Why is gold an objective value? Isn’t gold a subjective value just like every other currency?
Why is gold an objective value? Isn’t gold a subjective value just like every other currency?
Because gold has real value on the market that is very steady. Since you can’t just print gold up, it retains its value, and thus the integrity of money is maintained.
But isn’t gold only valuable as long as people think its valuable, and doesn’t that make it a subjective value?
But isn’t gold only valuable as long as people think its valuable, and doesn’t that make it a subjective value?
It depends what one means by “objective value”. If the world turned vegetarian, would steak have objective value, even though nobody found it to be valuable? Do beautiful clothes sold by some designer have more objective value than plain clothes, even if they use the same amount and quality of raw-ingredients and cover the same body parts?
Well isn’t an objective value only one that furthers human life? For instance, isn’t food an objective value? Since gold doesn’t directly further our lives, I wouldn’t consider it to be an objective value. But to answer your questions, softwarenerd, I wouldn’t consider steak an objective value in a vegitarian society. And nicer clothes would only be more valuable in a society opulent enough to recognize them as such. In a society of barbarians that only need clothing for warmth, their value would be equal to the regular clothes. So I guess that that means that gold can only have an objective value in a society of opulence with a need for objective values. But doesn’t that mean that gold itself value differs on the society? And doesn’t that then make gold a subjective value? I think I’m only confusing myself haha, I need to think this through more.
Gold has real value to life as a unit of exchange, because the supply is very limited, it is durable, enduring and easily divisible. The value is objective, in that for the purposes specified it works better than anything else. Gold does have other very practical uses, such as in electronics, but we’re here referring to it as a unit of exchange.
Also, historically gold has always naturally risen to a position of dominance as a unit of currency where governments have not stood in the way, starting with ancient China. I recommend the book “Gold and Liberty” by Richard Salsman if you are really interested in this topic.
Other metals would work. For example, silver is another good unit of exhange, but gold trumps it.
But isn’t gold only valuable as long as people think its valuable, and doesn’t that make it a subjective value?
Given the fact that value is, by definition relative (meaning that something can only be of value to a person at a time, not to “people” in general-for instance a bucket of ice is of objective value to me, because my buddy just walked in wearing shorts and carrying beer, but it would not be of value to someone at the South Pole) , I would change what the meaning of subjective is (or rather how one should correctly apply its established meaning, to this subject), just a little:
If a person thinks that something is not of value, and that would suddenly make it not of value to them, that would be a subjective value: for instance some dirt someone carries around from the place they were born in. This does not apply to gold: just because you decide tomorrow that gold is no longer of value to you, it will still be of value to you, because it is an objective value.
But value in general, whether objective or not, is relative : even if gold is objectively valuable to you (meaning it’s not subjective), it doesn’t matter whether you think it’s valuable or not, it does not affect its value. However, the identity of the person to whom the gold is supposed to be of value does matter, because value in general is relative to one specific individual. For instance to person X, who happens to be stranded on a desert island, gold is not valuable. Its value to him is still objective, it won’t all of a sudden change because he decides so, but relative to him the value of gold is, objectively, zero.
Ohhhhh. Ok, that makes sense. Thanks a bunch, that really helped.
Other metals would work. For example, silver is another good unit of exhange, but gold trumps it.
Silver will always have a role, small change if nothing else. Copper for even smaller change.
“Newer” metals (in terms of when we discovered them) like platinum, rhodium, etc, are actually be worth more than gold but are not instantly recognizable.
I’d like to point out that gold isn’t only used because it is pretty and is valued by every civilized culture and region on this earth. It’s also quite valuable as a utility for the economy because it lasts for-freakin’-ever. The wealth will continue to be represented by the same physical amount of the gold, so it doesn’t devalue or disappear over time.
Why is gold an objective value? Isn’t gold a subjective value just like every other currency?
