Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

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jasc15
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Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by jasc15 »

Or was there something else valuable about gold?

I was thinking about this while reading The Great Depression: A Diary, when the author constantly worried about the US going off the gold standard, and reducing the dollar's gold content. This, combined with compelling arguments from folks like Warren Buffett that gold has no intrinsic value, made me wonder why the dollar ever was backed by gold, and what use it was.

It seems to me that it is a hold-over from the transition from a barter-based economy to a currency-based economy. The currency had to be something not easily replicated, which in the past meant something relatively scarce like gold. The "value" in using gold for currency wasn't that some quantity of gold was of equivalent value as so many goods, but that it could be universally recognized that it represented a certain value of goods since its supply was controlled.

With the invention of paper money which is relatively hard to reproduce, all of the features that made gold useful as currency can now be applied to this paper. However, since people are resistant to change, these notes needed to continue to represent some quantity of gold, which in turn represented the value of goods. It seems redundant to have one currency to represent another currency which in turn represents some value of goods. Cut out the middle man that is gold, and just substitute one fiat currency for another.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Index Fan »

Scarcity is significant. Printing unlimited amounts of 'paper money' ends badly, as seen in history.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by rkhusky »

Gold is valuable because people want it. I imagine that people wanted it before it was used for currency.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by psteinx »

Gold DOES have certain interesting properties as a metal:

* Shiny (Don't underrate this, especially for ancient times)
* Interesting color
* IIUC, easy to mold, stretch, etc. This makes it good for jewelry
* Techniques for applying as plating were developed fairly early, I think, and allowed a small quantity to go a long way

If gold was 1000 times more common than it actually is, I think it would be a widely used metal for many cosmetic and industrial purposes, and would have been so for a long time. Given that it is rare and hard to find, it is/was still useful, just much pricier. This in turn probably translated quite early to its use as a status symbol, and its value in trade. From there, it's not too hard to trace its path and utility from early barter systems, to coinage, to backing various paper money systems...
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by tludwig23 »

Index Fan wrote:Scarcity is significant. Printing unlimited amounts of 'paper money' ends badly, as seen in history.
Please explain. When has printing paper money ended badly?
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by cjking »

https://en.wikipedia.org/wiki/Hyperinfl ... r_Republic
Because reparations were required to be repaid in hard currency and not the rapidly depreciating Papiermark, one strategy Germany employed was the mass printing of bank notes to buy foreign currency which was in turn used to pay reparations. This greatly exacerbated the inflation rates of the paper mark
Last edited by cjking on Wed Dec 02, 2015 11:56 am, edited 1 time in total.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by jasc15 »

I see how gold is resistant to some of the weaknesses (it's harder to mint more gold coins than to print paper money) of paper currency, but are there other reasons gold was/is seen as a superior currency?
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Phineas J. Whoopee »

Originally the US dollar was defined as a specific weight of silver. Spanish milled dollars were commonly in use in the US at the time, so the quantity was set by measuring the average weight of the circulated coins.

They found an average of 374 4/16 grains, or as we would say 24.1 grams, of pure silver, and that's what was written into the Coinage Act of 1792. Practical coins had other metals alloyed to improve durability, so coins typically weighed above their pure silver content.

In the same act, Congress, rather arbitrarily given the care taken with the silver definition, specified gold, in terms of US dollars, to be 15 times the worth of silver.

Naturally the relative market values of the metals changed, so sometimes there was a shortage of gold ('cause it was worth more than 15 times), and sometimes of silver (when the market price of the commodities was such that gold was worth less than 15 times).

In the Coinage Act of 1834, Congress increased the gold:silver ratio to 16:1.

The Coinage Act of 1849 authorized the minting of smaller (one dollar) and larger (twenty dollar) gold coins.

The Coinage Act of 1857 banned the use of foreign coins as legal tender.

The Coinage Act of 1864 changed the composition of copper coins.

The Coinage Act of 1873, which likes to be called the Crime of '73 by its friends, ended bimetalism and defined the dollar in terms of gold. Note that before the act, the US was not on a gold standard. The act was popular among the wealthy, especially along the coasts, where gold was in frequent use, and wildly unpopular in the interior where silver, when one could lay hands on any, was the monetary metal of choice. In effect, the change, and hence its nickname, forced farmers who had borrowed in silver to buy their land to pay it back in gold.

