gold today than there have ever been in the past 6000 years. Other than monetary, there have been no practical uses for gold in antiquity.
A currency, to be practical, needs to meet the following four characteristics: Be relatively scarce, be durable, be divisible, and be impossible to counterfeit.
But to actually be a currency, a resource still requires that people treat it as such; i.e., that large numbers of people with no practical use for the physical embodiment of the currency accept it in trade for things of practical value. This means that, practically by definition, the currency thus acquires some amount of value in excess of whatever value it would have were it not a currency. This excess is effectively "imaginary value"--a mass delusion or self-fulfilling prophecy, albeit a useful one. If nobody uses it as a currency, it loses that value, no matter how well it could theoretically work as a currency.
Likewise, non-currency commodities can acquire imaginary value through various means--such as an expectation of future value, or arbitrary fads. Debt is 100% pure imaginary value, completely worthless but for the expectation that the debtor will repay it. Now, "imaginary" value is still value, and is real enough for most practical purposes, but is and always will be vulnerable to disappearing rapidly.
Fiat currency is a nearly worthless commodity with substantial imaginary value. Shares of a public corporation represent a fraction of the true value of the corporation's wealth, plus some amount of imaginary value. Gold is a more useful commodity than the article seems to think, but it's still likely that gold's value is at least half imaginary, based only on the perception of it as a store of value. Real estate also has substantial value, but that didn't stop it from (temporarily) acquiring massive imaginary value as well. It's worth noting that, assuming a secure system of tracking ownership, the title to a plot of land meets your characteristics even better than gold.
Yes, gold is likely to remain a de facto currency of choice, but don't kid yourself into thinking it isn't massively overpriced for exactly that reason.
If you actually want a durable store of almost entirely real value, that can't be faked or quickly created, bulk dried beans might be a good start.
But to actually be a currency, a resource still requires that people treat it as such; i.e., that large numbers of people with no practical use for the physical embodiment of the currency accept it in trade for things of practical value. This means that, practically by definition, the currency thus acquires some amount of value in excess of whatever value it would have were it not a currency. This excess is effectively "imaginary value"--a mass delusion or self-fulfilling prophecy, albeit a useful one. If nobody uses it as a currency, it loses that value, no matter how well it could theoretically work as a currency.
Likewise, non-currency commodities can acquire imaginary value through various means--such as an expectation of future value, or arbitrary fads. Debt is 100% pure imaginary value, completely worthless but for the expectation that the debtor will repay it. Now, "imaginary" value is still value, and is real enough for most practical purposes, but is and always will be vulnerable to disappearing rapidly.
Fiat currency is a nearly worthless commodity with substantial imaginary value. Shares of a public corporation represent a fraction of the true value of the corporation's wealth, plus some amount of imaginary value. Gold is a more useful commodity than the article seems to think, but it's still likely that gold's value is at least half imaginary, based only on the perception of it as a store of value. Real estate also has substantial value, but that didn't stop it from (temporarily) acquiring massive imaginary value as well. It's worth noting that, assuming a secure system of tracking ownership, the title to a plot of land meets your characteristics even better than gold.
Yes, gold is likely to remain a de facto currency of choice, but don't kid yourself into thinking it isn't massively overpriced for exactly that reason.
If you actually want a durable store of almost entirely real value, that can't be faked or quickly created, bulk dried beans might be a good start.
given that its suitability for forming a currency are so strong - it does have worth as having the potential to form a new currency if for some reason one were needed.
Bulk dried beans would work short term, assuming food shortages etc from whatever caused a new currency to be needed, but before long someone would want something to use as money that wasn't directly consumable.
I think perhaps its this fact that it is so suitable to form the basis of a new currency that gives it strength and stability whereas other more directly man made money systems are less durable
Bulk dried beans would work short term, assuming food shortages etc from whatever caused a new currency to be needed, but before long someone would want something to use as money that wasn't directly consumable.
I think perhaps its this fact that it is so suitable to form the basis of a new currency that gives it strength and stability whereas other more directly man made money systems are less durable
What about copper rounds, or uranium futures, or cell phone minutes? All seem to work nearly as well and have useful production purposes. I don't think gold is going anywhere for the reasons you cite, but there are alternatives today.
gold can be stored in a band vault, under your bed or buried in the garden.
Cell phone minutes and uranium futures cannot.
By "copper rounds" do you mean ammunition? If so, then yes, they hold value and will last as least 20 years, or longer (corrosive ammunition from WWII is still usable).
Cell phone minutes and uranium futures cannot.
By "copper rounds" do you mean ammunition? If so, then yes, they hold value and will last as least 20 years, or longer (corrosive ammunition from WWII is still usable).
Gold's relatively low practical demand makes the price stable, and that's the point. The alternatives you mention have volatile demand and are impacted by technological change. The prices aren't stable.
Yup. Gold is money.
Money is the bubble that doesn't pop.
http://unqualified-reservations.blogspot.com/2008/02/return-...
http://unqualified-reservations.blogspot.com/2008/02/return-...
"When the debasement rate is 10% and interest rates are 7%, the negative debasement-adjusted interest rate is a debt factory. It is easy for borrowers to make decisions that assume these rates will continue. If they end, the typical result is a recession. These kinds of dependencies make it very hard for politically sensitive authorities to end debasement, or even significantly reduce it."
