Except your example is flawed... because you could still use the oranges as bait for fish. Or to spell out an SOS. Or dozens of other things. You need to remember that a resource may have more than one use and it's inherent value is reflected in this. This is why things like salt and alcohol became so prized.
Gold. Intrinsic or Tautological.
- Thread starter Necronic
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You are shifting the argument. If oranges have an instrinsic value, it is because they have that as an unchanging property. You can't say, "well, if that isn't the value property, it must be something else that is making it valuable." That way just leads to circular reasoning.
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It has properties which have value. It has value because it has some properties (that are sometimes valuable).
figmentPez
Staff member
The physical properties that give it that value would still exist. An orange has carbohydrates, essential oils and other biological matter in a specific configuration and the physics of the world lend those chemicals to certain inherent uses. If the orange did not exist, the value would not either. However, the orange does exist, and it's value does. How much can be done with that value depends on the individual, or the species, but the value remains.
Mind, I think we're starting to the enter into the existential nature of things. Something can't be ANYTHING without being observed. A rock isn't a rock until it's observed by something that knows what a rock is. Similarly, something can't have value until it is wanted by something.
I think at this point you've ceased talking about economics. We have to assume some basic level of societal interpretation, but that doesn't account for all or even most of an object's worth.
I think at this point you've ceased talking about economics. We have to assume some basic level of societal interpretation, but that doesn't account for all or even most of an object's worth.
If there is no one there to value it, it does not matter what properties it has. There may be strange, delicious fruits growing on an alien, plant-only world right this very moment. They are worth nothing.
But I am contending that it DOES account for all of its worth. If valuation is purely psychological, then it should be treated as such. Ascribing the value to the object itself, I believe, is counter productive, since the value emerges entirely from the context and the psychological and societal relationships involved.
But how does your theory handle objects that have a value that isn't apparent or has gone undetected for millenia? For thousands of years we thought trees were only good for wood, food, and occasionally medicine, but then it turned out they were crucial to the air filtration system on the planet. All life was benefiting from the the oxygen that trees and other plants create, even if we did not now it. Yet it was a function inherent in the design of virtual all plants on the planet.
Basically, I'm saying an object can have value, even if we are unaware of it. This kinda takes the entire sociological angle out of picture until we have to define what the value actually is.
Basically, I'm saying an object can have value, even if we are unaware of it. This kinda takes the entire sociological angle out of picture until we have to define what the value actually is.
Well, an object can have utility but not be valued. We have over forested trees because we valued them for their wood but not their oxygen production. What this means is that we can under-value something that might have an important utility to our survival.
True, but this doesn't negate the original value of the object. Utility signifies value, but value does not always signify utility.
I would contend that utility only signifies the potential for value. That is why things can be considered undervalued in the first place.
Necronic
Staff member
Could you expand on that or are you unwilling to commit to an argument/viewpoint beyond a sarcastic remark like the standard e-intellectual?
Edit: Actually I will make it easy for you by posing a specific question:
Is the industrial value of gold in it's use as a marginally improved electrical contact (from tin) more significant than the use of copper in pretty much every piece of electronics and every one of the millions of miles of electrical wiring in the world.
Plus it's use as a heat exchanger in any sufficiently large industrial heating system.
Plus it's use in making alloys like brass which give us things like bullet casings or musical instruments. Oh yeah and bronze of course.
See that's what you are supposed to say before you follow it up with:
hahahaha
no.
C
Chibibar
Until recently gold doesn't really have "intrinsic" value (circuitry is only in the last 50 years or so)
Why is it valuable?
It is rare. It makes fine jewelry in the early days. I mean look at the old treasure, usually you see gold and jewels (another item that is rare but hardly use except diamond drills and such)
It is hard to obtain (back then) and thus it has value. People like to have stuff that is "hard to find" (see the collector's syndrome)
edit: Why does it have worth? cause people place worth on it.
How does money fit in all this? Well, originally gold was use as money because it is rare. It is "harder" to reproduce since there is a limited supply (in any given period really)
now-a-days we use money base on "faith" (no gold backing but institution backing of credit worth) because it is a unit of measurement of our time/worth/skill.
how else can we exchange services to each other in such world on a large scale. Barter system works in smaller communities, but on the large scale it is quite difficult hence the use of money.