In 1933 FDR issued Executive Order 6102 banning most private ownership of gold. Although theoretically backed by some, in effect it ended the gold standard in the US. Roosevelt had authority to issue the order due to an act of Congress earlier that year, modifying an older law into the Emergency Banking Act.

At most, the US gold standard lasted from 1873 - 1933, or 60 years. That's all. But, at least the economy would have been free of monetary shocks, wouldn't it? Well, yes it would have, if not for Panic of 1873, triggering the Long Depression which lasted until 1879; the Panic of 1884 which came during the 1882-1885 depression; the Panic of 1893, which lasted until 1897; the Panic of 1896 which came during the time the Panic of 1893 was still being felt; the Panic of 1901, whose effects continued until 1904; the Panic of 1907, which lasted about a year; the Depression of 1920-1921; and the Great Depression.

By my count that's 22 years of instability in the US during the 60 years we were on the gold standard.

With respect to paper money, the Colony of Massachusetts introduced some in 1690, and the Continental Congress printed up more in 1776.

Or if you really want to know, the first documented issue of paper currency was by the Tang Dynasty in China, in the seventh century.

Does that help answer your question?

PJW
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Oicuryy »

According to Wikipedia gold was valuable for thousands of years before it was used as currency. See Cultural history and Monetary exchange (historical).

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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by MrKnight »

People like gold because it's shiny and they like wearing it. That's the historical answer. Now there is some applications in use of technology but use is constrained due to cost.

Nothing made it better to use than other items as money substitute. There is not intrinsic value in gold, value is assigned by people as a luxury good due to scarcity.

Most economists do not think that gold is or was superior to paper currency. Gold based economy constrains economic growth.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by jasc15 »

Phineas J. Whoopee wrote: Does that help answer your question?
PJW
Wow, lots of great information. Benjamin Roth, in his diary, continuously refers to the Panic of 1893 as a roadmap for the depression he is experiencing. I suppose I never picked up on the fact that the "gold standard" did nothing to ease or mitigate that Panic, nor the others during its time.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by tludwig23 »

cjking wrote:https://en.wikipedia.org/wiki/Hyperinfl ... r_Republic
Because reparations were required to be repaid in hard currency and not the rapidly depreciating Papiermark, one strategy Germany employed was the mass printing of bank notes to buy foreign currency which was in turn used to pay reparations. This greatly exacerbated the inflation rates of the paper mark
Right. And had they not printed paper Marks in order to buy foreign currency to repay reparations, what would have happened? Massive unemployment, riots, revolution, etc. So it isn't so much that printing paper money led to a bad outcome, it was that the system of reparations set up was going to lead to a bad outcome no matter what they did. Printing paper Marks just delayed the inevitable economic collapse.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by David Jay »

tludwig23 wrote:
Index Fan wrote:Scarcity is significant. Printing unlimited amounts of 'paper money' ends badly, as seen in history.
Please explain. When has printing paper money ended badly?
Really???

Everywhere - Weimer Republic (highlighted in another post), Nationalist China 1948-1949 (my parents were in China at the time, they had to take a grocery bag full of money to the store to buy a similar sized bag of foodstuffs) , Zimbabwe (I own a 100 Trillion Dollar and a 50 Trillion Dollar note).

Here is link to a formal paper that enumerates 56 occurrences of hyperinflation in the last 100 years, defined as greater than 50% per month inflation rate: http://object.cato.org/sites/cato.org/f ... aper-8.pdf
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by jasc15 »

As tludwig23 says, are these inflationary events because paper money was used rather than gold-backed, or were these a result of other catastrophes? Correlation does not mean causation.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by tludwig23 »

David Jay wrote:
tludwig23 wrote:
Index Fan wrote:Scarcity is significant. Printing unlimited amounts of 'paper money' ends badly, as seen in history.
Please explain. When has printing paper money ended badly?
Really???

Everywhere - Weimer Republic (highlighted in another post), Nationalist China 1948-1949 (my parents were in China at the time, they had to take a grocery bag full of money to the store to buy a similar sized bag of foodstuffs) , Zimbabwe (I own a 100 Trillion Dollar and a 50 Trillion Dollar note).

