What is the "inherent" value of gold?

[helmuth_hubener]

You could say that about everything, including air and water.

Could and should. Because it's true.

 

[helmuth_hubener]

You're missing the point. Suppose you've worked hard for many years and accumulated a lot of wealth. What's the safest place to store that wealth so that in 20 years it will still have purchasing power?

A bulletproof permanent portfolio.

 

[mczerone]

First, to the OP: assuming you mean "non-monetary" value of gold:

There's no way to know. You can, as others have, look at the substitution costs in gold's non-monetary uses. But what does that do? It shows you the price for which producers would switch to/from gold in their production process. It's different in each use.

But the bigger problem is the Austrian insight to monetary supply: once a commodity becomes a money, ANY supply is optimal, assuming you're in a range where it still has sufficient divisibility. So, considering that gold is, on some level, a "money" - it doesn't matter what it's monetary value is apart from it's commodity value. You'll trade $X for an ounce of gold because you know you can get around $X (or more) measure of value when you trade the gold away. If $X (the going rate for gold) is less than other materials in a production process, gold will be used. If not, it won't be.

There is no separating the "money" price from the "non-money" price. It's just a price, do with it what you will.

 

[mczerone]

Great article. North says it better than I could. And this one is more to the point than the one I posted earlier.

I especially appreciate how he unabashedly reveals the theological corollary to his point:

God has intrinsic value. Nothing else does.

I vaguely remember thinking that that whole series on "What is Money?" was really good.

Taking North's theology as a premise:

Intrinsic value is the value a thing has regardless of the things outside of it.

Value is subjective, depending on the evaluation of an actor.

You are an evaluating actor.

You value yourself.

That valuation is independent of those things outside of you.

Therefore you have intrinsic value.

And since the only thing with intrinsic value is God, Thou art God.

 

[helmuth_hubener]

Mczerone's post above (#43) is probably the best explanation so far. However, now I'm going to go and disagree with him. He says:

There is no separating the "money" price from the "non-money" price.

While, like so many things, we cannot give an exact answer down to the last decimal place, to just say "nobody knows" is a bit of a cop-out. What's the unemployment rate? Again, "nobody knows," but yet we somehow come up with a general idea. I think that we can give a better answer to Bungeebones.

Harry Browne in his first book, How You can Profit From the Coming Devaluation, gave an excellent explanation of money using the example of nails. At first, you'd only buy nails if you want nails. Then one day someone figures out to use them as an intermediary good in two-step trades. That week, more and more people start doing that, because they know they can always sell the nails for what they really want, and someone will accept them. By the end of the month, nails have become widely-used as money. What does that mean for the value of nails? It goes up, because demand has increased. There's still a certain amount of nails people are using in construction, but now also there's nails that people are using as money. So demand has gone up, and price has gone up (if supply doesn't change), just as it would if some new use for nails were discovered. In fact, its use as money is just a new use, just the same as if the villagers discovered they could use nails for joining two pieces of wood together in addition to cracking coconuts.

What Bungeebones wants to know (or at least the way I'm going to interpret his question) is: how much of the $1,200 per ounce value of gold is "inherent" -- that is, is due to the properties and usefulness inherent to it as a commodity apart from any monetary uses -- and how much is "monetary". Well, how could we figure that out for the nails?

We could look at the price before it was used as money, and compare it to the price afterward. That would give a pretty good idea. Unfortunately, for gold we don't have a nice, short timeline with good data, as we would in our village where one month nails weren't money and the next month they were.

We could look at what percentage of nails are being used for monetary purposes (stored in cash registers, under the mattress, in wallets...) vs. what percentage are being used for everything else. If 50% are being used for money, that means that about half of the total demand for nails is due to the demand for them as money. If everyone were to stop using them as money, then demand would drop. 50% of the demand would completely evaporate, which makes it sound like an easy calculation: if nails as money are $1 a piece, nails as not-money will be 50 cents. But it's not so simple, because every use, and in fact every individual, has a demand curve. As the price drops, the demand for nails as nails will go up. A man may not have been able to afford to build a shed when nails were $1 a piece, but now that they are less, he can. Thus the price will not fall all the way to 50 cents. Also, there is a supply curve (actually, again, multiple curves for each individual) which means that now that the price has fallen the nail makers will not be inclined to produce so many. In the case of nails the supply curve for new nail suppliers makes a big difference; with gold it makes a much smaller difference, because "new" gold -- the amount newly-mined each year -- accounts for so little of the total supply.

Anyway, one could make some sort of calculation to predict what the price would level out to be if the monetary component of demand were to disappear. This could be done for both gold and nails alike. It would not be exact, but it would probably give a rough approximation, if all factors were taken into consideration.

