The economics of gold and "precious" metals

[cyu]

Excerpts from http://www.reddit.com/r/Anarchism/comments/ar74i/free_man_on_the_land/

Before the invention of money (long long ago, in a galaxy not so far away), people used barter in order to get the things they didn't have enough of. This became quite cumbersome, so they agreed on a representative unit of wealth. Rather than having to carry around anvils, or fish, or wool whenever you had to buy something, they instead carried around this unit of currency - in many cases, it was gold (today, it might be dollars).

At some point in the history of banking, this unit of currency was no longer used, but was instead replaced by the writing of paper checks from one bank account to another. However the gold remained in the bank, even though it was no longer used - this was an attempt to give some legitimacy to the new paper notes being used - the gold standard.

The problem with this idea is that it is similar to the creation of a "dollar standard" - creating a new currency to use, while holding a reserve of dollars in the bank to give the new currency some legitimacy. The problem is that the commodity held in reserve was merely a unit of exchange and derives its value mainly from its previous use as currency. The original backing of the currency is lost.

The Sumerians, as part of their development of a standard of weights and measures, placed the royal stamp on each piece of gold to guarantee that it was the same amount as every other similarly stamped gold piece. They simply agreed that this was worth a bushel of wheat - the value was never in the gold. For each amount of gold issued by the king, a certain amount of wheat is kept in reserve in order to ensure that gold has some value. This ensures that the value of the gold with respect to wheat did not change - no inflation. When the gold is returned to the king, it is redeemed with the wheat that it represented. This, in effect, is a "wheat standard".

It would actually be a good thing if we could convince all wealthy capitalists to convert their entire fortunes into gold. If all the gold is in their hands, all the rest of us have to do is stop accepting it as payment for anything. This in effect renders all their gold worthless. We produce the food, we produce the electricity, we build the homes, we make the clothes. If they can't trade gold for any of that, then they are screwed.

I am not arguing that fiat money is better than gold - just like an atheist wouldn't be arguing that Zeus is better than Osiris. An atheist would be arguing that both Zeus and Osiris are worthless. Similarly, I'm arguing that no country should set a goal of trying to collect either foreign currency or gold in their reserves. Instead, they should be building up their productive ability - y'know, like what Adam Smith said was the real Wealth of Nations.


Except they have industrial applications which makes them useful and therefore have value.

Well, you can also use paper money as wall paper and to stuff a pillow, so by the same argument, paper money has value.


Not really. Gold and Silver are used in chemical reactions and to build satellites, also they are not replenishable. Trees can be regrown and we can make more paper. If you launch gold into space it is a little hard to get it back.

Let me put it this way. If all the gold reserves, paper money, stocks, bonds, deeds, and bank account numbers on computers in the world disappeared tomorrow, has the productive ability of the planet changed at all? All the machines are still there, all the raw materials are still there, all the people who can use all of those things are still there.

The only thing that has changed is what you were using for accounting purposes, not the productive ability of the world economy. The fact that a capitalist recession results in machines, raw materials, and people falling idle, resulting in more scarcity and suffering, is just a symptom of the fact that capitalism is built on stupidity.

The very fact that gold is also kept in reserves means it becomes prohibitively expensive to actually use it for most practical purposes. If you really wanted to use it for industrial purposes, then you would stop using it as a medium of exchange and stop locking it up in vaults.

It's the same theory as wallpapering your room with 100 dollar bills. The vary fact that it is used as a medium of exchange makes it prohibitively expensive to actually use 100 dollar bills as wallpaper, even if you do happen to think it would look quite attractive on your walls.

Almost nobody hangs on to gold because they plan on using it for "chemical reactions and to build satellites" - they hang on to it only because they hope to find some other idiot that will trade stuff for it - thus its primary use is not for industrial purposes - the primary proportion of its "value" is not found in practical use, but in the social role it plays as a medium of exchange, just like paper money.


I don't think I ever mentioned using it as a medium of exchange, did I?

Let's say each of us were the economic advisers of our own societies. What would your goal be with respect to "precious" metals? Would you try to get a net income in gold - maybe so you can use it in chemical reactions and build satellites? Would you attempt to put your economy on a gold standard?