Here is link to a formal paper that enumerates 56 occurrences of hyperinflation in the last 100 years, defined as greater than 50% per month inflation rate: http://object.cato.org/sites/cato.org/f ... aper-8.pdf
Yes, really. Printing paper currency can clearly lead to hyperinflation as noted by the above examples. But you have to consider the consequences of not printing the currency. Usually the inflation is tolerated for some period of time to avoid or at least delay some larger economic disaster. Paper currency is a tool (the can be wisely or unwisely used, like any other tool) that permits this. How many economic disasters, e.g., the Great Depression in the US, could have been somewhat mitigated by more flexible monetary policy, including the printing of money?
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Crow Hunter »

Pick up an ounce of pure gold sometime and you will know why it was valued. :D

It is a pretty cool experience to have something that small in your hand but feel it weigh that much and look at its color. It has a very unique yellow color. I think that if gold were just as available as say steel, we would still attach value to it because it is such an attractive metal with so many interesting properties.

Also, to build on Phineas's post you should look into more about coinage. It is fascinating.

Homework:

Like why do so many countries use the term "dollar" for their currency?

Where did "$" symbol come from?

Why was the US stock market denominated in 1/8ths until the late 1990's?

Really fascinating stuff.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by David Jay »

tludwig23 wrote:
David Jay wrote:
tludwig23 wrote:
Index Fan wrote:Scarcity is significant. Printing unlimited amounts of 'paper money' ends badly, as seen in history.
Please explain. When has printing paper money ended badly?
Really???

Everywhere - Weimer Republic (highlighted in another post), Nationalist China 1948-1949 (my parents were in China at the time, they had to take a grocery bag full of money to the store to buy a similar sized bag of foodstuffs) , Zimbabwe (I own a 100 Trillion Dollar and a 50 Trillion Dollar note).

Here is link to a formal paper that enumerates 56 occurrences of hyperinflation in the last 100 years, defined as greater than 50% per month inflation rate: http://object.cato.org/sites/cato.org/f ... aper-8.pdf
Yes, really. Printing paper currency can clearly lead to hyperinflation as noted by the above examples. But you have to consider the consequences of not printing the currency. Usually the inflation is tolerated for some period of time to avoid or at least delay some larger economic disaster. Paper currency is a tool (the can be wisely or unwisely used, like any other tool) that permits this. How many economic disasters, e.g., the Great Depression in the US, could have been somewhat mitigated by more flexible monetary policy, including the printing of money?
You are asking a policy question. Could unknown and unknowable alternatives have been worse (or better) - who knows?

I was answering the historic question that you asked: "When has printing paper money ended badly?"
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by itstoomuch »

Powere of Gold;the History of an Obsession. Peter Bernstein. One of his three books that are economic classics.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Epsilon Delta »

David Jay wrote:
tludwig23 wrote:
Please explain. When has printing paper money ended badly?
Really???

Everywhere - Weimer Republic (highlighted in another post), Nationalist China 1948-1949 (my parents were in China at the time, they had to take a grocery bag full of money to the store to buy a similar sized bag of foodstuffs) , Zimbabwe (I own a 100 Trillion Dollar and a 50 Trillion Dollar note).

...

I was answering the historic question that you asked: "When has printing paper money ended badly?"
The answer "Everywhere" seems a bit of overreach. I can think of more than a handful of places it hasn't, at least it hasn't happened yet. And there are more than a handful of places where the gold standard ended badly.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Day9 »

I don't think anyone has mentioned yet that gold is very inert and does not rust or even tarnish the way silver does.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by newbie001 »

I am not sure how serious the following article is intended to be, but I've seen stuff like that before, where a person in search of the perfect natural currency starts with the periodic table and winnows it down until only gold remains.

http://www.npr.org/sections/money/2011/ ... insteinium
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by David Jay »

Epsilon Delta wrote:The answer "Everywhere" seems a bit of overreach. I can think of more than a handful of places it hasn't, at least it hasn't happened yet. And there are more than a handful of places where the gold standard ended badly.
I am not a gold bug. Don't get me wrong. But it would take significant evidence to convince me that a government can massively print paper currency without an inflationary effect.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Phineas J. Whoopee »

Crow Hunter wrote:...
Homework:

Like why do so many countries use the term "dollar" for their currency?
From 16th century Bohemian coins minted from silver mined in a place named Joachimsthal. Adding 'er' turned it into 'something made in or around Joachimsthal,' hence the name joachimsthaler for the coin.