So, I propose as a procedure for estimating the non-monetary value of gold:

1. Determine the total global inventory of gold in use. This does not include gold as yet un-mined, nor gold long since lost (in shipwrecks, etc.).
2. Determine the total amount of gold being used for monetary purposes -- stored in vaults, in safety deposit boxes, used for transactions, etc.
3. Determine the total amount of gold being used for non-monetary purposes -- computer memory, yard flamingo leafing, tiaras, etc. The total amounts in #2 and #3 should add up to #1, of course.
4. From that, you can figure out the percentage of gold used for monetary purposes. In the case of gold, it is a very high percentage. It might be 90%. You then subtract out that percentage -- for example 90% -- from the total price. At today's price of $1320, that would give, if all monetary demand evaporated, the result of $132.
5. You then do the more complicated mathematical calculations I mentioned above, to account for the increased commodity demand for gold if its price were to drop so far, which would push its price back up. The final result would be something more than $132 -- maybe $300, maybe $500; you'd have to do the calculation.

That would get you in the ball park. Even without actually doing a single one of the steps above, I have probably gotten us into the very large, extended ball park with a guess of $100-500/ounce.

 

[Zeeder]

Taking North's theology as a premise:

Intrinsic value is the value a thing has regardless of the things outside of it.

Value is subjective, depending on the evaluation of an actor.

You are an evaluating actor.

You value yourself.

That valuation is independent of those things outside of you.

Therefore you have intrinsic value.

And since the only thing with intrinsic value is God, Thou art God.

I suspected I was God for some time now. Thanks to Gary North I now have proof.

 

[Bungeebones]

I had the thought that perhaps the "intinsic" part of gold's value is what it is worth in the ground because everything above that is the result of a "value added processing". Working backwards from the market price subtract commissions, interest, shipping, handling, minting (optional), refining, smelting, assaying, mining, land purchase and interest, etc and whatever is left is what the gold is worth where it is. Everything after that is man adding his labor and operating costs on top of it in the hopes of making a profit. If they misjudged the cost of mining they will operate at a loss, thus spending more value than what the gold is worth.

 

[mczerone]

I had the thought that perhaps the "intinsic" part of gold's value is what it is worth in the ground because everything above that is the result of a "value added processing". Working backwards from the market price subtract commissions, interest, shipping, handling, minting (optional), refining, smelting, assaying, mining, land purchase and interest, etc and whatever is left is what the gold is worth where it is. Everything after that is man adding his labor and operating costs on top of it in the hopes of making a profit. If they misjudged the cost of mining they will operate at a loss, thus spending more value than what the gold is worth.

But in this line of thinking, you recognize that the only "value" that can be placed on the gold is at the consumer end. All the rest of the production process is comparative to that value. They don't "add" value to the gold, but instead they reduce incentive to produce the gold.

 

[mczerone]

Mczerone's post above (#43) is probably the best explanation so far. However, now I'm going to go and disagree with him. He says:
While, like so many things, we cannot give an exact answer down to the last decimal place, to just say "nobody knows" is a bit of a cop-out. What's the unemployment rate? Again, "nobody knows," but yet we somehow come up with a general idea. I think that we can give a better answer to Bungeebones.

Harry Browne in his first book, How You can Profit From the Coming Devaluation, gave an excellent explanation of money using the example of nails. At first, you'd only buy nails if you want nails. Then one day someone figures out to use them as an intermediary good in two-step trades. That week, more and more people start doing that, because they know they can always sell the nails for what they really want, and someone will accept them. By the end of the month, nails have become widely-used as money. What does that mean for the value of nails? It goes up, because demand has increased. There's still a certain amount of nails people are using in construction, but now also there's nails that people are using as money. So demand has gone up, and price has gone up (if supply doesn't change), just as it would if some new use for nails were discovered. In fact, its use as money is just a new use, just the same as if the villagers discovered they could use nails for joining two pieces of wood together in addition to cracking coconuts.

What Bungeebones wants to know (or at least the way I'm going to interpret his question) is: how much of the $1,200 per ounce value of gold is "inherent" -- that is, is due to the properties and usefulness inherent to it as a commodity apart from any monetary uses -- and how much is "monetary". Well, how could we figure that out for the nails?

We could look at the price before it was used as money, and compare it to the price afterward. That would give a pretty good idea. Unfortunately, for gold we don't have a nice, short timeline with good data, as we would in our village where one month nails weren't money and the next month they were.

We could look at what percentage of nails are being used for monetary purposes (stored in cash registers, under the mattress, in wallets...) vs. what percentage are being used for everything else. If 50% are being used for money, that means that about half of the total demand for nails is due to the demand for them as money. If everyone were to stop using them as money, then demand would drop. 50% of the demand would completely evaporate, which makes it sound like an easy calculation: if nails as money are $1 a piece, nails as not-money will be 50 cents. But it's not so simple, because every use, and in fact every individual, has a demand curve. As the price drops, the demand for nails as nails will go up. A man may not have been able to afford to build a shed when nails were $1 a piece, but now that they are less, he can. Thus the price will not fall all the way to 50 cents. Also, there is a supply curve (actually, again, multiple curves for each individual) which means that now that the price has fallen the nail makers will not be inclined to produce so many. In the case of nails the supply curve for new nail suppliers makes a big difference; with gold it makes a much smaller difference, because "new" gold -- the amount newly-mined each year -- accounts for so little of the total supply.

