Billy’s Befuddled by Gold Buggery. Care to Help Explain?

Gold dollars

As I’m sure you’ve no doubt read, gold is trading at historically high values. As I understand it, gold is supposed to function as a hedge against the declining value of other more mainstream assets in a time of economic stress. Or to put it in the more common terms one hears on television and radio, “Hey the apocalypse is coming, but at least I’m gonna have gold and guns.”

I understand guns completely. Guns will have real value in the post apocalyptic Randian hellscape. But can anyone explain to me how this is supposed to work with gold? I genuinely don’t know. What gives gold its intrinsic value? That people like to buy tacky hearing bone necklaces? Who are all these guys buying gold at the “We Buy Gold” shops on South Florida Avenue selling to?

I mean, assume we have a run-of-the-mill Great Depression. Wouldn’t the price of gold, which is a luxury item, collapse along with the demand of consumer and luxury products generally? Wouldn’t the stuff they make cell phones with–that mineral dug by child soldiers in Africa–make a smarter hedge actually tied to demand? Or am I missing something? And if you buy gold through a broker, can you take possession of the gold bars somehow? Can you drive to some gold depository and pick it up?

And then assume we go all Mad Max, the full Monty of social and economic collapse, how is gold useful to you in that situation? Cuz it’s pretty? I think the idea is somehow that when cash loses all value, gold will still serve as legal tender. But how and why? And wouldn’t foodstuff crops make a lot more sense. I can’t think of anything less useful in the Randian hellscape than a really heavy, stubby, and unswingable hunk of metal.

I truly am befuddled. Can anyone help? I don’t get it.


Creative Commons License image credit: Brooks Elliott

41 thoughts on “Billy’s Befuddled by Gold Buggery. Care to Help Explain?

  1. Gold is the only form of currency that has consistently held (and increased in) value. This is backed by 6000 years of history. You should read “The Creature from Jekyll Island”, which is an expose on our central bank (the Federal Reserve). G. Edward Griffin does a great job explaining the history of money and banking. You could probably find some good articles online from Griffin about gold.

    • Actually, slaves held their value for greater than 6,000 years and were quite useful as currency. American slaves were at the peak of their value at the time of the US Civil War.  And frankly, I understand why, from a purely amoral economic perspective. The same way I understand why the market has “chosen” force of arms over an even longer period of time. What I still don’t understand is the mechanism, the physical use of gold, that makes it valuable in a world where fiat money doesn’t exist. No one’s been able to explain it, which is always a warning sign. Just like no one could explain who was actually going to live in those giant condos in downtown Tampa or in the sprawl of Lehigh Acres. I think I’ll just try to muddle though with my fiat money.

      Also, we know, by definition, that the market is not moral. It does not correct for decency. Decency is imposed by externalities. Why, if it’s not moral, would it be wise?

      • “We have gold because we cannot trust governments.” President Herbert Hoover’s statement in 1933 to Franklin D. Roosevelt.I don’t think gold has any inherent value, but under any made-up circumstance, nothing does. What value is an almond in a world without peanuts? The value of anything is only what we put into it. A pile of poo has no value to me, but a farmer might think otherwise.Good discussion over here, though I didn’t read it all: http://boards.straightdope.com/sdmb/archive/index.php/t-607539.htmlI found that by searching google for: what makes gold valuable in a world where fiat money doesn’t exist

      • “We have gold because we cannot trust governments.” President Herbert Hoover’s statement in 1933 to Franklin D. Roosevelt.I don’t think gold has any inherent value, but under any made-up circumstance, nothing does. What value is an almond in a world without peanuts? The value of anything is only what we put into it. A pile of poo has no value to me, but a farmer might think otherwise.Good discussion over here, though I didn’t read it all: http://boards.straightdope.com/sdmb/archive/index.php/t-607539.htmlI found that by searching google for: what makes gold valuable in a world where fiat money doesn’t exist

  2. I think I understand how it ended up in this position over 6,000 years. But over the last couple of hundred, in the way our economic processes have developed, I fail to understand its continued value and anticipated future value. Outside of insistence that people will always want to make pretty earrings. Is that really the whole thing? 

