

Gold - a six thousand year-old bubble - ajb
http://blogs.ft.com/maverecon/2009/11/gold-a-six-thousand-year-old-bubble/

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mcantelon
"I don’t want to argue with a 6000-year old bubble [but] I would not invest
more than a sliver of my wealth into something without intrinsic value,
something whose positive value is based on nothing more than a set of self-
confirming beliefs."

He neglects to say what he would invest in. The mainstream financial media
keeps on with the "gold is bad" drum, but provides no alternatives. The
simplicity of gold and the fact it can't be conjured out of thin air (and
vanish into thin air) likely make it attractive in times of massive con games.

~~~
laut
What is intrinsic worth anyway, and what does it mean? Some, like Karl Marx,
argued that the value of a product is based on how much labour you put into
it. Not whether people want it or not.

What is interesting is how much you can trade something for. Now and in the
future. The subjective theory of value
<http://en.wikipedia.org/wiki/Subjective_theory_of_value>

How much can you trade 11 US $100 bills for in 20 years? And how much for 1
ounce of gold?

~~~
Perceval
Karl Marx took the 'labor theory of value' argument from David Ricardo, who
had taken it from Adam Smith, who had taken it from John Locke among others.

Alfred Marshall's 'marginalism' completely displaced the labor theory, insofar
as the labor theory is incapable of producing a theory explaining prices. The
labor theory is now only kept around by philosophy students and
unreconstructed marxists.

~~~
davidmathers
Yes, the labor theory of value is, in short, what it means to be labeled a
"classical" economist. All economists writing before the marginal revolution
took it for granted.

Also, Marx never wrote anything even resembling this: _Some, like Karl Marx,
argued that the value of a product is based on how much labour you put into
it. Not whether people want it or not._

He actually mocked people, like Proudhon, who proposed such ideas.

~~~
Perceval
I don't think he moved as far away from it as you believe. Marx's particular
approach to the labor theory of value is key to his philosophical ideas about
exploitation and alienation. And subsequent Marxists placed a great deal of
emphasis on it, especially Rosa Luxembourg.

~~~
davidmathers
laut is confusing the value of the function with the cost of the algorithm.
Short example...

Say a spool of wool has a market value of $5 and a sweater has a market value
of $11. Marx's theory is that when you buy a sweater what you're really buying
is a package containing:

    
    
      1. a spool of wool
      2. a single application of the wool -> sweater function.
    

He called 2 "socially necessary labor". The value of the labor function is
therefore $11 - $5 = $6. It might take worker A an hour to perform the
function and worker B three hours. The amount of labor performed by a given
worker (the algorithm if you will) is totally irrelevant here. Socially
necessary labor is an abstract concept and its value is determined by the
market values of the inputs and outputs.

Marx would say that worker A should be making $6/hour and worker B should be
making $2/hour. ie they're creating and selling a specific quantity of
socially necessary labor. Since they only get paid $5 for the $6 worth of
labor they create they're being exploited by the capitalist who controls their
work lives.

------
teilo
I call shenanigans. His argument fails on two counts:

1) The value of gold IS its use as a value store. A currency, to be practical,
needs to meet the following four characteristics: Be relatively scarce, be
durable, be divisible, and be impossible to counterfeit. Nothing, in the past
6000 years, has even been found that beats gold on these four counts. That is
why it has always been the king of currencies.

2) There are vastly more practical uses for gold today than there have ever
been in the past 6000 years. Other than monetary, there have been no practical
uses for gold in antiquity.

~~~
danteembermage
What about copper rounds, or uranium futures, or cell phone minutes? All seem
to work nearly as well and have useful production purposes. I don't think gold
is going anywhere for the reasons you cite, but there are alternatives today.

~~~
steve19
gold can be stored in a band vault, under your bed or buried in the garden.

Cell phone minutes and uranium futures cannot.

By "copper rounds" do you mean ammunition? If so, then yes, they hold value
and will last as least 20 years, or longer (corrosive ammunition from WWII is
still usable).

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byrneseyeview
_Money is the bubble that doesn't pop._

[http://unqualified-
reservations.blogspot.com/2008/02/return-...](http://unqualified-
reservations.blogspot.com/2008/02/return-to-castle-goldenstein-gold.html)

~~~
Asmodeus
"When the debasement rate is 10% and interest rates are 7%, the negative
debasement-adjusted interest rate is a debt factory. It is easy for borrowers
to make decisions that assume these rates will continue. If they end, the
typical result is a recession. These kinds of dependencies make it very hard
for politically sensitive authorities to end debasement, or even significantly
reduce it."

