Tuesday, April 08, 2008

The Myth of Inherent Value

One of the more loathsome arguments the Keynesians, and yes Resipsa... for the purposes of this post I am lumping you in there with them... as I recall on the Econ Quiz you swung that way a couple times, is the jackasstic claim that since gold has no inherent value, its really no different than paper... its just harder to manufacture.

Adding to this... Bill expands on his own previous record for Most Moronic Comment of the Decade by claiming that gold's biggest risk is currency debasement... He sites two examples over the course of 400 years... And of course... he ignores the debasement of EVERY PAPER CURRENCY ever printed. Seriously... Bill has actually claimed that we shouldn't go to the gold standard because some devious country might flood our country with gold.

The briarpatch should be coming to mind at this point.

Following the logic of these two... we shouldn't revert to the gold standard because one time 300 years ago the currency might have been debased... so instead we should cling to the current system... where-in we know beyond a shadow of a doubt that all currencies will be completely debased.. just like the sun rises in the east.

But lets get back to this "inherent value" idiocy. We call that a theoretical problem. Which is another way of saying "its not problem at all". The claim that the entire world might one day wake up and decide gold isn't valuable.. is plainly stupid. Gold has been used as currency for as long as currency has existed. It always has been currency.. it always will be currency. Hell... it was currency before humans had a word to describe the concept.

Now back to Bill's fears that some evil country might flood the US with gold... There are numerous reasons why this would fail spectacularly...

1) Gold has value and we could trade said gold all over the world for goods. There is a finite amount of gold in the world... the only way to debase its value is for a bunch of leprechauns to get a generous streak.

2) Flooding the country with gold is the same thing as flooding the country with savings.

Is that second that really exposes Bill for the economic illiterate that he is. GNP... GDP... what ever the hell they are calling their variable magic number machine now... has no more bearing on the money supply than the tooth fairy. Credit must be directly related to savings. The amount of savings supporting an economy is exactly the same as the amount of credit that should be available.

That shouldn't be a hard concept. Banks can only lend money that they actually have on deposit. Dig?

GDP is irrelevant.

Gold has value because we say it does. Just like oil. Just like diamonds. Just like Ferraris. It has value for the same reason anything has value... there is a demand for it. What I'm saying is... there is no such thing as "inherent value". Ask the grub eaters in New Guinea about oil. They won't give you a grub for it. They can't use it. There is no demand. Therefore there is no value. Nothing creates its one demand.

The US economy is royally screwed. It is screwed because we screwed it. No other country was required. China didn't have to come here and flood us with gold. We simply did what ALL countries do... we printed more and more and more money... until you may as well wipe your ass with 1 dollar bills. Resipsa argues that we can either enact a fiscally responsible government (he's ignoring the fact that such a thing has never existed for more than a decade or two if at all), or... well...his or hints at switching to the Gold Standard but he doesn't say it because its to scary for him.

Res is that guy driving down the road billowing black smoke... leaking oil all over the road... every 2 blocks he stops to add more oil... but he refuses to take his car to a mechanic... because it may cost a lot to get it fixed.

The pain is coming people. It cannot be avoided. Paper money doesn't work. This isn't a theoretical problem. Its a reality problem. Reality is... every government... every damned government... every one of them... has printed their currency into worthlessness.

No system is perfect. The Gold Standard is not perfect. Its just a trillion times better than the jackassery we have today.