Biased Opinion - Value Does Not Exist

Dubiously valuable

Or rather, value as anything other than a social construct does not exist. This is something of a tangent into the world of economics, but it is spurred by the gold-loving fantasies of people of a particular political persuasion. For anyone who doesn't want to read the whole thing, the short version is this: Gold coins are not much more intrinsically valuable than paper money, and the difference in their value is trivial at best.

If you ever watch television, you've probably seen the commercials - Buy gold in order to be safe in the event of an economic crisis, or in the worst case scenario, an economic collapse. If the world economy falls apart, then your dollars will be worthless and your gold coins or gold certificates will still be valuable. There's only one problem with this pitch: It is basically a lie. Gold isn't valuable due to some intrinsic property of gold. Gold is valuable because society says it is valuable. If society collapses, the value of your gold will probably collapse too.

You might have also heard some politicians saying that we should ditch "fiat" money and switch to using "real" money made from valuable metals like gold or silver. That way, apparently, our money will be backed with something of "real" value instead of the supposedly imaginary value that it has right now. The problem is, this line of thought completely misunderstands what gives things economic value. There isn't some sort of Platonic ideal value that we can ascribe to things that somehow reflects their "true" value. What gives things economic value is that we, as a society, agree that they have value.

How valuable are these?

Let me digress for a minute. Black pearls are expensive. As in, you better have a couple thousand dollars if you want to have a collection of black pearls to wear. A quick perusal of the internet reveals that the strand of black pearls shown here would probably cost you more than a thousand dollars to buy in today's market. They are generally considered more valuable than white pearls now. But when black pearls were first introduced to the market, they were considered to be substantially less valuable that white pearls. So people who had an ownership interest in black pearls asked some high end jewelers to display black pearls in conjunction with jewels that were seen as being of high value - sapphires, rubies, and so on. Black pearls were advertised using these sorts of displays, associating them with valuable items, and consequently, public perception of the value of the black pearls shifted, and now they are considered quite valuable. Nothing about the black pearls themselves changed. They are still just as rare as they were before. They still look exactly the same. They are still used for exactly the same purposes. They are just seen as being more valuable, and as a result they are more valuable.

And this pretty much true of everything. Some foods are more valuable than other foods, not because they are more nutritious, or tastier, or rarer, but simply because people regard them as being more valuable. Some cars are treated as more valuable than others not because they are better cars, or more reliable cars, or more powerful cars, but rather just because they are seen as being more valuable. This sort of socially assigned value permeates all of our lives, and is largely how the price tags of items are determined.

The thing to understand about value is that there is no "real" value separate from this socially determined value. You might have heard people talking about how diamonds are not valuable because of market manipulation by the diamond cartel, and if diamonds were to be sold at their "true" value, they would be far less expensive than they currently are. But this completely misunderstands value. Diamonds are valuable because people regard them as valuable. Part of that is a carefully managed advertising campaign - after all the idea that a man "should" spend the equivalent of six weeks worth of salary on a diamond engagement ring didn't arise spontaneously - but the reason people think diamonds are valuable pretty much boils down to the fact that everyone agrees that they are valuable, and basically nothing much more than that.

So the question of why gold is "valuable" is answered by the fact that people think gold is valuable. There's nothing about gold, or silver, or rubies, or silk, or caviar, or anything else that makes them "valuable" other than a social consensus that they are. And as the black pearls show, that social consensus can flip pretty quickly, either up or down. Fiat currency isn't any different than anything else in this regard, and isn't any more or less intrinsically valuable than precious metals. You might be thinking to yourself that in the event that people lost confidence in the dollar that the bills would only be useful to line birdcages, and that gold is still useful for all kinds of things. But the industrial uses of gold are actually fairly limited, and the usefulness of gold as jewelry is about as practical as the various uses that one can put valueless dollars to, so the "intrinsic" value of gold is pretty small.

But the somewhat magical thing is that even though there is no objective reference point for "value" for goods, we are all somehow able to agree on how valuable things are in general. But the key realization here is that this assigned value is, to a certain extent, pretty much arbitrary. We decide things are valuable and other things are not simply because we decide that they are. There is no more substance to the value of the book you are holding in your hand than there is to the value of the dollar, euro, pound, or yen that is in your pocket. Value is assigned by social consensus, and social consensus is essentially nothing more than the collective opinion of the individuals living in that society. There really isn't anything more of substance underpinning this concept.

If society somehow collapses, then the values we attach to things are likely to radically shift in unpredictable ways. Gold might still be valuable. It might not. There is simply no real way to tell one way or the other. One thing that is certain is that gold is no more likely to be regarded as valuable than anything else that is currently considered valuable. If you are buying gold because you think it is somehow safe from market forces, then you're wasting your money.

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