You’ve got answers to this, but I wanted to add an aside: the important principle is that money should be something of real value, not a fiction like fiat money. Gold is one concrete implementation of this principle, and arguably the best possible implementation. Still, in a free economy, it is not up to the government to specify what is used as money. If the free-market decides on the use of gold, so be it. If it uses a mix of things – as would be most likely in a modern economy – that would be fine too. In essence, money is not something completely distinct from all other valuable goods; rather, it is a valuable good that has certain characteristics and is used in a certain way.
Ah ok, that makes sense too. Thanks, and I understood way paper currency was bad, but until now I didn’t understand why gold was any better. Thanks everybody.
… I understood way paper currency was bad, …
Just to clarify, the problem is not that it is paper, but that it is only paper, with nothing behind it, not even the supposed “promise to pay” some objective value. Fiat money is the problem.
*** Mod’s note: Merged from this topic on “Occupy Wall St.” - sN ***
If they devalue now, let people know why they’re devaluing, put in place safeguards against future bubbles (like, oh, I don’t know… a full-reserve, audited gold standard?), then everyone takes their lumps and we rebuild what is still a vital, intact economy.
Having a gold standard would be an absolute disaster. Take a look at this chart which shows that during the depression you could predict a country’s recovery based on when they left the gold standard:
http://en.wikipedia…ssion_Graph.svg
The reason for this is because currencies need to freely float against eachother (ie devalue & revalue) based on market activity, not be artificially fixed against a commodity which is a recipe for rigidity and stagnation. You can see this in the Euro today which is basically a modern day gold standard in most substantial respects.
And a full reserve gold standard?! Well that would mean a drastic cut to the amount of credit in the economy as banks would have to keep more reserves. If private & government players both deleverage at the same time as you advocate, then peoples incomes will fall drastically since one person’s spending = another persons income. This would NOT be good policy.
Ice, that graph really doesn’t show what you’re claiming it does very convincingly. Yeah, for the US the point comes in conveniently at the depth of the crisis, but several other countries did it before their worst crash, or once things had already gotten better. Besides, there are so many reasons as for why a depression can be prolonged that saying based on this that it was obviously the gold standard’s fault is ludicrous, to be honest. There’s a million different government policies and economic facts that come into play there. I’d be very interested in seeing how much of the drop in income is explained by the gold standard; I’m willing to bet it is a very small % (when you do statistical analysis on it).
Having a gold standard would be an absolute disaster… The reason for this is because currencies need to freely float against each other … not be artificially fixed against a commodity which is a recipe for rigidity and stagnation… And a full reserve gold standard?! Well that would mean a drastic cut to the amount of credit in the economy as banks would have to keep more reserves… This would NOT be good policy.
Wrong. Having a gold standard does not necessarily mean that the price of gold against a currency should be fixed as it was in America at one time at $35 per ounce. The price of gold in Dollar terms should be allowed to freely fluctuate since there is not enough gold in the world to match all economic activity. Currency is NOT money. Gold and silver is the real money. Currency is just worthless pieces of paper. Any govt that over prints its currency will be put in check because it will lose value and people will stop accepting it and insist on gold/silver. The govt will then be forced to also pay its bills using gold/silver. But in any case, printing currency should be given back to the banks and not left to a govt monopoly (Fed). Banks will never cause inflation by overprinting because of the risk of depositors pulling out their money.
Real money has three functions. A medium of exchange, a unit of account and a store of value. Fiat currency satisfies the first two but fails on the third function because govts have power to just print, thereby indirectly taxing citizens, most of whom are too dumb to know what is happening. The price of most commodities in gold/silver terms has been more or less constant (if not reducing) for hundreds of years whereas I cannot think of any fiat currency that maintains its purchasing power over 50 years (today’s Dollar is worth less than four cents what it was in 1913 when the Fed was created).
Thomas makes excellent points I fully agree with.