Several countries had a really crazy idea to unify their currencies to make cross-border travel and trade easier. Sounds pretty stupid and unworkable, if you ask me. Anyhow, over a period of years, a number of other countries, including Spain, minted silver coins equivalent in value to the joachimsthalers, but owing to the recent invention of text messaging everybody got all sloppy and shortened it to thaler, and pronunciation the Germanic 'th' isn't far off from the Romance "d."
Crow Hunter wrote: Where did "$" symbol come from?
From the symbol for peso, which identified the Spanish milled dollars the US dollar was based on.
Crow Hunter wrote: Why was the US stock market denominated in 1/8ths until the late 1990's?
Why 1/8ths? Because the Spanish milled dollars were pieces of eight, worth eight reals. US stock markets came into existence before the US moved away from the Spanish coins for the great majority of commerce. By using eighths, stocks were traded in reals, but denominated in dollars. Good one there. Why the 1990s? Change to decimal took place in 2001, and some years earlier eighths became sixteenths. Change is bad. Investopedia gets several aspects of the story wrong, in case anyone's interested.
Crow Hunter wrote: Really fascinating stuff.
Agreed.

PJW
Last edited by Phineas J. Whoopee on Wed Dec 02, 2015 1:20 pm, edited 1 time in total.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by hand »

tludwig23 wrote:
Index Fan wrote:Scarcity is significant. Printing unlimited amounts of 'paper money' ends badly, as seen in history.
Please explain. When has printing paper money ended badly?
Zimbabwe - see my avatar!
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Phineas J. Whoopee »

When did we go from:
Index Fan wrote:... Printing unlimited amounts of 'paper money' ends badly, as seen in history.
which is a general statement, to "here are a few famous examples from recent history where a paper-based currency failed therefore the general statement must be true?"

Is this the reasoning:

All men weigh 155 pounds.
My boss is a man, and he weighs 155 pounds.
Therefore, all men weigh 155 pounds.


PJW
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Day9 »

David Jay wrote:I am not a gold bug. Don't get me wrong. But it would take significant evidence to convince me that a government can massively print paper currency without an inflationary effect.
I think one idea is to print a lot of money during deflationary crises and actually take money out of the money supply during boom times. This is good for society and you can't do this with a gold standard (or bitcoin for that matter, yes I'll be the first to invoke the B-word). However I am not sure if this is actually what is happening. Maybe instead of taking out of the supply they are still printing but just not as much.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Crow Hunter »

Phineas J. Whoopee wrote:
Crow Hunter wrote:...
Homework:

Like why do so many countries use the term "dollar" for their currency?
From 16th century Bohemian coins minted from silver mined in a place named Joachimsthal. Adding 'er' turned it into 'something made in or around Joachimsthal,' hence the name joachimsthaler for the coin.

Several countries had a really crazy idea to unify their currencies to make cross-border travel and trade easier. Sounds pretty stupid and unworkable, if you ask me. Anyhow, over a period of years, a number of other countries, including Spain, minted silver coins equivalent in value to the joachimsthalers, but owing to the recent invention of text messaging everybody got all sloppy and shortened it to thaler, and pronunciation the Germanic 'th' isn't far off from the Romance "d."
Crow Hunter wrote: Where did "$" symbol come from?
From the symbol for peso, which identified the Spanish milled dollars the US dollar was based on.
Crow Hunter wrote: Why was the US stock market denominated in 1/8ths until the late 1990's?
Why 1/8ths? Because the Spanish milled dollars were pieces of eight, worth eight reals. US stock markets came into existence before the US moved away from the Spanish coins for the great majority of commerce. By using eighths, stocks were traded in reals, but denominated in dollars. Good one there. Why the 1990s? Change to decimal took place in 2001, and some years earlier eighths became sixteenths. Change is bad. Investopedia gets several aspects of the story wrong, in case anyone's interested.
Crow Hunter wrote: Really fascinating stuff.
Agreed.

PJW
You get a 100!

Although now that you have given everyone else the answer, they won't look it up and see all the other cool stuff. :(

:D
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Epsilon Delta »

David Jay wrote:
Epsilon Delta wrote:The answer "Everywhere" seems a bit of overreach. I can think of more than a handful of places it hasn't, at least it hasn't happened yet. And there are more than a handful of places where the gold standard ended badly.
I am not a gold bug. Don't get me wrong. But it would take significant evidence to convince me that a government can massively print paper currency without an inflationary effect.
Well, whether "printing paper money" and "massively printing paper money" are the same thing (or not) is the difference between some gold bugs and certain other points of view.

