Gold - a six thousand year-old bubble
blogs.ft.com
blogs.ft.com
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.
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?
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.
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.
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.
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.
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).
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.
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
Except for those silly Egyptian and Aztec people, who thought gold was good for making art objects and jewelry.
http://unqualified-reservations.blogspot.com/2008/02/return-...
From (http://www.safehaven.com/article-5205.htm) likely by the same author in a different mood...written in 2006.
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.
...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.
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.
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.
However, the Ebay seller feedback count should be of some use. They could only sell a duff coin once (maybe twice) before being busted.
So I didn't bother past the first paragraph. Did I miss anything?
And this isn't just a theoretical point. Roughly one paper currency per year expires from hyperinflation.
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.