Why is it valuable?
It is rare. It makes fine jewelry in the early days. I mean look at the old treasure, usually you see gold and jewels (another item that is rare but hardly use except diamond drills and such)
It is hard to obtain (back then) and thus it has value. People like to have stuff that is "hard to find" (see the collector's syndrome)
edit: Why does it have worth? cause people place worth on it.
How does money fit in all this? Well, originally gold was use as money because it is rare. It is "harder" to reproduce since there is a limited supply (in any given period really)
now-a-days we use money base on "faith" (no gold backing but institution backing of credit worth) because it is a unit of measurement of our time/worth/skill.
how else can we exchange services to each other in such world on a large scale. Barter system works in smaller communities, but on the large scale it is quite difficult hence the use of money.
The copper argument doesn't work for an easy reason: copper is many MANY times more common than gold. It just is. That helps a lot with its shortcomings, like corrosion. Now it's a lot better than Iron, but that doesn't mean it's awesome either. And those many miles of wiring are almost-always with a sheath. Now that's also to prevent short-circuits, but it's also there to stop the corrosion of the wire.
I wouldn't under-play the "shiny" aspect. Gold is one of the very few metals that can be found in nature in a "metallic" state. Most of the rest are only found as ores. Thus for "shiny" there was very little else BUT gold for millennium of human history.
And that plays into the jewelry aspect. It's actually the workability of the metal that makes it so suited for that. You functionally cannot make jewelry from steel (these days almost anything is "possible" but I mean from a practical perspective) because you can't easily make settings and things like that because the metal just isn't good for that. Gold and silver and other such "traditional" jewelry metals you can. I'd bet the same with copper, but again, the corrosion problem. Silver is an in-between case because of the tarnish comes, and then it doesn't progress.
But I wouldn't be surprised if the straight-out rarity, combined with the jewelry functions of it (it's good for it, not just that it's valuable and desired) would be enough to justify most of the price. Plus add in the modern electronics usage (yes only plating is necessary, but still), and it doesn't seem like a big "this is totally overinflated" anymore.
Diamonds are what are really over-inflated. If it was straight out rarity of gem-quality stones, it would be Sapphires, not Diamonds as the most valuable. And you can make Sapphires at the mega-cheap in the lab now too. Lab-grown gem-quality diamonds are on the market too (here), but there's some expense there. Sapphires are literally holy-crap cheap from the lab (see here).
I wouldn't under-play the "shiny" aspect. Gold is one of the very few metals that can be found in nature in a "metallic" state. Most of the rest are only found as ores. Thus for "shiny" there was very little else BUT gold for millennium of human history.
And that plays into the jewelry aspect. It's actually the workability of the metal that makes it so suited for that. You functionally cannot make jewelry from steel (these days almost anything is "possible" but I mean from a practical perspective) because you can't easily make settings and things like that because the metal just isn't good for that. Gold and silver and other such "traditional" jewelry metals you can. I'd bet the same with copper, but again, the corrosion problem. Silver is an in-between case because of the tarnish comes, and then it doesn't progress.
But I wouldn't be surprised if the straight-out rarity, combined with the jewelry functions of it (it's good for it, not just that it's valuable and desired) would be enough to justify most of the price. Plus add in the modern electronics usage (yes only plating is necessary, but still), and it doesn't seem like a big "this is totally overinflated" anymore.
Diamonds are what are really over-inflated. If it was straight out rarity of gem-quality stones, it would be Sapphires, not Diamonds as the most valuable. And you can make Sapphires at the mega-cheap in the lab now too. Lab-grown gem-quality diamonds are on the market too (here), but there's some expense there. Sapphires are literally holy-crap cheap from the lab (see here).
Necronic
Staff member
For the copper thing I was ignoring rarity and just looking at functional usage. You're right that gold is rare, and it is also shiny. But so what?
Your example of Diamonds and Gems is a perfect example of this. Diamonds and Sapphires are an interesting thing. They are rare and shiny, and they are also industrially useful. I use equipment that uses sapphire seals, and I use diamond tipped cutting blades. Of course those are the synthetic diamonds and sapphires. Now, what's interesting to me is that the synthesis of these things didn't devalue diamonds or sapphires at all. They are both still used in jewelry and are exceedingly expensive. This is because the industrial value, and even the "shiny" value of them was inconsequential in their valuation, which leaves rarity.