Anyway, one could make some sort of calculation to predict what the price would level out to be if the monetary component of demand were to disappear. This could be done for both gold and nails alike. It would not be exact, but it would probably give a rough approximation, if all factors were taken into consideration.

So, I propose as a procedure for estimating the non-monetary value of gold:

1. Determine the total global inventory of gold in use. This does not include gold as yet un-mined, nor gold long since lost (in shipwrecks, etc.).
2. Determine the total amount of gold being used for monetary purposes -- stored in vaults, in safety deposit boxes, used for transactions, etc.
3. Determine the total amount of gold being used for non-monetary purposes -- computer memory, yard flamingo leafing, tiaras, etc. The total amounts in #2 and #3 should add up to #1, of course.
4. From that, you can figure out the percentage of gold used for monetary purposes. In the case of gold, it is a very high percentage. It might be 90%. You then subtract out that percentage -- for example 90% -- from the total price. At today's price of $1320, that would give, if all monetary demand evaporated, the result of $132.
5. You then do the more complicated mathematical calculations I mentioned above, to account for the increased commodity demand for gold if its price were to drop so far, which would push its price back up. The final result would be something more than $132 -- maybe $300, maybe $500; you'd have to do the calculation.

That would get you in the ball park. Even without actually doing a single one of the steps above, I have probably gotten us into the very large, extended ball park with a guess of $100-500/ounce.

The problem with the % approach is that things are valued on the margins.

A more direct, but less objective, approach would be to survey buyers at the point of sale: Ask them how much they would pay for gold if it wasn't resalable; they had to put it all toward consumer use.

In a way, then, everything has a "monetary" value if you anticipate re-selling it and not consuming the full value.

 

[TheGrinch]

If nothing has intrinsic value, the why the debate on it? How about not take it so literally, and realize that what people mean is that gold has accepted value and features that make it more ideal and more natural source of money.

Why get bogged down in semantics, unless you have an agenda for something like bitcoin, because clearly what they mean is that gold has many natural and accepted features that make it's value relatively stable and desirable (such as rarity, cost to produce, uses, portability, durability, etc), things that you cannot say about less "intrinsic" forms of money that are far more subject to change.

No need at all to take "intrinsic" so literally. We'd communicate more effectively if we didn't get bogged down in semantical nitpicks, and instead realize what they mean by the arbitrary language they used to convey their ideas.

 

[Neil Desmond]

If nothing has intrinsic value, the why the debate on it? How about not take it so literally, and realize that what people mean is that gold has accepted value and features that make it more ideal and more natural source of money.

Why get bogged down in semantics, unless you have an agenda for something like bitcoin, because clearly what they mean is that gold has many natural and accepted features that make it's value relatively stable and desirable (such as rarity, cost to produce, uses, portability, durability, etc), things that you cannot say about less "intrinsic" forms of money that are far more subject to change.

No need at all to take "intrinsic" so literally. We'd communicate more effectively if we didn't get bogged down in semantical nitpicks, and instead realize what they mean by the arbitrary language they used to convey their ideas.

I'm guessing it has to do with Peter Schiff's claim that gold has intrinsic value but bitcoin doesn't.

 

[osan]

If gold did have such a thing wouldn't that percentage of it's market price that was indeed the inherent portion be readily distinguishable from the portion of it's value as a currency, hedge against inflation etc?


So how much is it? $5 FRN? $50 FRN? $500? FRN? Should be obvious to everyone shouldn't it? Gold experts should have an answer ready and in which there would be wide agreement upon. If so, how did they arrive at it?

Gold has no inherent value.

Neither does food.

Neither does your life.

And yet, you value your life.

Because you value you life and that life enjoins you to eat, you value food.

The same principle applies to gold.

It has value because people want it. It is absolultely and utterly irrelevant why they want it. All that matters is that they do and they do so enough to seek it out, honestly or otherwise, in order to possess it. Is it rational? Does it matter? No. The only thing that counts is the positive reality, and that is because there is no normative reality of which to speak where human desire is concerned. Value is a construct of mind - sometimes driven by the realities of physical existence (e.g. being hungry).

One of the grave errors people make, many of them otherwise very smart, is they believe that just because no absolute and materially irrefutable proof of inherency where "value" is concerned can be identified and isolated as having an existence independent of the rest of th euniverse, that using gold as money is invalid. This presupposition that such an absolute and irreducible value must exist as something independent of human existence is, in a word, unsound. Such people want to ID "value" in gold that would exist even if every last human being on the planet disappeared in the blink of an eye the way that Devil's Tower would remain under the same circumstances.

This, of course, is patent lunacy and a clear indication of a sadly grotesque failure of conceptual apprehension.

I do not need to justify my desire to hold gold in my hand, just as I do not have to justify taking my next breath, having sex, driving a car, or wanting and doing anything else that brings no unjust harm to others.