It would be completely unfair to peg someone as a gold bug, or any other position, based on overly fine parsing of their words, but I don't think it's unfair to elicit a more careful use of adverbs to help prevent misunderstanding. It's not that you wrote badly, it's just that from a certain point of view it's unclear.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Johno »

jasc15 wrote:As tludwig23 says, are these inflationary events because paper money was used rather than gold-backed, or were these a result of other catastrophes? Correlation does not mean causation.
Paper or precious metal money are tools, that later statement is correct. But the 'when has paper money printing ever ended badly?' question is hard to take seriously. It's definitely causation not just correlation that creating *too much* paper/fiat money causes, is the essence of, hyperinflation. Something besides the money itself caused policy makers to create too much of it, but creating too much was the direct cause of hyperinflation.

By definition it's much harder to create a huge additional amount of non-counterfeit *rare* metal money than it is to create a huge new amount of non-counterfeit fiat money. In the distant past societies/economies might be isolated from one another and have a lot more/less gold relatively, then when they crossed paths there actually could be hyperinflation in the society where gold was previously much rarer. But it's not so relevant to recent centuries, where there was sometimes noticeable inflation due to significant new discoveries of gold but not very high or hyperinflation.

An anti-gold view undermines itself by attempting to argue that damaging high inflation isn't a downside risk of fiat money and not gold backed money. It's fair to argue it's a small risk, or 'can't happen here because we're so advanced' (where ever 'here' is), or alternatively that if policy makers see debasing money as in their interests they can almost as easily ditch a strict gold standard as step on the gas of an existing fiat money system (parallel fiat and gold backed money during the American Civil War might be an example). And a strict gold standard has its own problems which arguably outweigh any benefit. But sticking to one pretty much precludes hyperinflation.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Epsilon Delta »

Phineas J. Whoopee wrote:Change is bad.
Yes, particularly 1/8 of a dollar once the half cent piece was discontinued in 1857.

:twisted:
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by dbr »

newbie001 wrote:I am not sure how serious the following article is intended to be, but I've seen stuff like that before, where a person in search of the perfect natural currency starts with the periodic table and winnows it down until only gold remains.

http://www.npr.org/sections/money/2011/ ... insteinium
Seriously, I think this is exactly the explanation.

Another feature is that the material is basic. That means its value as money does not depend on its form or what is printed or embossed on it. The value cannot be related to any government fiat; the material is the same in the whole world whether supplied as dust, coins, bars, or jewelry. Note, though, that gold did become useless in the US when private ownership of gold was made illegal.

You could say that the title line is largely correct, namely that gold is convenient (of all elements) and being an element and basic cannot be counterfeited, at least not easily.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Oicuryy »

jasc15 wrote:Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
No. When was gold ever simply a symbol?

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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by texasdiver »

Gold is also corrosion resistant, easily worked, and fairly inert and can be found and mined in metallic form compared to many other metals such as aluminum which have to be refined from ore through complicated processes. That meant gold was one of the few metals on the periodic table that was easily mined and used by ancient cultures.
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by small_index »

...
Last edited by small_index on Sat Dec 12, 2015 1:12 am, edited 1 time in total.
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Watty
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Watty »

Phineas J. Whoopee wrote: Crow Hunter wrote:
Really fascinating stuff.

Agreed.

PJW
Some people don't realize that the British Pound which is sometimes call a Pound Sterling, is call a "pound" because it at one time was worth a pound of silver.

It also has a long history that is interesting.

http://www.bbc.com/news/uk-politics-26169070
psteinx
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by psteinx »

small_index wrote:One indication of gold's value is the U.S. Treasury, which keeps gold reserves of $11 billion.
https://www.fiscal.treasury.gov/fsrepor ... report.htm
Per your link, it's 261 million troy ounces. The book value may be only $11 billion, but I think the market value is much more...
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Phineas J. Whoopee
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Phineas J. Whoopee »

Oicuryy wrote:
jasc15 wrote:Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
No. When was gold ever simply a symbol?

Ron
When was it ever not? It's merely a socially-constructed method of keeping accounts, to see who is entitled to what productive output from others.

If you mean in its jewelry sense, that's entirely a symbol of social status, which many human societies collectively value, although some, I hear, outright reject. That's social construction.

If you mean in its avatar sense you're a glittering example. :wink:

Now, as socially-constructed methods of keeping accounts go it wasn't so bad, for a while, but that doesn't change its essential nature. Some other socially-constructed method, $ymbol, if widely-accepted for the purpose, could get the job done.