I would in fact encourage those in my society to have a net export in gold until it's all gone. The fact of the matter is that gold is overvalued in the world economy with respect to its industrial uses. The reason, of course, is because wealthy and stupid investors think it's a good "stable" investment. Thus to actually try to import gold for industrial use instead of finding much cheaper substitutes is an exercise in inefficiency - the focus on and extra effort in trying to obtain gold will ultimately make your entire economy poorer.

The same was true when explorers from the New World brought shiploads and shiploads of gold back to Spain. All that wasted effort only resulted in inflation for them. If they really wanted a healthy economy, they should have spent their effort building up their own productive ability instead.

Gold as "wealth" is only "beneficial" if your goal is to live like a king off the back of other people's labor. If that's your goal, then you first get a lot of gold, and then advertise it to everyone, saying how great it is, and how everybody should value it.

On the other hand, for an economy in which people actually have to work for a living, gold is junk as long as the rich hoard it. If they already have to work for a living, then what will benefit the people in that economy is better machines, better technology, more raw materials, easily available education, etc.

[swirling_vortex]

That's a very good point. Productivity of an nation is what drives an economy forward. From a 30,000 foot view, the US economy flourished in the 1950s and 1960s thanks in part to our increase in the manufacturing base and the ability to innovate on new technologies. The wealth aspect was simply a by-product of that. It had little to do with our reliance on the gold standard.

My only question would be this:

Let me put it this way. If all the gold reserves, paper money, stocks, bonds, deeds, and bank account numbers on computers in the world disappeared tomorrow, has the productive ability of the planet changed at all? All the machines are still there, all the raw materials are still there, all the people who can use all of those things are still there.

The only thing that has changed is what you were using for accounting purposes, not the productive ability of the world economy. The fact that a capitalist recession results in machines, raw materials, and people falling idle, resulting in more scarcity and suffering, is just a symptom of the fact that capitalism is built on stupidity.
I agree with you on the point of productivity, but our use of technology certainly makes things a lot easier to us and has helped us in areas like medical research. A gold or other rare-earth metal substitute would be nice for things such as computers, but you'd have to make something that is as conductive and corrosion resistant. But yes, I agree that the hoarding of gold doesn't add value to a society.

For example, let's say that the right-wing libertarians are right. The dollar is going to collapse and the economy is going to crash and never recover because Obama is president. What would be the most valuable? I'd suspect that gold wouldn't hold that much value at all since it doesn't hold much practical purpose outside of technological use. Three things that would hold value would be: Food, water, and ammo.

[cyu]

Three things that would hold value would be: Food, water, and ammo.

Certainly those 3 things have value, but what's also valuable would be the means to produce food, the means to get clean water, and the means to manufacture ammo. In addition, you also need the means to provide clothing, housing, and health care for all the people who are producing that food, water, and ammo... keep going down that path, and we're talking about a real economy again =]

[cyu]

Not really "leftist", but excerpts from http://www.onyxbits.de/content/blog/patrick/buying-gold-crisis-proof-investments-not-good-idea

I find it annoying, if not fraudulent. Whenever the economy slows down or even crashes, some people start suggesting to buy gold as crisis-proof investments and of course, there are other people, following this ill advice, loosing money even more.

I seriously suspect, that there is a method behind this. A game, played by financial jugglers, that revolves around scaring people, looking for security, into buying their reserves at inflated prices

Unlike food, which we need for survival, the value of gold is artificial. We mostly only want it because it is scarce and because we think, that someone else might want to own it even more and would pay a higher price for it.

The only way to make money with precious metals is through arbitrage. You buy at a low price and sell at a higher one.

If you happen to buy at a peak price, you are essentially stuck with your purchase and have one of two options:

Keep your gold and hope for a future crisis with an even higher peak value. Your money will be bound till than and you'll make a loss for not being able to invest it in anything, that pays interest.

Sell it right away, before the gold price reaches a low due to the economy recovering. This will cause you to loose money immediately, but at least your funds are not bound for an indefinite amount of time.

They are a game of "old maid", which you'll be, if you hop on the bandwagon

Excerpts from more "mainstream" media http://www.businessweek.com/print/investor/content/may2010/pi20100513_844554.htm

Gold might have a reputation as a "safe haven," but nothing could be further from the truth, says Susan C. Elser, of Elser Financial Planning in Indianapolis. Unlike other commodities, gold has few industrial uses. Unlike businesses owned through the stock market, gold earns no profits and doesn't pay out dividends. Unlike bonds, no one pays interest to holders of gold. And, unlike insured bank deposits, there is no guarantee of your principal investment.