Critics of gold bray on like fools on such matters... "oh, it has no intrinsic value blah blah blah blah blah..." like broken records. They have nothing else, yet they refuse to accept that simple human desire is sufficient justification for having it and using it, all else equal.

But apart from the philosophical errors these people make, they ignore a centrally important positive fact: gold works. It is durable. It is portable. It is divisible. It HAS inherent value as money precisely because it works as money. It has inherent value as money because of the discipline it imposes upon economies. So-called "governments" cannot simply pull an unending supply of gold out of their butts. This fact means that any such government which operates under a system of gold money, or gold-backed and demand-convertible paper is automatically limited in the degree to which it may engage in profligacy. The only alternative for such governments with such money systems is to debase the money or the currency. That was done in the USA when convertibility was eliminated. This allowed Themme to fire up the printing presses because, after all, who was going to know how much gold that dollar bill actually represented? And even if it represented a full and properly defined dollar of .9999 fine gold, it was a meaningless assignment because that gold could never again rest in the palm of one's hands. The other alternative is to print more and cut the extant coinage with base metal contaminants such as copper. This is what was eventually done in Rome and when debasement breached some threshold which I no longer recall, the economy went to hell in rapid order, the civilization following not one full step behind.

For some 900 years, as I recall (someone straighten me out if I got this figure wrong), the Byzantine empire enjoyed economic stability and prosperity - so much for the notion of the "dark ages". Why? Because their money was gold and it was well managed and trusted by the entire western world. It was not until the Byzantines lost their way and began debasing their metallic gold coins that their age came to a screeching halt. It is interesting to note that during this time large edifices were also erected and the world managed to produce good things for itself, and yet that era is to this day presented to children as to frighten them away from giving the life and times too much scrutiny. Just forget about those people - they were savages and depressed and believed in wildly stupid things and life was classically short and brutish. This, of course, is all lies, just as is the generally accepted assessment of the Renaissance. Since the Roman suicide the world that is the west knew little of profligate spending until the Renaissance, which marked the rebirth not only of light and the quest for knowledge and art, but the endless corruption of "government" in the more modern context. It was the dawn of the age of the banker and the profligate kings whose endless warring could not possibly be supported by taxation. The banks provided the means, and the conditions and those kings thereby frittered away the rightful legacies of their subjects in the most rankly criminal fashions imaginable.

This new age of the spendthrift tyrant had taken root, the seeley, abused, ignorant, and otherwise concerned people unable in most cases to do anything against the king's sword. But even the dregs of serfdom had their limits and so the pusillanimous kings needed new ways of expanding their means of satisfying their vampire lust for conquest and basically doing whatever the hell they pleased and the bankers were right there with ever bolder and more clever schemes to help the king realize his heart's desires. Such wild spending cannot tolerate the presence of gold as the in-hand standard of commerce precisely because the king cannot control it. But worthless paper declared by fiat as the money of the realm was the first really successful trick to separate the people from that which held the king in check. The only limitations on the king became the supplies of ink and paper, as well as the strength of the camel's back, aka "the economy". And history has shown us now many times what happens when otherwise workable but unbacked paper is abused beyond the point of market tolerances.

The answer to that, of course, came with computer technologies where money is no longer even worthless paper, but rather imprints upon some cybernetic storage medium. What is put in a given place is as readily removed. Where "government" had little control over paper money once it left the printing office and entered the real markets, electronic money can be created and destroyed with a few properly chosen and privileged keystrokes. A government can now be as promiscuous as it pleases, and if disastrous consequences loom in result, Theye are now empowered to give economic haircuts to anyone they please... or to everyone... themselves excepted, of course.

Were our paper cash system based on a demand-convertible gold standard, this would be barely possible. Firstly, there would be no currency inflation of which to speak because the rate of growth in the monetary gold reserves would be virtually guaranteed to be less than that of the economy in general. Supply and demand inflations and deflations would remain as they always have, all else equal, with little events here and there as shortages or over-abundances occurred. Short of major catastrophes such as earthquakes and large scale warfare, these cyclical rhythms of the market represent no harm and rarely last long.

Just think about this: virtually every major economic disaster of the past 2000 years has been the result of government action. OK, Krakatoa blows its lid, kills a million people and wrecks a nation's economy for 3 years. Whoopdee friggin' doo. Compare that with the results of governmental chicanery in the twentieth century alone. Not a SINGLE economic failure of which I am aware (and I am sure I am not aware of them all) can be attributed to "organic" causes. They are solely the children of those who have been in the positions to manipulate markets at their very roots through the money systems.

For those who poo-poo gold, you are ignorant fools who have no idea what you are talking about precisely because your base assumptions about notions such as "value" are, to put it mildly, shit. You have absolutely no idea of what it is you are talking and would do yourselves and your fellows well to shut up, learn something real and true for once, and stop talking this inane stupidity about how gold is not a good basis for money. So long as we are technologically constrained such that scarcity is a fact of life, value will be equally scarce and it therefore behooves us to treat it with care and respect. Until such time as we have Star Trek style replicator technology where I can vomit a command into a machine and have an ample-breasted and very leggy blonde date appear before my eyes, money shall remain the least of the evils relating to storing relatively scarce value in a universally portable medium of exchange. So long as we need money in order to transact business in accord with cultures functionally based on division of labor pursuant to the provision of comparatively scarce commodities, gold and perhaps silver and a few other elemental commodities will serve as the best representations of that portable system of value-exchange.