    • I think in a post-apocalyptic universe that knowledge and cunning will be much more valuable than any currency, all of which are intrinsically worthless or nearly so, gold included. Therefore, the safest thing to do with your money is to spend it all on books to read so you can get smarter.

    • I think in a post-apocalyptic universe that knowledge and cunning will be much more valuable than any currency, all of which are intrinsically worthless or nearly so, gold included. Therefore, the safest thing to do with your money is to spend it all on books to read so you can get smarter.

    • I think in a post-apocalyptic universe that knowledge and cunning will be much more valuable than any currency, all of which are intrinsically worthless or nearly so, gold included. Therefore, the safest thing to do with your money is to spend it all on books to read so you can get smarter.

    • I think in a post-apocalyptic universe that knowledge and cunning will be much more valuable than any currency, all of which are intrinsically worthless or nearly so, gold included. Therefore, the safest thing to do with your money is to spend it all on books to read so you can get smarter.

    • I think in a post-apocalyptic universe that knowledge and cunning will be much more valuable than any currency, all of which are intrinsically worthless or nearly so, gold included. Therefore, the safest thing to do with your money is to spend it all on books to read so you can get smarter.

  3. Gold, and gold standards, meet Von Mises principals of sound money:

    “Thus the sound-money principle
    has two aspects. It is affirmative in approving the market’s choice of a
    commonly used medium of exchange. It is negative in obstructing the government’s
    propensity to meddle with the currency system.”
    Full text of Von Mises’ “The Theory of Money and Credit” at http://mises.org/books/Theory_Money_Credit/Contents.aspx

    It’s not about surviving Thunderdome, it’s about surviving what your government does to the fiat currency.

    If all else fails, I guess you can always cast it into bullets…

  4. Gold, and gold standards, meet Von Mises principals of sound money:

    “Thus the sound-money principle
    has two aspects. It is affirmative in approving the market’s choice of a
    commonly used medium of exchange. It is negative in obstructing the government’s
    propensity to meddle with the currency system.”
    Full text of Von Mises’ “The Theory of Money and Credit” at http://mises.org/books/Theory_Money_Credit/Contents.aspx

    It’s not about surviving Thunderdome, it’s about surviving what your government does to the fiat currency.

    If all else fails, I guess you can always cast it into bullets…

  5. Gold, and gold standards, meet Von Mises principals of sound money:

    “Thus the sound-money principle
    has two aspects. It is affirmative in approving the market’s choice of a
    commonly used medium of exchange. It is negative in obstructing the government’s
    propensity to meddle with the currency system.”
    Full text of Von Mises’ “The Theory of Money and Credit” at http://mises.org/books/Theory_Money_Credit/Contents.aspx

    It’s not about surviving Thunderdome, it’s about surviving what your government does to the fiat currency.

    If all else fails, I guess you can always cast it into bullets…

  6. Gold, and gold standards, meet Von Mises principals of sound money:

    “Thus the sound-money principle
    has two aspects. It is affirmative in approving the market’s choice of a
    commonly used medium of exchange. It is negative in obstructing the government’s
    propensity to meddle with the currency system.”
    Full text of Von Mises’ “The Theory of Money and Credit” at http://mises.org/books/Theory_Money_Credit/Contents.aspx

    It’s not about surviving Thunderdome, it’s about surviving what your government does to the fiat currency.

    If all else fails, I guess you can always cast it into bullets…

    • Skeptical E. is right on…Von Mises is your best bet if you want to understand economic and monetary subject matter.

      • Ok, but this all abstract. I know you guys don’t believe me, but I’m honestly trying to understand the real world mechanism by which gold is a smart investment outside of its arbitrage value as a nihilistic panic bubble. No one seems able to tell me.

        Are you saying that the government will hyperinflate the fiat (paper) currency and thus gold will retain real value that paper money won’t? And if so, how? How will you use it when the hyperinflation comes. You’ll still have to convert to cash or some equivalent “fiat currency” right? I may be wrong, but why is gold a better investment in crash times than, say, paying of the mortgage on your house or buying something that produces something tangible, like a farm.

        Don’t go “return to the gold standard” on me. That’s not what I’m asking. We’re not in that world. In the world that we’re in, why does it make sense to invest in gold? 