Gold used to be the backing for currencies, but no longer. Now "it really is only a store of value because people say it's a store of value"

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

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

The cost and waste involved in getting the gold out of the ground only to but it back under ground in secure vaults is considerable.

gold has no intrinsic value as a consumption good or a producer good, it is an example of what I call a fiat (physical) commodity... it has no intrinsic value and derives any value it has only from the shared belief by a sufficient number of economic actors that it has that value.

Gold has become a fiat commodity or a fiat commodity currency, just as the US $, the euro, the pound sterling and the yen (and a couple of hundred other currencies) are fiat paper currencies.

fiat money, including gold, is intrinsically useless. It has value only because people believe it to have value. If everyone expects that money will have no value in the next period, it will have no value this period, because no-one will be willing to take receipt of money

[swirling_vortex]

Oh man, looks like I've been away longer than I thought!

Here's another financial article that believes gold was performing worse compared to other commodities:

http://www.financialexpress.com/news/gold-bubble-set-to-burst-in-2010/614079/

The international gold price once surpassed $1,200 per ounce in December 2009, hitting a historic high without factoring in inflation. The gold was up 24.4 per cent by the end of 2009 — registering its ninth consecutive annual gain. The price of gold was propelled by the depreciation of the greenback and worries on potential inflation. The continuous uptrend in price of the yellow metal reinforced bullish sentiment and provided more incentives for investors to speculate on gold.

However, contrary to popular perception gold was actually a laggard in the precious metals universe during 2009. In fact, gold was not only the worst-performing precious metal (see table: Precious Metals’ Performance), it was also beaten by the equity markets under our coverage in 2009 (except US and Japan). Besides, the gold’s annual return last year was not spectacular as compared to the returns in previous years like 2002, 2004 and 2005. Thus, the gold fever could be barely based on the expectations of rampant monetary inflation and the greenback’s loss of status as the world’s reserve currency. The fundamentals, however, do not support the rally of gold price.

Here is an analysis that explains the main reason of the recent gold rally and why the price of gold is overvalued based on the fundamentals.

Dollar depreciation & speculation

The sharp increase of gold price in 2009 was primarily driven by dollar depreciation and speculation. Historically, the spot price of gold and the US dollar are negatively correlated. It is because the international gold price is denominated by the US dollar and gold is an alternative for the dollar as the world’s reserve currency.

Since March 9, 2009 when the US dollar index hit the year’s peak till end of October 2009, dollar-denominated gold price climbed 13.4 per cent, which was comparable to the 14.3 per cent decrease of the dollar index in the same period. On the other hand, gold price in euro and pound sterling dropped 2.7 per cent and 4.7 per cent respectively. It proved that the rally in gold price in that period was mainly driven by the dollar depreciation.

In November 2009, speculation was the dominant force that spurred the price of gold. The rise in dollar-denominated gold price (16.3 per cent) far outpaced the decrease in the dollar index (2.5 per cent) in the month. Gold price denominated in euro and sterling also surged sharply by 13.9 per cent and 14.8 per cent, respectively, which broke away from their sluggish performance in the past six months. Double-digit increase in gold price for a single month is quite unusual. It implied that the speculation on gold was very rampant.

Speculation — dominant force for gold rally

Data from the US Commodity Futures Trading Commission (CFTC) shows that the long position on gold futures contracts was dominated by the speculative demand in last year.

As per the World Gold Council, a massive amount of speculative capital has entered into the gold exchange-traded fund (ETF) markets. In the first three quarters of 2009, the demand for gold ETFs surged a whopping 154 per cent year-on-year. This clearly implies that speculative demand was one of the major component of the total gold demand. Besides, the gold holdings of the world’s largest gold-backed ETF, the SPDR Gold Trust, increased significantly by 350 tonnes or 45 per cent to a record high of 1,133 tonnes in 2009. However, in 2010, the Trust’s holdings in gold have been continuously dipping from its peak. This clearly implies that the potential upside on gold is limited.

Gold fundamentals are still weak

There are four main categories for gold demand — jewellery, industrial, retail investment and ETF. Over the past ten years, the average annual total demand for gold hovered between 3,500 and 4,000 tonnes. Jewellery, which consistently accounts for over 60 per cent of the total gold demand, is a key component for underpinning the overall demand for gold. On the contrary, ETF constitutes only a small portion of the total demand (less than 10 per cent of the global total demand). Therefore, the demand of jewellery is probably the most crucial factor that influences gold price.