Try as you will, nothing else equals it. though bitcoin and its equivalents do present an interesting possibility. I am, however, skeptical for several reasons, not the least of which is the security of the encryptions, which are not absolute, but present only difficult problems by the standards of today's technological capabilities. When those abilities render np-complete problems into polynomial time solutions, well, who knows what may then be the result. Perhaps nothing bad.... perhaps otherwise.

Gold is good and it is its utility as money that defines its inherent value. This should be pretty obvious, and yet I have never seen or heard anyone indicate such an awareness. That's pretty weak, not to mention scary.

 

[Danan]

I'm glad that you've brought up demand curves, helmuth. If, for some reason, the demand curves for its physical use (meaning the demand for gold if you subtract its monetary demand) were perfectly inelastic (a vertical line in the classic supply and demand diagram) than gold's price would not change at all, if it suddenly lost it's money property - assuming supply is fixed, or horizontal. The quantity traded would change, but not the price. Neither of those assumption necessarily has to apply in reality, but it illustrates that the share of gold traded in either sector does not at all suffice to answer that question.

Also, what's important is to look not at stocks of gold in existence, but rather of flows of gold to determine the demand side. If every year ~15% of all gold is sold and bought for industrial purposes and ~15% of it goes to jewelry, the rest being for some form of monetary reason, that might give you some indication of the demand at the current price, but still tells you nothing about the individual slopes of the functions.

However, if gold suddenly lost all it's monetary usage, that would certainly increase supply drastically. Here the stock of gold is important.

All in all you can't really tell. The price would probably be lower than it's current price ceteris paribus. Not even that is certain (though very likely).

Anyways, the fact that gold is demanded for anything else but its function as money is still very important for its role as money. It acts as a stabilizer. As its monetary value sinks in the subjective view of market participants, gold's industrial and other demand grows. It's important that the latter is the result of the "left-shift" in the aggregate demand function and can, thus, impossibly offset the effects of the former. But it can decrease price volatility and, more importantly, secure a "minimum price."

If, for whatever reason, everybody believes the monetary demand for bitcoins (which is their only demand) to go down (at fixed supply) - and everyone believes everyone else to think the same way - then there is no reason to hold bitcoins at all. The only rational course of action would be to get rid of them asap and their price would fall to zero. The same is not true for gold. Even if everyone expects it to go down, everyone knows that it will certainly (assuming no change in its industrial and other demand) stop at some positive price, which in and of itself can be enough for the market price to never actually fall down reach this minimum.

 

[mczerone]

I am, however, skeptical for several reasons, not the least of which is the security of the encryptions, which are not absolute, but present only difficult problems by the standards of today's technological capabilities. When those abilities render np-complete problems into polynomial time solutions, well, who knows what may then be the result.

I'm less skeptical about Bitcoin being a long-term force than you, but I appreciate very much someone that actually understands that it's not "hacking" per se that will bring down the blockchain.

Even quantum computing alone isn't enough to change the cryptographic game at this point; there would need to be major advancements in computer science to accompany it to render 256-bit hash encryption readily breakable in worrisome time-frames (i.e. less than 100 years).

So while that might be just around the corner (or already extant behind NSA walls), I'm pretty confident that not only is it a ways off, but also that the hackers will always be one step ahead (i.e. if it becomes faster to break an encryption, it just means that it's that much faster to come up with harder to crack encryption keys and protocols).

 

[Neil Desmond]

When those abilities render np-complete problems into polynomial time solutions, well, who knows what may then be the result. Perhaps nothing bad.... perhaps otherwise.

What if it can be mathematically proven that it's impossible to render np-complete problems (or at least the ones specifically utilized by a cryptocurrency) into polynomial time solutions? What would that do for the possibilities and viability of cryptocurrencies?

 

[osan]

What if it can be mathematically proven that it's impossible to render np-complete problems (or at least the ones specifically utilized by a cryptocurrency) into polynomial time solutions? What would that do for the possibilities and viability of cryptocurrencies?

It cannot be proven by virtue of the fact that there ARE solutions. Because the solutions exist, it is only a matter of time before they are found, even if the time required is a billion years. In cryptography, the standard for judging security is the "efficient" algorithm, usually stated something like, "for all efficient algorithms" or "for all efficient attackers". This, vis-a-vis brute force or near-brute force, which means "exhaustive" searching. Today, algorithms must be efficient for both encrypting, decrypting, and attacking or nothing would ever get done in good time. This is particularly true of stream ciphers because they often work in real time and at high data rates.

Because an exhaustive search is guaranteed to yield the solutions, no cryptosystem for which solutions exist are completely safe, but only relatively so WRT the state of computational science at an given moment in time. As that technology advances, the degree to which a cryptographic scheme can be regarded as secure diminishes.