        • The real answer to your question, though I don’t think you can accept it, is simply that the market has chosen it. Money is nothing more than a medium and people around the world, including governments, believe that gold represents a stable medium. It has done so historically and there doesn’t appear to be any new information to knock it down from that respected perch.

          During a period of hyperinflation, it would be dumb to pay down a fixed rate loan. As a percentage of your income, the cost of the loan will shrink in proportion to the inflation of you earnings.

          Keep sticking your fingers in your ears and ignoring available information. Rational people are discussing the possibility of gold again.

          http://www.marketwatch.com/story/swiss-parliament-to-discuss-gold-franc-2011-07-07

        • The real answer to your question, though I don’t think you can accept it, is simply that the market has chosen it. Money is nothing more than a medium and people around the world, including governments, believe that gold represents a stable medium. It has done so historically and there doesn’t appear to be any new information to knock it down from that respected perch.

          During a period of hyperinflation, it would be dumb to pay down a fixed rate loan. As a percentage of your income, the cost of the loan will shrink in proportion to the inflation of you earnings.

          Keep sticking your fingers in your ears and ignoring available information. Rational people are discussing the possibility of gold again.

          http://www.marketwatch.com/story/swiss-parliament-to-discuss-gold-franc-2011-07-07

        • The real answer to your question, though I don’t think you can accept it, is simply that the market has chosen it. Money is nothing more than a medium and people around the world, including governments, believe that gold represents a stable medium. It has done so historically and there doesn’t appear to be any new information to knock it down from that respected perch.

          During a period of hyperinflation, it would be dumb to pay down a fixed rate loan. As a percentage of your income, the cost of the loan will shrink in proportion to the inflation of you earnings.

          Keep sticking your fingers in your ears and ignoring available information. Rational people are discussing the possibility of gold again.

          http://www.marketwatch.com/story/swiss-parliament-to-discuss-gold-franc-2011-07-07

        • The real answer to your question, though I don’t think you can accept it, is simply that the market has chosen it. Money is nothing more than a medium and people around the world, including governments, believe that gold represents a stable medium. It has done so historically and there doesn’t appear to be any new information to knock it down from that respected perch.

          During a period of hyperinflation, it would be dumb to pay down a fixed rate loan. As a percentage of your income, the cost of the loan will shrink in proportion to the inflation of you earnings.

          Keep sticking your fingers in your ears and ignoring available information. Rational people are discussing the possibility of gold again.

          http://www.marketwatch.com/story/swiss-parliament-to-discuss-gold-franc-2011-07-07

  7. It’s easy to make straw men from a fictional work, but in spite of her flaws Rand was prescient in her view of the future. Look no further than the recent NLRB decision against Boeing. Look at the scope and reach of the Executive branch today. Congress has almost totally outsourced lawmaking to the Executive. Take Obamacare as an example, when Pelosi said that they had to pass the bill to see what was in it she wasn’t being the fool everyone thought she was. It’s over a year later and HHS is still writing the rules to implement what they passed. We still don’t know everything that was in that law. HHS is granting waivers left and right to allow companies to avoid consequences of the law and the regulations stemming from it. As if we needed more impetus into the crony capitalism that is choking real innovation.

    Just like what happened to those punk rioters in England, who grew up on the Dole and won’t motivate themselves to live beyond what government provides for them, we here are being slowly taught that government is the solution to every problem – even the ones that government themselves bring about. Our republic is dying in dribs and drabs while we watch it live on 24 hour cable.

  8. It’s easy to make straw men from a fictional work, but in spite of her flaws Rand was prescient in her view of the future. Look no further than the recent NLRB decision against Boeing. Look at the scope and reach of the Executive branch today. Congress has almost totally outsourced lawmaking to the Executive. Take Obamacare as an example, when Pelosi said that they had to pass the bill to see what was in it she wasn’t being the fool everyone thought she was. It’s over a year later and HHS is still writing the rules to implement what they passed. We still don’t know everything that was in that law. HHS is granting waivers left and right to allow companies to avoid consequences of the law and the regulations stemming from it. As if we needed more impetus into the crony capitalism that is choking real innovation.

    Just like what happened to those punk rioters in England, who grew up on the Dole and won’t motivate themselves to live beyond what government provides for them, we here are being slowly taught that government is the solution to every problem – even the ones that government themselves bring about. Our republic is dying in dribs and drabs while we watch it live on 24 hour cable.