High unemployment, negative income growth and rising family debt in developed countries suppressed the consumer demand for gold. Three out of four categories in gold demand (jewellery, industrial and retail investment) recorded a decline in the first three quarters of 2009, with ETF being the only component to register an increase. The decline in the gold demand was almost universal (except in China).

In value terms, US is the largest market for gold jewellery, while in volume terms, India is the largest consumer. In the third quarter of 2009, jewellery demand in India dropped 21 per cent year-on-year. A downtrend in jewellery demand was also seen in other major consumer including US and Italy. Demand in both these countries dropped by 24 per cent and 20 per cent respectively from a year earlier.

Economic growth is a leading indicator of jewellery demand. Historically, it gives a picture of where the jewellery demand is heading in next two to three quarters. As the global economy has just started to recover, it may take more time to see demand for real physical gold to pick up.

Gold buying by central banks will not last

Investors believe that buying of gold by central banks push gold prices upwards. Reserve Bank of India (RBI) purchased 200 tonnes from International Monetary Fund between October 19 and October 30, 2009. In the last 30 years, it was the biggest purchase in such a short period by a single central bank.

While investors expect more of such purchases by the central banks and in turn further rise in prices, this might not be totally true. In fact, purchase of gold by central banks cannot justify the high gold price because there were only a few central banks that participated in the market and the volume of such a transaction was insignificant.

Relative to the average annual total demand of gold over the past ten years (about 3,500 to 4,000 tonnes), 200 tonnes of gold is indeed negligible. Moreover, the planned sale of 403 tonnes of IMF gold still lacks buyers. After the purchase from India and Sri Lanka, IMF still has 200 tonnes of gold that is not sold.

Moreover, dollar depreciation does not mean that central banks will buy gold for diversification. Lee Eung Baek, head of the Korean central bank’s reserves management department, said that the gold price is too expensive. He believed holding gold as part of reserves would make sense in meeting diversification purposes. However, there might not be many central banks that wish to balloon their holdings at the current gold price. He also saw an illusion in gold, implying that other central banks would not buy any assets that had little value with no cash return. The statement demystified the rumour that banks would continue to buy gold.

Gold purchase from china could be smaller

Besides, it is widely believed that Chinese central bank is eager to buy gold to diversify its foreign reserves. Many investors also believe China has been surreptitiously building its gold reserves without reporting the build-up as the central bank does not want to impact the gold market. In April 2009, Chinese central bank officially revealed that the country’s gold reserves rose from 600 tonnes in 2003 to 1,054 tonnes, making China the largest buyer of gold in 2009. It was the first public announcement on its gold holdings in the past six years.

According to the World Gold Council, China announced that its gold reserves had increased by 454 tonnes since 2003. This means, the purchase took place over a six-year period from 2003 to 2009 rather than between 2008 and 2009, as the markets expect. It was a slow process through domestic secondary markets since Shanghai Gold Exchange was established in October 2002. Therefore, the actual average annual gold purchase from China could be much smaller than the market expected.

Hu Xiaolian, a vice governor at the People’s Bank of China, also warned that the gold bubble is forming. Diversification of foreign reserves is a long-term progress. Central banks need to consider the long-term benefits when deciding what to use as reserves. Thus, it is unrealistic to expect that central banks to keep buying gold for diversification especially when the gold price has been too high without the support of fundamentals.

Oil in 2008 was also facing the same hype. People were saying that oil was going beyond $200. Of course, once it hit the $150 mark, demand and speculation just dropped off and the price of oil fell.

[Dean]

On the other hand, for an economy in which people actually have to work for a living, gold is junk as long as the rich hoard it. If they already have to work for a living, then what will benefit the people in that economy is better machines, better technology, more raw materials, easily available education, etc.

Gold is junk unless it serves a purpose in production (as you alluded to earlier in the post, before you got side-tracked).

The fact is that gold, like any resource, business or currency, is based on confidence (http://www.alternet.org/economy/146150/have_you_caught_gold_fever_the_value_of_that_shiny _metal_is_as_artificial_as_paper_money).