One is impervious to inflation if one doesn't use money in its store of value sense. The real-estate-protects-one point of view is predicated on the unit of account sense.

If one spends money, commodity, symbolic, or otherwise, the moment one obtains it, inflation in whatever money, even 50% per month, doesn't have any time to wreck havoc, in the medium of exchange sense.

PJW
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Phineas J. Whoopee
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Phineas J. Whoopee »

psteinx wrote:
small_index wrote:One indication of gold's value is the U.S. Treasury, which keeps gold reserves of $11 billion.
https://www.fiscal.treasury.gov/fsrepor ... report.htm
Per your link, it's 261 million troy ounces. The book value may be only $11 billion, but I think the market value is much more...
Not if brought to market all at once, it isn't.
PJW
psteinx
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by psteinx »

I think that even if the treasure announced that all 261 million troy ounces would be sold at the same time, say, next Wednesday, that buyers would emerge to buy it all up for well over $11 billion...
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Phineas J. Whoopee
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Phineas J. Whoopee »

psteinx wrote:I think that even if the treasure announced that all 261 million troy ounces would be sold at the same time, say, next Wednesday, that buyers would emerge to buy it all up for well over $11 billion...
Are we to argue over the precise mathematical definition of your words "the market value is much more," and the precise calendar definition of when market value is expressed?

I didn't, after all, claim no more. I'm pointing out the difficulties of selling a large position without moving the market, and how ignoring those difficulties can result in unrealistic expectations.

What were you and I and small_index talking about again? Oh, yes, I remember, that the value of gold can be understood by the fact the Treasury holds a lot. Wasn't that it?

That sounds like the argument from authority. I'll have to reconsider.

PJW
Fryxell
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Fryxell »

Johno wrote: But sticking to one pretty much precludes hyperinflation.
What prevents a sovereign government from devaluing the currency under a gold standard, as many times as it likes, until the currency is worth one-millionth the amount of gold that it was originally worth?

Also, nothing prevents a sovereign state from arbitrarily abandoning the gold standard, which happened repeatedly under gold standard regimes (particularly during wars).

At the end of the day, gold standard or no gold standard, the value of the currency depends on the full faith and credit of the sovereign. The gold standard is just a psychological crutch.

The only way to prevent devaluations by the sovereign would be to actually use gold as the currency, instead of backing the currency with gold (as in a gold stsbdard). But using gold itself as a currency is impractical because it would require measuring the quantity and purity of gold in every transaction. Gold coins were plagued by debasement through clipping and sovereigns decreed the value of the coins at the face value, as opposed to the value of the gold in the coin.
privateer79
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by privateer79 »

dbr wrote:
newbie001 wrote:I am not sure how serious the following article is intended to be, but I've seen stuff like that before, where a person in search of the perfect natural currency starts with the periodic table and winnows it down until only gold remains.

http://www.npr.org/sections/money/2011/ ... insteinium
Seriously, I think this is exactly the explanation.

Another feature is that the material is basic. That means its value as money does not depend on its form or what is printed or embossed on it. The value cannot be related to any government fiat; the material is the same in the whole world whether supplied as dust, coins, bars, or jewelry. Note, though, that gold did become useless in the US when private ownership of gold was made illegal.

You could say that the title line is largely correct, namely that gold is convenient (of all elements) and being an element and basic cannot be counterfeited, at least not easily.
agreed... also gold is one of (if not the most) dense of the naturally occuring elements, which means its hard to fake "solid gold" if someone can measure an objects volume and weight... (where as most others metals could be "approximated" by mixing lighter and heavier metals in the right proportions to get the correct density, then lightly plating the object with the real stuff to give the right visual appearnace)
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Oicuryy
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Oicuryy »

Phineas J. Whoopee wrote:
Oicuryy wrote:
jasc15 wrote:Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
No. When was gold ever simply a symbol?

Ron
When was it ever not? It's merely a socially-constructed method of keeping accounts, to see who is entitled to what productive output from others.
Notched pieces of wood and marked lumps of clay were symbols for something valuable. Gold is something valuable.

Ron
Money is fungible | Abbreviations and Acronyms
Johno
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Johno »

Fryxell wrote:
Johno wrote: But sticking to one pretty much precludes hyperinflation.
What prevents a sovereign government from devaluing the currency under a gold standard, as many times as it likes, until the currency is worth one-millionth the amount of gold that it was originally worth?

