Gold Has No Value

Some people object to the gold standard because gold has no intrinsic value. An example of a person expressing this notion is Richard Cook in We Hold These Truths: The Hope of Monetary Reform (Aurora, Colorado: Tendrill Press, 2008-2009), pages 55-56. (Cook is a promoter of the social credits monetary theory and believes that money should have no value in-and-of itself. Yet he opposes gold even though he claims that it has no value in-and-of itself.)

The extent that gold has no intrinsic value is the extent that food, water, shelter, and clothing have no intrinsic value. Valuation is mostly subjective. A person who is full from just eating a large meal places little value on another meal, even a gourmet meal, for several hours. A person who has not eaten for several days places a great deal of value on even a mediocre meal.

However, when a person uses gold as money, each additional unit of gold that he possesses decreases the value of gold as money at an almost unnoticeable rate. On the other hand, when a person needs a gold crown on a tooth, he values that gold as a crown more than he values it as money. Once the tooth is crowned, his valuation of gold for a crown rapidly approaches zero until he needs another tooth crowned.

If intrinsic value means that gold has no absolute value in-and-of itself, independent of human thought, then neither gold nor anything else has such value. When people say that gold has intrinsic value, they usually mean that it has value in-and-of itself because of its uses. Gold has value because of its use in jewelry, electronics, medicine, and religion. That is, it has value in its monetary use because it has value in its nonmonetary use. When people began using gold as money (medium of exchange, store of value, etc.), its monetary use added to its intrinsic value.

Unlike US federal reserve notes, gold has an intrinsic value not affected by law. The reason that federal reserve notes have value is that the dollar used to be a definite weight of gold and that the federal reserve notes were once redeemable in gold on demand. Likewise, other fiat paper currencies have value because they were once convertible in gold or are descendants of currencies that were. Once paper money, including its electronic equivalent, ceases being redeemable in gold, its value, i.e., purchasing power, begins declining. Legal tender laws slow the decline fiat paper money to their nonmonetary intrinsic value of crude toilet paper and Btu content. Furthermore, electronic money has no intrinsic value.

As a medium of exchange, money is whatever a willing buyer and a willing seller agree on to make the exchange. However, unless the government forces them to, no sane person is going to trade a useful product for a worthless piece of paper or an electric blip. That paper or its electronic equivalent can only have value if it is or once was related to something that had value in-and-of itself. If money has no value in-and-of itself or is not descended from money that did, how does one know the value of the money? Legal tender laws are often needed to force people to accept irredeemable paper money for payment. Otherwise, it would quickly reach its intrinsic value of its nonmonetary use.

A corollary notion is that gold is totally useless unless goods and services are available for sale (Cook, p. 56). No, it is not. To the contrary, it is highly useful even if not used as money. Its nonmonetary uses are what gave it value that enabled it to be used for money. Today, gold is not used as a medium of exchange, yet it is highly valuable.

A pre-1933 US gold dollar has the purchasing power of about 65 US-federal reserve-note dollars in June 2016. Thus, a gold dollar has much more value, intrinsic or otherwise, than the federal-reserve-note dollar.

If one believes that gold has no value whereas electronic blips, which is the predominant form of money today, do, he should go to some poverty-stricken country like Haiti and find out which one really has value. He will have no problem spending his gold coin. He will have difficulty finding anyone willing to sell him something for his electronic blip. (We are assuming that the government does not prohibit exchanging goods and services for gold.)

Furthermore, if gold has no value, why do governments expend many more resources guarding their hoards of gold than they expend guarding any vault filled with paper currency? If gold has no value, why do people expend their time and resources looking for, mining, and refining gold?

By Thomas Allen –

From the Gold Standard Institute (subscribe here)

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