Consider RSA, for example. When it was first introduced it was considered secure in itself and some wondered whether it might prove impossible to attack. It turns out not to be the case. Applying RSA directly to cipher text, in fact, is broken rather easily. There is a twist that must be employed in order to make RSA secure and many implementors are unaware of this fact. This is one reason to use standard libraries to do this sort of thing, but even then you have to know what you're doing enough or you can pooch it.

Making problems difficult appears to be naught but a temporary measure.

One promise of quantum computing is the ability, for example, to discover the large prime factors of a number. Right now it is very difficult, but quantum computing suggests answers may be arrived upon in the quantum equivalent of just a handful of clock cycles.

There are systems using modular elliptic curves, but I am as yet not well enough versed in how they work. But such curves relate to Fermat's last theorem which states that for all equations of the form x^n + Y^n = z^n, there are no integer solutions for n>2. This has been proven. This property or elliptic curves is used in crypto, but I need to do more reading on it. I have my suspicions on how security is derived using them, but I was a shitty mathematician and it takes a really long time for things of this nature to twig.

But even so, it may still be that an inefficient attacker, which is to say a brute, given enough computing power may discover solutions in any event. We probably do not have to worry about this today, though I would not put it past NSA to be able to break any known encryption scheme.

One thing people should understand about cryptography is that it is VERY iffy stuff and the slightest error may reveal sufficient information to allow discovery of the clear text. The side-channel attacks, for example, are numerous and in some cases so subtle and unexpected that learning about them would leave your jaws on the floor. There are timing attacks where the time taken to return a failure code can be used to determine what the cryptosystem is doing and how it is transforming the clear. Power consumption of the CPU can be monitored to reveal information. There are chosen plain text and chosen cipher text attacks. The list goes on and the adversaries are VERY clever. Any weakness in MACing a message, for example, can allow an adversary to alter cipher text without discovery. The order in which encryption and MACing are performed makes the difference between secure and complete and easy breakage. This is just another concern with bit coin clients - if you download a futzed client, your security may have gone down the drain. Not many people have the chops to know whether a given client code is safe. I certainly do not.

For ordinary transactions this is all just fine, but if you have something you REALLY don't want the wrong eyes on, using this sort of crypto is always a gamble.

 

[heavenlyboy34]

Gold has no inherent value.

Neither does food.

Neither does your life.

And yet, you value your life.

Because you value you life and that life enjoins you to eat, you value food.

The same principle applies to gold.

It has value because people want it. It is absolultely and utterly irrelevant why they want it. All that matters is that they do and they do so enough to seek it out, honestly or otherwise, in order to possess it. Is it rational? Does it matter? No. The only thing that counts is the positive reality, and that is because there is no normative reality of which to speak where human desire is concerned. Value is a construct of mind - sometimes driven by the realities of physical existence (e.g. being hungry).

One of the grave errors people make, many of them otherwise very smart, is they believe that just because no absolute and materially irrefutable proof of inherency where "value" is concerned can be identified and isolated as having an existence independent of the rest of th euniverse, that using gold as money is invalid. This presupposition that such an absolute and irreducible value must exist as something independent of human existence is, in a word, unsound. Such people want to ID "value" in gold that would exist even if every last human being on the planet disappeared in the blink of an eye the way that Devil's Tower would remain under the same circumstances.

This, of course, is patent lunacy and a clear indication of a sadly grotesque failure of conceptual apprehension.

I do not need to justify my desire to hold gold in my hand, just as I do not have to justify taking my next breath, having sex, driving a car, or wanting and doing anything else that brings no unjust harm to others.

Critics of gold bray on like fools on such matters... "oh, it has no intrinsic value blah blah blah blah blah..." like broken records. They have nothing else, yet they refuse to accept that simple human desire is sufficient justification for having it and using it, all else equal.

But apart from the philosophical errors these people make, they ignore a centrally important positive fact: gold works. It is durable. It is portable. It is divisible. It HAS inherent value as money precisely because it works as money. It has inherent value as money because of the discipline it imposes upon economies. So-called "governments" cannot simply pull an unending supply of gold out of their butts. This fact means that any such government which operates under a system of gold money, or gold-backed and demand-convertible paper is automatically limited in the degree to which it may engage in profligacy. The only alternative for such governments with such money systems is to debase the money or the currency. That was done in the USA when convertibility was eliminated. This allowed Themme to fire up the printing presses because, after all, who was going to know how much gold that dollar bill actually represented? And even if it represented a full and properly defined dollar of .9999 fine gold, it was a meaningless assignment because that gold could never again rest in the palm of one's hands. The other alternative is to print more and cut the extant coinage with base metal contaminants such as copper. This is what was eventually done in Rome and when debasement breached some threshold which I no longer recall, the economy went to hell in rapid order, the civilization following not one full step behind.