Also, nothing prevents a sovereign state from arbitrarily abandoning the gold standard, which happened repeatedly under gold standard regimes (particularly during wars).
Neither of those things are 'sticking to a gold standard' so don't contradict my statement. And in a part you selectively didn't quote I already said one could argue that policy makers who don't really want price stability can just abandon a gold standard, and I specifically gave the example of parallel fiat and gold backed money in the US during the Civil War. Did you actually read what I wrote?

If you stick to a gold standard, which means *not* arbitrarily revaluing the currency v gold, you can't have hyperinflation without a hyper new supply of gold. This seems obvious enough, but previous posts seemed to indicate this wasn't understood, that some posters actually believed it might just be a coincidence hyperinflations occurred with fiat money and could as easily happened sticking to a gold standard. So it seemed worth stating the obvious.
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Phineas J. Whoopee
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Phineas J. Whoopee »

Oicuryy wrote:
Phineas J. Whoopee wrote:
Oicuryy wrote:
jasc15 wrote:Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
No. When was gold ever simply a symbol?

Ron
When was it ever not? It's merely a socially-constructed method of keeping accounts, to see who is entitled to what productive output from others.
Notched pieces of wood and marked lumps of clay were symbols for something valuable. Gold is something valuable.

Ron
Good, Ron. We've found the heart of our disagreement. No use us attempting to convert each other to our own worldview.
PJW
lee1026
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by lee1026 »

Gold coins were plagued by debasement through clipping and sovereigns decreed the value of the coins at the face value, as opposed to the value of the gold in the coin.
Fun fact time - once upon a time, Asian countries had so little faith in their own governments that they used silver coins minted by the US government. "Modern" coins are largely immune to clipping, due to how they are designed, since the shape is regular enough that attempts to clip is blatantly obvious.

Metal based currencies are not a good idea for a number for a number of reasons, but I don't think the logistics are all that daunting. For daily trade, convince (an) outside party (or parties) with an reptation to keep to mint coins in convenient sizes. If they are not the sovereign, they can't decree that new devalued coins are worth face value.
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Oicuryy
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Oicuryy »

jasc15 wrote:This, combined with compelling arguments from folks like Warren Buffett that gold has no intrinsic value, made me wonder why the dollar ever was backed by gold, and what use it was.
Do you have a link where Buffet argues that gold has no intrinsic value? In this article he argues only that stocks are a better long term investment than gold.

Warren Buffett: Why stocks beat gold and bonds

A graphic in that article shows that an investment in gold met Buffett's goal of increasing purchasing power over the holding period after taxes. But an investment in stocks increased it more. An investment in T-bills increased purchasing power before taxes but not after. The purchasing power of paper dollars declined 86%.

Does that help you understand why folks in Benjamin Roth's day were worried about the paper dollar becoming decoupled from gold?

Ron
Money is fungible | Abbreviations and Acronyms
bhsince87
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by bhsince87 »

Aside from industrial applications, gold has almost zero value other than that assigned to it by humans for it's mystical, magical properties. Which do exist!

Much of that value is derived from the fact that it stays shiny, and we think it makes people look nice when they adorn their bodies with it. But fashions can change...

As a medium of exchange, it is OK. The fact that it is otherwise mostly useless actually adds to it's value in such usage.

But it's inability to grow proportionately as economic output grows inevitably leads to periods of deflation and depression. Those periods benefit lenders at the expense of borrowers. So you will always find current owners of wealth arguing that gold makes a great basis for money.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams
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Epsilon Delta
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by Epsilon Delta »

Johno wrote:If you stick to a gold standard, which means *not* arbitrarily revaluing the currency v gold, you can't have hyperinflation without a hyper new supply of gold.
You could always ramp up the velocity of circulation. The Austrians might say that's not inflation, but everybody else would see prices going through the roof.
lee1026
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Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Post by lee1026 »

I think that the velocity of money is relatively bounded. Velocity of money is the GDP/M0 (by definition), looking around the world, we see countries where the velocity of money is around 5-10* (AU), and we see countries where the money velocity is 0.5 or so. (Japan) I am not aware of any countries that is more extreme in either direction then these two. So if you move from one extreme to the other, prices go up by 50x. It isn't what I call stable or desirable, but it isn't what I would call hyperinflation either.

*That is, the monetary base is around 10-20% GDP.
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