But is rarity enough of a justification for value? There are lots of things that are rare. My cats' litter box contains the unique one of a kind remains of my two precious cants. Sadly though people don't seem to want to buy them. So what is it then if not rarity alone?
At the end of the day it's valuable because people say its valuable.
Your example of Diamonds and Gems is a perfect example of this. Diamonds and Sapphires are an interesting thing. They are rare and shiny, and they are also industrially useful. I use equipment that uses sapphire seals, and I use diamond tipped cutting blades. Of course those are the synthetic diamonds and sapphires. Now, what's interesting to me is that the synthesis of these things didn't devalue diamonds or sapphires at all. They are both still used in jewelry and are exceedingly expensive. This is because the industrial value, and even the "shiny" value of them was inconsequential in their valuation, which leaves rarity.
But is rarity enough of a justification for value? There are lots of things that are rare. My cats' litter box contains the unique one of a kind remains of my two precious cants. Sadly though people don't seem to want to buy them. So what is it then if not rarity alone?
At the end of the day it's valuable because people say its valuable.
GasBandit
Staff member
I think there's a false assertion here. Even if gold and diamonds were not "pretty" they'd still have a value as useful materials. That value would not be the grossly inflated "ooh shiny" value it has now. But just because something's price is super-bloated does not mean it has no intrinsic value whatsoever... just that its value is overstated because of a tautology. That's my only nit to pick here. The original post made a case for gold having absolutely no value other than the value we say it has because it's pretty and rare, which is false.
Diamonds are not rare. They are just not allowed onto the market.
The fact that a single entity can control the majority of the distribution of diamonds actually indicates that they are rare. There are copper mines all over the US. How many diamond mines are there in the US?
I think we need a stick to determine what's rare and what's not so we can all be on the same page.
Necronic
Staff member
Ok, I'll buy that.
Edit: Also depending on how you define a diamond or a sapphire they aren't rare at all. You can make them pretty cheap.
I'll have to look into it, but I think there is only one open copper mine in America. There is only one place in the US were Diamonds can be found, but it is just a tourist trap. But Canada has a couple of diamond mines that could meet our demand. But the cartel got to them first.
But globally, there are many areas like Namibia that diamonds are just pebbles on the beach. But the cartel got to them first...
Necronic
Staff member
I think I still need it explained to me why rarity creates real value. Like I said I have some one of a kind litter critters I can sell to you if you want them.
C
Chibibar
I think rarity and usability of an item show status. Gold is rare, so is your cat poo, but you can't use your cat poo as jewerly or something shiny. You can with gold hence it has some value.
Because if you have one hammer and 3 people that have nails that need hammering only one guy can use it at a time... obviously if the item in question is useless in the first place rarity doesn't add real value (300% of 0 is still 0), but humans have a great ability to generalize...
figmentPez
Staff member
Rarity limits the use. Many people have said that gold's practical use is limited to recent years in electronics. That's WRONG. Gold was used as bowls, utensils, mirrors and other practical uses before other metals were refined. If gold weren't as rare as it is, those uses probably would have continued well after copper and iron were available. The rarity of gold increased it's cost beyond what was reasonable for use in various applications. Gold was valued more for it's use as jewelry and currency than it was for it's practical use in cooking utensils and elsewhere, but the value it has for those applications remains.
I agree with Pez, that gold very good for utensils and dining ware, because they did not get germ-ridden like wooden utensils of the time did.
The simple fact is that DeBeers used it's influence to make diamonds from the war torn areas of Africa illegal under "humanitarian" reasons. While i agree that Blood Diamonds are mined under horrible and illegal conditions, that doesn't change the fact that DeBeers has a near monopoly on natural diamonds now. They've bought near every mine outside of Africa and have been swooping in to pick up new ones as parts of Africa stabilize.
True be told, Diamonds are common as shit. It's just that the market has been manipulated by DeBeers enough that they can dictate terms at this point.
There are likely a few good online sources that explain the whole of economics. Once you understand micro economics and macro economics, the reason scarcity plays a role in demand becomes more clear, and should also explain to you the difference between gold and your feline's feces.