From (<http://www.safehaven.com/article-5205.htm>) likely by the same author
in a different mood...written in 2006.

~~~
davidmathers
_The US dollar is about to collapse because of a simple economic fact that no
one has the power to change or conceal._

<http://en.wikipedia.org/wiki/Millenarianism>

These people are exactly like those Christians who think the rapture is always
just around the corner. Maybe next year.

~~~
Asmodeus
Actually, I was trying to direct you away from the sensationalist title, but
hey, maybe next year.

------
colanderman
"It has no remaining uses as a producer good - equivalent or superior
alternatives exist for all its industrial uses."

...sounds like a statement by someone who has never worked in industry. While
I can't argue what _quantity_ of gold is actually required in industry, the
value is certainly non-zero -- or else all those gold connections in ICs would
be replaced with cheaper copper equivalents.

------
chaostheory
Since gold is a decent conductor, it has use in a variety of industrial
applications such as for connectors, switch and relay contacts, soldered
joints, connecting wires, and connection strips; so you can find it in a lot
of electronics and computers.

It's also used in certain medical treatments involving radiation, and in glass
to make certain windows more energy efficient.

Gold has real intrinsic value.

I do not agree with the article, but it's an interesting point of discussion
given the times.

------
3pt14159
Gold production per year: 1.2%

Population growth rate: 1.19%

M3 index growth rate: 2 to 12%

I'll stick with gold, silver, and investments where I actually put my brain to
work, like my own company. I believe in stable stores of value for emergencies
and a growing stores of value for future luxuries. The ft.com author can stick
to investing in ponzi schemes. Just for kicks he can take a look at how the
DOW has done versus gold in the past 10 years.

~~~
Perceval
Here's a good site for looking at the Dow priced in gold:
<http://home.earthlink.net/~intelligentbear/com-dow-au.htm>

------
gnaritas
Gold has plenty of value, it may be a fuel in the future; it can be used to
create antimatter.

<http://www.msnbc.msn.com/id/27998860/>

~~~
netcan
Perhaps, but that is not the reason for its current value.

~~~
gnaritas
True, I'm just saying it's always going to be useful.

------
zandorg
I noticed an interesting phenomenon on Ebay. Looking up Krugerrands (after
reference to them in a song), I found out about gold coins. Whatever country
issues them, they all go for their weight in gold - even by auction. Perhaps
Ebay is a great place to buy and sell gold (but maybe you could get discounts
in bulk from a dealer). [I'm not advocating buying gold off Ebay, I was just
interested].

~~~
delackner
And how are you to go about verifying purity? This is an honest question.

~~~
zandorg
To be honest, all I can think of is weighing them, but they could be filled
with lead! So I guess I haven't thought it through...

However, the Ebay seller feedback count should be of some use. They could only
sell a duff coin once (maybe twice) before being busted.

------
herdrick
Silly. Gold is amazing stuff. It doesn't decay nor oxidize (under most
conditions on earth). From Wikipedia: "Gold is the most malleable and ductile
of all metals; a single gram can be beaten into a sheet of 1 square meter, or
an ounce into 300 square feet. Gold leaf can be beaten thin enough to become
translucent."

So I didn't bother past the first paragraph. Did I miss anything?

------
stevedekorte
The author fails to recognize that gold, unlike paper money, can't be
hyperinflated into oblivion.

And this isn't just a theoretical point. Roughly one paper currency per year
expires from hyperinflation.

------
mey
<http://www.wolframalpha.com/input/?i=price+gold,+platinum>

~~~
steve19
Interesting graph. What you need to remember is that while gold appears to
have infalted rapidly, the quantity of gold is very limited - the great
increase in gold has a lot to do with inflation of the USD, rather than
inflation of gold.

Gold has been good for the past 6000, and I expect it will be good for at
least the next 200, which is good enough for me, my grandchildren and their
children.

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lurkinggrue
I prefer tulips.

------
joubert
Scarcity?

~~~
jrockway
My fingernail clippings are more scarce than gold, but they are worth much
less.

~~~
kingkongreveng_
Your fingernail clippings will turn to dust in fifty years. Refined gold is
eternal, and universally valued.

~~~
redorb
eternity is a long time.

------
detcader
Anyone else read "God - a six thousand year-old bubble"

~~~
billswift
Maybe Hitchens should write a sequel: "God: The Ultimate Bubble".