For some 900 years, as I recall (someone straighten me out if I got this figure wrong), the Byzantine empire enjoyed economic stability and prosperity - so much for the notion of the "dark ages". Why? Because their money was gold and it was well managed and trusted by the entire western world. It was not until the Byzantines lost their way and began debasing their metallic gold coins that their age came to a screeching halt. It is interesting to note that during this time large edifices were also erected and the world managed to produce good things for itself, and yet that era is to this day presented to children as to frighten them away from giving the life and times too much scrutiny. Just forget about those people - they were savages and depressed and believed in wildly stupid things and life was classically short and brutish. This, of course, is all lies, just as is the generally accepted assessment of the Renaissance. Since the Roman suicide the world that is the west knew little of profligate spending until the Renaissance, which marked the rebirth not only of light and the quest for knowledge and art, but the endless corruption of "government" in the more modern context. It was the dawn of the age of the banker and the profligate kings whose endless warring could not possibly be supported by taxation. The banks provided the means, and the conditions and those kings thereby frittered away the rightful legacies of their subjects in the most rankly criminal fashions imaginable.

This new age of the spendthrift tyrant had taken root, the seeley, abused, ignorant, and otherwise concerned people unable in most cases to do anything against the king's sword. But even the dregs of serfdom had their limits and so the pusillanimous kings needed new ways of expanding their means of satisfying their vampire lust for conquest and basically doing whatever the hell they pleased and the bankers were right there with ever bolder and more clever schemes to help the king realize his heart's desires. Such wild spending cannot tolerate the presence of gold as the in-hand standard of commerce precisely because the king cannot control it. But worthless paper declared by fiat as the money of the realm was the first really successful trick to separate the people from that which held the king in check. The only limitations on the king became the supplies of ink and paper, as well as the strength of the camel's back, aka "the economy". And history has shown us now many times what happens when otherwise workable but unbacked paper is abused beyond the point of market tolerances.

The answer to that, of course, came with computer technologies where money is no longer even worthless paper, but rather imprints upon some cybernetic storage medium. What is put in a given place is as readily removed. Where "government" had little control over paper money once it left the printing office and entered the real markets, electronic money can be created and destroyed with a few properly chosen and privileged keystrokes. A government can now be as promiscuous as it pleases, and if disastrous consequences loom in result, Theye are now empowered to give economic haircuts to anyone they please... or to everyone... themselves excepted, of course.

Were our paper cash system based on a demand-convertible gold standard, this would be barely possible. Firstly, there would be no currency inflation of which to speak because the rate of growth in the monetary gold reserves would be virtually guaranteed to be less than that of the economy in general. Supply and demand inflations and deflations would remain as they always have, all else equal, with little events here and there as shortages or over-abundances occurred. Short of major catastrophes such as earthquakes and large scale warfare, these cyclical rhythms of the market represent no harm and rarely last long.

Just think about this: virtually every major economic disaster of the past 2000 years has been the result of government action. OK, Krakatoa blows its lid, kills a million people and wrecks a nation's economy for 3 years. Whoopdee friggin' doo. Compare that with the results of governmental chicanery in the twentieth century alone. Not a SINGLE economic failure of which I am aware (and I am sure I am not aware of them all) can be attributed to "organic" causes. They are solely the children of those who have been in the positions to manipulate markets at their very roots through the money systems.

For those who poo-poo gold, you are ignorant fools who have no idea what you are talking about precisely because your base assumptions about notions such as "value" are, to put it mildly, shit. You have absolutely no idea of what it is you are talking and would do yourselves and your fellows well to shut up, learn something real and true for once, and stop talking this inane stupidity about how gold is not a good basis for money. So long as we are technologically constrained such that scarcity is a fact of life, value will be equally scarce and it therefore behooves us to treat it with care and respect. Until such time as we have Star Trek style replicator technology where I can vomit a command into a machine and have an ample-breasted and very leggy blonde date appear before my eyes, money shall remain the least of the evils relating to storing relatively scarce value in a universally portable medium of exchange. So long as we need money in order to transact business in accord with cultures functionally based on division of labor pursuant to the provision of comparatively scarce commodities, gold and perhaps silver and a few other elemental commodities will serve as the best representations of that portable system of value-exchange.

Try as you will, nothing else equals it. though bitcoin and its equivalents do present an interesting possibility. I am, however, skeptical for several reasons, not the least of which is the security of the encryptions, which are not absolute, but present only difficult problems by the standards of today's technological capabilities. When those abilities render np-complete problems into polynomial time solutions, well, who knows what may then be the result. Perhaps nothing bad.... perhaps otherwise.

Gold is good and it is its utility as money that defines its inherent value. This should be pretty obvious, and yet I have never seen or heard anyone indicate such an awareness. That's pretty weak, not to mention scary.

You make a lot of good points. However, I would say it's more accurate to say gold has inherent utility, not value. Value is everywhere and always a subjective matter-even all the "gold bugs" (and I say that lovingly ) I've read would agree with this-particularly economists of the Austrian persuasion.