  9. Is gold nothing more than our version of Rai stones?
    Is the value of gold just a symbol of the power needed to protect it?
    Did Dan Folgelberg understand the power of gold?

    Billy, I doubt anyone truly understands. Gold used to be something hard to get, but within the reach of someone in the right place at the right time. That balance of scarcity and potential made it precious.  Today? It’s just inertia that keeps people buying it as a worrystone when they fear the economy will collapse.

    • And so long as enough other people want the same worrystone, you have a market in it. Free people around the world making their own choices. That sounds like most of the solution right there…

      And just for the record, I’ve never been a Mad Max, apocalyptic prophet. I do believe that our society is about to undergo serious upheaval, but we’ll just trade one for another and it will be mostly peaceful.  I’m not optimistic that it will be an outcome I favor, though many others are. We’ll just have to wait and see what the revolution brings.

  10. I wonder this every time I hear one of those commercials & I have 2 theories:

    1. (Much like what Chuck said) it has been consistent in the past, so people just assume it will continue to be so.  The problem with that theory is just like the real estate market of the past 10 years, it’s ALWAYS gone UP, so why would it ever go back down? Safest investment ever, right?!

    2. Any government can print more money, which makes what you have less valuable.  It’s infinitely more difficult for said government to make more gold (conspiracy theories aside), which means it has a more stable trading value that cannot be as easily manipulated by governments & can outlast those governments’ collapse. 

    Interesting thought on #2, our $$$ used to be backed by gold, then they removed that backing… where’d all the gold go?  No doubt it is in a vault, waiting for our economy to collapse & our currency/credit to be worthless, then our government can unlock money they had squirreled away in their “mattress” that is actually still worth something.

  11. But I did not ask what gives anything value. I asked what gives gold value in relation to “poo” or almonds–both of which I would rather own in an apocalyptic world of no fiat money–than gold. Why would I be wrong to prefer them?

    • I didn’t say you were wrong, Billy. And you did ask, “What gives gold its intrinsic value?” That’s value in and of itself. Poo or almonds have no value unless we want or need them for whatever reason, and only then are they valuable to us. Same with gold.

      I’m gonna guess you didn’t have your coffee before responding on this one.

    • I didn’t say you were wrong, Billy. And you did ask, “What gives gold its intrinsic value?” That’s value in and of itself. Poo or almonds have no value unless we want or need them for whatever reason, and only then are they valuable to us. Same with gold.

      I’m gonna guess you didn’t have your coffee before responding on this one.

    • I didn’t say you were wrong, Billy. And you did ask, “What gives gold its intrinsic value?” That’s value in and of itself. Poo or almonds have no value unless we want or need them for whatever reason, and only then are they valuable to us. Same with gold.

      I’m gonna guess you didn’t have your coffee before responding on this one.

      • Sigh. The post is very clear about talking about gold’s relative real world value, as opposed to guns or crops. I used guns and crops specifically as comparative examples. 

        In another comment, I wrote: why is gold a better investment in crash times than, say, paying of the mortgage on your house or buying something that produces something tangible, like a farm.

        It gets so freaking old with you and the other guy having to walk back and say, “let’s read together what I wrote. ” You’re not as bad as him, which I why respond. But come on.

      • Sigh. The post is very clear about talking about gold’s relative real world value, as opposed to guns or crops. I used guns and crops specifically as comparative examples. 

        In another comment, I wrote: why is gold a better investment in crash times than, say, paying of the mortgage on your house or buying something that produces something tangible, like a farm.

        It gets so freaking old with you and the other guy having to walk back and say, “let’s read together what I wrote. ” You’re not as bad as him, which I why respond. But come on.

      • Sigh. The post is very clear about talking about gold’s relative real world value, as opposed to guns or crops. I used guns and crops specifically as comparative examples. 

        In another comment, I wrote: why is gold a better investment in crash times than, say, paying of the mortgage on your house or buying something that produces something tangible, like a farm.

        It gets so freaking old with you and the other guy having to walk back and say, “let’s read together what I wrote. ” You’re not as bad as him, which I why respond. But come on.

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