Necronic
Staff member
To be honest I'm not convinced you could, since all of your posts in this thread have only contained the implication of an argument, not an actual argument.
I'll go ahead and do it for you. First off your statement "scarcity plays a role in demand". No it doesn't (if it did my cats shit would be in demand). Supply and demand are independent in the standard model, its a fundamental assumption. I will admit that there are advanced models that talk about interdependence but I doubt that was what you meant. What I think you are trying to say is that a limited supply with a large demand will command a large value. Which is true. But it's not the rarity that creates the value, it's the rarity coupled with the demand.
Which leads us to the question from before. Why is there a demand? Industrial uses? Not enough to really matter. Aesthetic qualities? Ok that's a justification for demand (which is also why my cat shit is not worth anything.) However, aesthetics are subjective (Elvis's cat's shit would be worth something.)
Should we consider something with a subjective demand valuation a more stable representation of value than a piece of paper? They are both fictions that we choose to share. What exactly is the difference? To me the only difference is that the piece of paper is a managed and universally recognized fiction. The central bank goes in and does it's voodoo, and I can pay for my boozing with cash at any bar I want. What about gold? It's not universally recognized (try and pay in gold sometimes). Plus there's always the chance that someone could find large deposits of it (or god forbid find the treasures from the copper scroll), or the chance that a real industrial use is discovered for it, or the chance that people finally stop giving a shit about gold. The subjectivity of the value as well as the lack of management makes it much much more dangerous of a monetary supply.
Sorry about that. I thought that I could give you starting points and have you do the research, since I really don't have the time to sit down and answer this question at length, and you appear to be interested in the answer.
Scarcity does not define demand, but it does play a role in it. Of course the simplified model doesn't account for this interaction, it's a simplified model!
You cannot possibly apply the simplified model to gold and expect to predict anything about it.
You can apply the simplified model to your cat poop, and it should apply pretty well.
Choosing the correct model is almost as important (and difficult) as actually applying the model.
C
Chibibar
Ok. So you want a universal answer of something to apply to all? it will be hard but lets see what we can do.
Item in question: Gold
Does it have utility? Yes - Example (old days) utensils, jewelry (present day) electronics
What makes it useful? It doesn't rust, or tarnish. It is malleable. Doesn't require much process unlike other metal.
Is it rare? Yes
Does it have alternatives? Yes
example: Copper : plentiful, ore form, require processing, malleable, can rust over time. Iron/steel - stronger, require advance process not as malleable without proper tools. Silver - tarnish, similar to gold, not as rare.
Is there a demand? Yes. Since it has a high utility, but rare, thus it has higher value/cost
Item in question: Cat poo
Does it have utility? yes
What make it useful? fertilizer
is it rare? no. any cat can produce it
Does it have alternative: yes
example: any other living organism that can generate poo.
Is there a demand? No. Thus it is not in consider "rare" poo.
Item in question: Gold
Does it have utility? Yes - Example (old days) utensils, jewelry (present day) electronics
What makes it useful? It doesn't rust, or tarnish. It is malleable. Doesn't require much process unlike other metal.
Is it rare? Yes
Does it have alternatives? Yes
example: Copper : plentiful, ore form, require processing, malleable, can rust over time. Iron/steel - stronger, require advance process not as malleable without proper tools. Silver - tarnish, similar to gold, not as rare.
Is there a demand? Yes. Since it has a high utility, but rare, thus it has higher value/cost
Item in question: Cat poo
Does it have utility? yes
What make it useful? fertilizer
is it rare? no. any cat can produce it
Does it have alternative: yes
example: any other living organism that can generate poo.
Is there a demand? No. Thus it is not in consider "rare" poo.
No it doesn't.
Necronic
Staff member
Derp, I didn't realize that scarcity had a specific definition in economics. I just assumed it meant it was rare, thank's for the correction. Well let's go back to Steinman's argument
Well now if scarcity includes a high demand in it's definition then this a better tautology than the one I was using for gold.
Why not? You keep making assertions without arguments. It's aggravating. Although I do think you're right the more I look at it (ye bastard).
The global supply of gold, that which could be brought to the market, is static (more or less), because it isn't consumed. This is different, however, from the supply brought to market. The difference between the global supply and the market supply is the hoarded stock supply. Since gold isn't consumed or produced (more or less), but only withdrawn from the stock supply, it is the fastest response of the supply-demand-price equation, or at least it is as fast as price.