 

[osan]

You make a lot of good points. However, I would say it's more accurate to say gold has inherent utility, not value. Value is everywhere and always a subjective matter-even all the "gold bugs" (and I say that lovingly ) I've read would agree with this-particularly economists of the Austrian persuasion.

If you prefer "utility" over "value", that is certainly acceptable. What I wrote implies this very directly. We were speaking of "value" and I mentioned that the reason gold has value is precisely due at least in part to its utility as a governor of human action in the face of a scarce commodities economic reality. I did not use "utility" directly, but there is really no other conclusion I can see to which one might otherwise arrive.

While we're at it:

The phrase "inherent value" is an oxymoron - "value" is not (and cannot be) a quality or characteristic that "inheres" in a thing by itself.

The concept of "value" denotes a relationship between things - a subject (the "valuer") and an object (the thing that is "valued").

Thus, "value" is always subjective and extrinsic (and never objective or intrinsic).

I said essentially the same thing, but he was more explicit, concise, and structurally elegant. Well done.

One hair I would split in this, and I am just attempting to put a fine point on the understanding: I wrote that gold has INHERENT value as money because it works as money. This needs some refining and notification that I took some small license with "inherent", even though in the strictest technical sense I may heve misused the term ever so slightly.

To be more explicit, if we find gold useful in fine electronics because of its nearly perfect corrosion resistance, it is precisely because we seek corrosion resistance we may reasonably say that gold is inherently valuable in this regard. It is a bit of indirection, of course, because it is the resistance to chemical alteration that is inherent to gold. But when that is the standard of judgment, the value becomes by extension a quality of gold itself in a very practical way, rather than metaphysically.

 

[helmuth_hubener]

Danan, you make some good points. I am not sure that this point is correct:

Also, what's important is to look not at stocks of gold in existence, but rather of flows of gold to determine the demand side. If every year ~15% of all gold is sold and bought for industrial purposes and ~15% of it goes to jewelry, the rest being for some form of monetary reason, that might give you some indication of the demand at the current price, but still tells you nothing about the individual slopes of the functions.

The way I look at it, an ounce of gold that sat in a vault for all of 2013 and was never sold is the realization of someone's choice of what to use gold for, just as much as an ounce of gold that left the vault, sold to a computer manufacturer. A transaction foregone is a choice, just as a transaction taken is.

If at the end of 2013 50% of gold is sitting in vaults being used as wealth storage, that means that during 2013 humanity in aggregate bought up 50% of all the gold, melted it into bars, and plunked it into these vaults. Or -- what amounts to the same thing -- they chose to leave the gold that was already sitting in the vaults right where it was. It's the same thing.

Gold is an extremely uniform (homogeneous) good. One gold molecule is as good as another; one ton as good as another ton. It doesn't matter whether that ton was mined 2000 years ago or last month; whether it has been sitting in Switzerland for centuries or is hot off the presses from Western Australia.

So, it doesn't make much sense to me to just count transactions. A gold owner's choosing to leave his gold's usage "as is" affects the market just as much as choosing to change it.

Also, your statement about what would result were gold's commodity demand inelastic is somewhat incorrect. You say the result would be no change in price whatsoever:

I'm glad that you've brought up demand curves, helmuth. If, for some reason, the demand curves for its physical use (meaning the demand for gold if you subtract its monetary demand) were perfectly inelastic (a vertical line in the classic supply and demand diagram) than gold's price would not change at all, if it suddenly lost it's money property - assuming supply is fixed, or horizontal. The quantity traded would change, but not the price.

But actually, that would only be true if the supply curve were vertical as well.

In the very short run -- let's say instantaneously -- all supply curves are vertical. At any given instant there is X amount of a good being offered for sale. What's more, I think that it's true that all instantaneous demand curves are vertical also -- at any given instant people are seeking to buy X amount of a good. And so for at least an instant, when gold's monetary value disappears there will be a surplus. There will be two parallel vertical lines standing next to each other, never meeting. If both long-run demand curves are actually inelastic, this surplus situation will persist forever. The miners and owners of gold hoards will continue offering for sale exactly as many tons per year as they always did back when demand was higher, because they do not care one lick about the price. That's what it means for the supply curve to be perfectly inelastic. And buyers of gold for commodity use will continue to buy exactly the same amount as they did before, because they too care not a whit about mundane, Earthly matters like price.

In this bizarre situation, what will happen to the price of gold? Because the supply is larger, eternally larger, than the demand, the price will fall to zero. The suppliers will bid each other down to zero. The buyers will never, never, never buy more, no matter how low the price goes, and the sellers will never, never, never sell less. And so in the end, the sellers will sell their gold for zero. Why would they do such a thing, you ask? Because their supply curve is vertical -- perfectly inelastic -- and that's what it means to have a vertical supply curve.

But I do not think that any long-run supply curves are, in fact, vertical, and I do not think that any long-run demand curves are either. People may say "price is no object," but as a matter of fact: it always is.

 

[Bungeebones]

After much debate, can I change the question to : "Will someone sell me gold at it's inherent or intrinsic value"? PM me if yes