The economy today has been heavily aggregated, analyzed, and most importantly assessed at all levels for its risk and asset value. Finance capitalism in this way transforms all capital into a formative capital.

The fact that gold has any value outside of electronics and manufacturing indicates just how well people are manipulated by sales initiatives, but more importantly, how fundamentally disassociated market forces are from the realistic and valuable ambitions of human society.

As Marx points out:

In labour all the natural, spiritual, and social variety of individual activity is manifested and is variously rewarded, whilst dead capital always keeps the same pace and is indifferent to real individual activity.

That is to say that accumulated, unapplied ("dead") capital is a characteristic of capitalism, and at the same time a symptom of the slowing of our economic production &c.

[Paul Cockshott]

The Sumerians, as part of their development of a standard of weights and measures, placed the royal stamp on each piece of gold to guarantee that it was the same amount as every other similarly stamped gold piece. They simply agreed that this was worth a bushel of wheat - the value was never in the gold. For each amount of gold issued by the king, a certain amount of wheat is kept in reserve in order to ensure that gold has some value. This ensures that the value of the gold with respect to wheat did not change - no inflation. When the gold is returned to the king, it is redeemed with the wheat that it represented. This, in effect, is a "wheat standard".

This is historically inaccurate. It confuses the Mesopotamian system of weights and measures and valuation in terms of Shekles of barley ( not wheat ) with the Lydian system of issuing stamped gold ingots. They are quite different systems. I suggest that you consult Polanyi ( Trade and Market in Early Empires ) and Sture Bolin's work on early currency systems in the Greek and Roman world.

[Zapatas Guns]

Very interesting reading here.

I would like to point out one small thing. I read a link someone provided that said gold as a currency is as artificial as paper money. I disagree with that. Gold has been the standard for currency since the beginning of civilization. Even before capitalism it had value. It has value because it is rare. This rarity is not artificial like a Federal Reserve Note. Every paper currency that is backed by nothing but good faith has eventually collapsed. The dollar is no exception. It will collapse eventually.

With that being said, when an economy collapses and government looses control I would rather have food, water, guns, and ammunition stores than gold. I would rather be living with people that are self sufficient and "off the grid". That way the capitalist collapse won't effect me. It would be a perfect time for revolution. The elite would hunker down and let John Q Public eat cake. What better time would it be to act?

[Dean]

If that is the case, how do you explain the fact that gold is consistently an order of magnitude more valuable than silver. Marx's labour theory of value explains it readily, you would presumably have to say that down through history the rich have prefered gold 12 times as much as silver for some reason?

To what do you attribute this stability in their preferences?
Confidence.

Its rather simple, really. People have confidence in products when they are enshrined in our economic system as an effective variable. That's all.

In the case of gold, it has the fortunate character of being scarce - yet obtainable across the globe, attractive, and readily discernible from other materials. This culminated in the creation of a gold-currency. Since then, it has served this purpose and maintained a fairly stable value for this reason - the ruling class understands gold as a stable resource with a limited presence, and therefore invests in it. This has been the main drivign force for its stable value.

Until the late 70s. With rapid inflation, people wanted to purchase a firm product with a stable base, and gold was the choice. Its shot up since then - its now about 5 or 6 times the value it was then.

But this investment is not based on real gold purchases. Since the late 80s, derivatives have allowed investors to reap all the rewards of commodity value and speculation without actually having to rely on concrete purchases. This is similar to fractional reserve banking and any sell-offs or short-sales of either gold or the derivatives will result in this devaluation.

Furthermore, the above characteristics you linked to - scarcity, human labor requirements - also apply to silver. But silver has lost most of its value - in the 80s, it was about 5% what its 70s value was, and today it has climed to about 50% of its pre-1980s value.

So, we see that the price of gold is directly and primarily related to its commodity use, not any "objective" value based on scarcity.

Furthermore, the value of all these commodities are primarily driven by confidence, that is "subjective" market valuation of the products and their derivatives.

Gold: http://goldprice.org/30-year-gold-price-history.htmlSilver: http://goldinfo.net/silver600.html



In fact, its worth noting that gold has real uses, one of the most apparent uses that will be retained in a communist society are religious and cultural traditions (sorry, anti-theists, but it wont disappear overnight, and certain traditions will probably stay forever out of habit).

Industrially, dentistry and electronics will use the metal. but its worth noting that the amount of gold required for these applications, even at contemporary inflated values, is still negligible to the point of rendering the cost of the commodity fairly minor.