From (http://www.safehaven.com/article-5205.htm) likely by the same author in a different mood...written in 2006.
From (http://www.safehaven.com/article-5205.htm) likely by the same author in a different mood...written in 2006.
The US dollar is about to collapse because of a simple economic fact that no one has the power to change or conceal.
http://en.wikipedia.org/wiki/Millenarianism
These people are exactly like those Christians who think the rapture is always just around the corner. Maybe next year.
http://en.wikipedia.org/wiki/Millenarianism
These people are exactly like those Christians who think the rapture is always just around the corner. Maybe next year.
Actually, I was trying to direct you away from the sensationalist title, but hey, maybe next year.
"It has no remaining uses as a producer good - equivalent or superior alternatives exist for all its industrial uses."
...sounds like a statement by someone who has never worked in industry. While I can't argue what quantity of gold is actually required in industry, the value is certainly non-zero -- or else all those gold connections in ICs would be replaced with cheaper copper equivalents.
...sounds like a statement by someone who has never worked in industry. While I can't argue what quantity of gold is actually required in industry, the value is certainly non-zero -- or else all those gold connections in ICs would be replaced with cheaper copper equivalents.
Since gold is a decent conductor, it has use in a variety of industrial applications such as for connectors, switch and relay contacts, soldered joints, connecting wires, and connection strips; so you can find it in a lot of electronics and computers.
It's also used in certain medical treatments involving radiation, and in glass to make certain windows more energy efficient.
Gold has real intrinsic value.
I do not agree with the article, but it's an interesting point of discussion given the times.
It's also used in certain medical treatments involving radiation, and in glass to make certain windows more energy efficient.
Gold has real intrinsic value.
I do not agree with the article, but it's an interesting point of discussion given the times.
Gold production per year: 1.2%
Population growth rate: 1.19%
M3 index growth rate: 2 to 12%
I'll stick with gold, silver, and investments where I actually put my brain to work, like my own company. I believe in stable stores of value for emergencies and a growing stores of value for future luxuries. The ft.com author can stick to investing in ponzi schemes. Just for kicks he can take a look at how the DOW has done versus gold in the past 10 years.
Population growth rate: 1.19%
M3 index growth rate: 2 to 12%
I'll stick with gold, silver, and investments where I actually put my brain to work, like my own company. I believe in stable stores of value for emergencies and a growing stores of value for future luxuries. The ft.com author can stick to investing in ponzi schemes. Just for kicks he can take a look at how the DOW has done versus gold in the past 10 years.
Here's a good site for looking at the Dow priced in gold: http://home.earthlink.net/~intelligentbear/com-dow-au.htm
Gold has plenty of value, it may be a fuel in the future; it can be used to create antimatter.
http://www.msnbc.msn.com/id/27998860/
http://www.msnbc.msn.com/id/27998860/
I noticed an interesting phenomenon on Ebay. Looking up Krugerrands (after reference to them in a song), I found out about gold coins. Whatever country issues them, they all go for their weight in gold - even by auction. Perhaps Ebay is a great place to buy and sell gold (but maybe you could get discounts in bulk from a dealer). [I'm not advocating buying gold off Ebay, I was just interested].
And how are you to go about verifying purity? This is an honest question.
To be honest, all I can think of is weighing them, but they could be filled with lead! So I guess I haven't thought it through...
However, the Ebay seller feedback count should be of some use. They could only sell a duff coin once (maybe twice) before being busted.
However, the Ebay seller feedback count should be of some use. They could only sell a duff coin once (maybe twice) before being busted.
Silly. Gold is amazing stuff. It doesn't decay nor oxidize (under most conditions on earth). From Wikipedia: "Gold is the most malleable and ductile of all metals; a single gram can be beaten into a sheet of 1 square meter, or an ounce into 300 square feet. Gold leaf can be beaten thin enough to become translucent."
So I didn't bother past the first paragraph. Did I miss anything?
So I didn't bother past the first paragraph. Did I miss anything?
The author fails to recognize that gold, unlike paper money, can't be hyperinflated into oblivion.
And this isn't just a theoretical point. Roughly one paper currency per year expires from hyperinflation.
And this isn't just a theoretical point. Roughly one paper currency per year expires from hyperinflation.
Interesting graph. What you need to remember is that while gold appears to have infalted rapidly, the quantity of gold is very limited - the great increase in gold has a lot to do with inflation of the USD, rather than inflation of gold.
Gold has been good for the past 6000, and I expect it will be good for at least the next 200, which is good enough for me, my grandchildren and their children.
Gold has been good for the past 6000, and I expect it will be good for at least the next 200, which is good enough for me, my grandchildren and their children.
[deleted]
I prefer tulips.
Scarcity?
My fingernail clippings are more scarce than gold, but they are worth much less.
Your fingernail clippings will turn to dust in fifty years. Refined gold is eternal, and universally valued.
eternity is a long time.
He neglects to say what he would invest in. The mainstream financial media keeps on with the "gold is bad" drum, but provides no alternatives. The simplicity of gold and the fact it can't be conjured out of thin air (and vanish into thin air) likely make it attractive in times of massive con games.