I think you misunderstand the nature of gold as money, because a gold standard or gold as money does mean that there would be a fixed amount of gold that would be available for each dollar. You are thinking about it being two separate systems – money and gold – but what money as gold means is that the gold in weights would be the unit of exchange, and the bills would simply be a convenient way of carrying your gold. That is, notes would be issued that say this note is redeemable in a certain amount of gold, and you could carry that note to your bank and exchange it for that amount of gold. This was the monetary system in the United States until the Federal Reserve stole all of the gold and gave out greenbacks instead and made it the legal tender of the land. So don’t think of the bills as being the money, the money would be the gold, and the notes or bills would be like a check pre-written for a certain amount of gold. Actually, to make it less confusing and more difficult to manipulate, prices would be in terms of weights of gold, not dollars and cents. So a car, for example, would cost so many ounces of gold, not $20K. Likewise you would buy things at the grocery store for specified weights of gold, not dollars.
Ice, that graph really doesn’t show what you’re claiming it does very convincingly. Yeah, for the US the point comes in conveniently at the depth of the crisis, but several other countries did it before their worst crash, or once things had already gotten better. Besides, there are so many reasons as for why a depression can be prolonged that saying based on this that it was obviously the gold standard’s fault is ludicrous, to be honest. There’s a million different government policies and economic facts that come into play there. I’d be very interested in seeing how much of the drop in income is explained by the gold standard; I’m willing to bet it is a very small % (when you do statistical analysis on it).
It is pretty much universally accepted amongst respected economists across the political spectrum, from Milton Friedman to Keynes, that leaving the gold standard helped America’s recovery. The graph is pretty clear for America and Britain, less clear for other countries granted.
Having a gold standard does not necessarily mean that the price of gold against a currency should be fixed as it was in America at one time at $35 per ounce. The price of gold in Dollar terms should be allowed to freely fluctuate since there is not enough gold in the world to match all economic activity.
I think this shows where you guys are unclear - your first sentence is exactly what a gold standard is defined as. Your second sentence is exactly the system we have TODAY ie no gold standard with the price of gold in dollars freely fluctuates. You have the exact opposite definition of the two regimes.
I think you misunderstand the nature of gold as money, because a gold standard or gold as money does mean that there would be a fixed amount of gold that would be available for each dollar.
You make the same mistake; that is exactly what a gold standard is.
Your quotes and replies don’t make any sense from my reading. If we get a gold standard, it does mean that each dollar would be representative of a certain fixed amount of gold. If we did it today, “one dollar = 1/2000 ounce of gold.” This would be a definition of what “one dollar” means, not a ratio of dollars to gold, or how much gold a dollar could purchase. In other words, for a one dollar bill, instead of saying it is backed by the good faith and credit of the United States, it would say redeemable for 1/2000 ounce of gold. And the government would not be printing dollar bills. The Federal Reserve would be ended, and the function of money would be turned over to private banks who would issue gold coins and / or gold notes for the gold reserves they had on hand from deposits. Printing more nominal bills than gold available at the bank would be illegal, as this would be fraud,since each dollar issued by the bank would be a draw on its gold reserves. So, if they had 1,000 ounces of gold on hand from deposits, the total nominal bills could not exceed 1,000 ounces of gold.
By the way, there is a lot of misinformation out there about gold as money, such as the previous person stating that there isn’t enough gold to go around to run an economy. There is plenty of gold out there, if the government would not have confiscated it and gave us greenbacks. All that gold in Fort Knox actually belongs to the American people,and would have to be returned to the American people for a gold as money system to be established; otherwise, I think you are right that there isn’t enough gold to go around out there.
By the way, we would have a functional gold standard, even if they didn’t call it that, if the Federal Reserve would stop printing money or trying to create bills out of thin air. That’s all they have to do is to stop printing dollars and other currency notes, then the dollar would once again be worth a fixed amount of gold, even if it didn’t say that on the bill itself. But the Federal Reserve system was intentionally set up to manipulate money under the government’s decree, and now we have the dollar at 1/2000 ounce of gold instead of a much more valuable amount of gold. Back when I wrote an essay on the same subject, gold was at $300 per ounce, so just a decade or so ago, the dollar was worth 1/300 ounce of gold.