[Ocean Seal]

I would like to point out one small thing. I read a link someone provided that said gold as a currency is as artificial as paper money. I disagree with that. Gold has been the standard for currency since the beginning of civilization. Even before capitalism it had value. It has value because it is rare. This rarity is not artificial like a Federal Reserve Note. Every paper currency that is backed by nothing but good faith has eventually collapsed. The dollar is no exception. It will collapse eventually.



Yes that is true of the nature of gold, can you imagine that the alchemists wanted to turn lead into gold imagine what that would have done to the value of gold. Currency needs backing and without backing speculation will occur and the currency will be brought down.

[Paul Cockshott]

Confidence.

Its rather simple, really. People have confidence in products when they are enshrined in our economic system as an effective variable. That's all.

In the case of gold, it has the fortunate character of being scarce - yet obtainable across the globe, attractive, and readily discernible from other materials. This culminated in the creation of a gold-currency. Since then, it has served this purpose and maintained a fairly stable value for this reason - the ruling class understands gold as a stable resource with a limited presence, and therefore invests in it. This has been the main drivign force for its stable value.

Until the late 70s. With rapid inflation, people wanted to purchase a firm product with a stable base, and gold was the choice. Its shot up since then - its now about 5 or 6 times the value it was then.

But this investment is not based on real gold purchases. Since the late 80s, derivatives have allowed investors to reap all the rewards of commodity value and speculation without actually having to rely on concrete purchases. This is similar to fractional reserve banking and any sell-offs or short-sales of either gold or the derivatives will result in this devaluation.

Furthermore, the above characteristics you linked to - scarcity, human labor requirements - also apply to silver. But silver has lost most of its value - in the 80s, it was about 5% what its 70s value was, and today it has climed to about 50% of its pre-1980s value.

So, we see that the price of gold is directly and primarily related to its commodity use, not any "objective" value based on scarcity.

Furthermore, the value of all these commodities are primarily driven by confidence, that is "subjective" market valuation of the products and their derivatives.

Gold: http://goldprice.org/30-year-gold-price-history.htmlSilver: http://goldinfo.net/silver600.html



In fact, its worth noting that gold has real uses, one of the most apparent uses that will be retained in a communist society are religious and cultural traditions (sorry, anti-theists, but it wont disappear overnight, and certain traditions will probably stay forever out of habit).

Industrially, dentistry and electronics will use the metal. but its worth noting that the amount of gold required for these applications, even at contemporary inflated values, is still negligible to the point of rendering the cost of the commodity fairly minor.


You are comparing different historical circumstances. Over long historical periods, especially when gold and silver were the money commodities, their exchange ratios were determined by the labour needed to produce them. Today, when they have a negligible monetary function, and where the ratio between the annual production and the total stock is small, fluctuations in their prices are dominated by speculation. For this to occur their prices must be denominated in the actually effective monetary unit - dollars or Euros.

If Gold could be had as readily as lead, ie, with the same labour as lead, its value would be no higher than that of lead. Speculation would never take its price much above that of lead. It is because gold requires much more labour. Similarly with silver.

[Dean]

You are comparing different historical circumstances. Over long historical periods, especially when gold and silver were the money commodities, their exchange ratios were determined by the labour needed to produce them. Today, when they have a negligible monetary function, and where the ratio between the annual production and the total stock is small, fluctuations in their prices are dominated by speculation. For this to occur their prices must be denominated in the actually effective monetary unit - dollars or Euros.

If Gold could be had as readily as lead, ie, with the same labour as lead, its value would be no higher than that of lead. Speculation would never take its price much above that of lead. It is because gold requires much more labour. Similarly with silver.

So? You've simply proven my point that the precious metals are only valuable insofar as they are reflected in financial systems.

The bottom line is that confidence has always been the underlying value of gold. What you are discussing is supply and demand - it is true that even houses would be dirt cheap if it could be had "for the same labor as lead." unfortunately for you, this is nothing unique to gold.

Your point about the rarity of the product doesn't really define the total character of the commodity. The fact is that,
-when a laborer mines for gold,
-when a broker purchases gold derivatives
-when a person sells some produce for gold
they are engaged only in confidence in the value of gold.

What you have stated is simply mundane - that gold is fairly rare. But this only serves as an enabling characteristic for its financial character. Its use in the market is solely as a standard measure, even today when we have a lot of other measures.

It could be compared to mortgages, actually - a valuable financial product in short supply whose value is fairly trusty, consistently accruing interest. This is just not a unique characteristic.

[Paul Cockshott]

it is true that even houses would be dirt cheap if it could be had "for the same labor as lead." unfortunately for you, this is nothing unique to gold.What you have stated is simply mundane - that gold is fairly rare. But this only serves as an enabling characteristic for its financial character. Its use in the market is solely as a standard measure, even today when we have a lot of other measures.


I agree that there is nothing special about gold in this respect, its value is governed by its labour content as is the case with all other reproducible commodities. And having a lot of value in a small volume was indeed an enabling characteristic for it to play a financial role.

Its financial roles are now very limited, but it still serves as a speculative hedge at times when other non-commodity financial assets are uncertain.

[Dean]

I agree that there is nothing special about gold in this respect, its value is governed by its labour content as is the case with all other reproducible commodities. And having a lot of value in a small volume was indeed an enabling characteristic for it to play a financial role.

Its financial roles are now very limited, but it still serves as a speculative hedge at times when other non-commodity financial assets are uncertain.

Actually, I'm not sure that we really disagree on much. The LTV is no longer the primary definitive factor in markets, but ultimately this shows capitalism to be in massive recession. By disempowering laborers and consumers from economic valuation, the capitalist system is destroying its base. Consumers in the US have been saving more money than ever before in the last couple years (which means consumer confidence is in recession) and the primary laboring classes in China and India in particular are widely discontent.

I'm not sure if the LTV is even accurate at all, but its actually a moot point. The only real discrepancy are the concept of labor/consumer exploitation (which is provable outside the LTV) and market valuation. But there are a wide range of fairly universal and widely accepted human value sets - such as "human life," "shelter," "food," and only idiots who have no interests in real economic fact argue that "subjective value" via market activity is more beneficial than universal access to the above commodities.

So I don't think leftists need the LTV for a reasonable foundation to our idea structures.

[turquino]

I don’t understand what ‘Dean’ is trying to prove. Gold is valuable because it requires a large amount of social labour to produce a unit. A substance that is an element, nonreactive, extremely malleable, and has a high value makes an ideal commodity to use as money.

For these reasons and historical ones, gold (along with silver) has served as the universal equivalent for all other products. Since all products must be exchanged with money, the value of money becomes instantly social. It represents abstract purchasing power and can never be overproduced.

Explaining the “price” of gold (technically it doesn’t have a price) creates a problem for non-marxists.
“Why is the price of gold rising?”
“Because its utility as a store of value is increasing.”
“And why does it have greater utility as a store of value?”
“Because it’s becoming more expensive of course!”

[Dean]

I don’t understand what ‘Dean’ is trying to prove. Gold is valuable because it requires a large amount of social labour to produce a unit. A substance that is an element, nonreactive, extremely malleable, and has a high value makes an ideal commodity to use as money.

For these reasons and historical ones, gold (along with silver) has served as the universal equivalent for all other products. Since all products must be exchanged with money, the value of money becomes instantly social. It represents abstract purchasing power and can never be overproduced.
It's valuable because it has a historical usage as currency, not the other way around.



Explaining the “price” of gold (technically it doesn’t have a price) creates a problem for non-marxists.
“Why is the price of gold rising?”
“Because its utility as a store of value is increasing.”
“And why does it have greater utility as a store of value?”
“Because it’s becoming more expensive of course!”
Actually, its quite simple if you aren't bound by whatever confused bullshit apparently drove this ridiculous post. Its historical character coupled with advanced financial products like derivatives have directly contributed to its massive growth in "value."

If you understood that the value of something is now defined by confidence, not simply by purchases of the commodity, you'd understand "what Dean is trying to prove," and this was explained earlier in this thread. Apparently you didn't read the thread, or more likely, enough of my post to even understand what was being said.

[turquino]

I read it, but I don’t understand it.

[Revolutionair]

Would it be fair to say that gold has an exchange value, but a small use value?

[∞]

Thank you for articulating what goes on in my head everyday.

[Klaatu]

It's really all about scarcity. If we lived on a desert planet such as Mars, trees, therefore paper, would be scarce.
Thus the paper itself which is used for money, would actually have intrinsic value.