Demand is the driving force, the independant variable of the equation, and it goes up when people get pannicky about the economy. Supply then reacts to the demand. The greater the demand, the greater the supply (although it is limited to allow the price to rise). When the economy goes the other direction, demand tanks and supply follows.
Here's a pretty telling chart on gold futures (look at the volumes)
http://tfc-charts.w2d.com/chart/DG/
Anyways, the only way this works is because gold has a static market supply, which it does due to rarity. BUT, that STILL doesn't answer the question of WHY. I still don't get it. Maybe it's one of those things where it has to be something, so why not this.
Edit: Haha I have summoned the Glen Beck adds with all this gold talk. You can thank me by giving me gold.
C
Chibibar
If demand for gold is not needed (say we somehow found/create another metal as useful as gold), then I can see that gold eventually lose value overtime (less and less people want it)
It would be like a rare Magic trading card. Only a few want it for whatever reason, but can't demand a high price for it
It would be like a rare Magic trading card. Only a few want it for whatever reason, but can't demand a high price for it
That's because scarcity actually refers to resources being limited, and i was thinking of something else (2nd language and all): http://en.wikipedia.org/wiki/Scarcity
Should have used rarity or something, but for this discussion it works fine... see here: http://en.wikipedia.org/wiki/Free_good (the relatively unlimited supply makes the good not be scarce, no mater the demand)
See above.
And it's not really economics as much as common sense, if there's no demand for it there's really no way to determine any economic value...
High demand is simply being higher then the supply...
The major reason it has value today beyond it's usefulness is because it historically has had value due to its usefulness. Now it's a self-sufficient, or tautalogical, system - gold is valuable simply because gold is valuable.
In early human history gold could be found with very little effort. In some areas you didn't even mine it, you simply looked for the shiny rocks. Because it existed in the environment in its ideal human-use form, it was valued. The fact that it could be easily worked, didn't kill people for using it (ie, lead), and was naturally more scarce than, say, dirt, it was valued first as a commodity.
People used it as jewelry due to the combination of ease of work, and due to the fact that using an important item as jewelry suggests to others that you have enough to meet your basic needs, and you can "afford" to waste some as decoration. Until you actually work gold with your own hands and then attempt to work any other metal, you really have no idea just how huge a deal this is. It's not just "easy to work" it's like butter - you can make any shape out of it. In fact this is why we almost always use it in alloys such a 14k - pure gold would bend and scratch a lot more easily than the alloys.
It's a pleasure to form gold. It can be pulled into seemingly impoosibly thin wires without breaking. It can be beaten to one atom's thickness mechanically. It melts and softens as low temperatures compared to other metals. It's not a minor attribute.
In early barter systems gold was bartered just as food and other commodities were. However, due to it's usefulness and relative global scarcity, people figured out that if they needed an item from a distant place, taking a cow, or three bags of grain with them was more trouble than taking a small sack of gold.
It became a de facto currency due to ease of transport, and universal usefulness and appeal, which was preceded by its scarcity. If everyone had as much gold as they had water, and it rained gold seasonally, then you wouldn't trade your grain for it - you have as much as you need. However, one could, at that time, always find a practical use for the metal.
Scarcity plays a very significant role in how much something is valued for bartering.
So:
Gold is valuable today because we agree that it's valuable (ie, social contract).
We agreed on its value due to
- Relative global scarcity (there were societies that treated it as trash merely because they had so much of it, despite its usefulness)
- High natural usefulness (doesn't tarnish, easy to work, easy to find early on, low melting point, easy to purify, not poisonous, brilliantly shines in the human visual spectrum, etc, etc, etc)
- Ease of transport
The above three points made it an ideal tool for bartering, and so we formed this social contract to agree, as humanity, to value it.
Gold is an oddity in this regard - it now has a lot more social value than practical value. Thus it is much more likely to experience fluctuation due to human perception more than to supply or demand, which is why normal economic models don't apply.
Added at: 12:24
Keep in mind, though, that even though it has a high social value, the fact that we still use it industrially at it's insane cost indicates that there really is no other replacement. Its extraordinary properties are well worth the cost for many things, which only reinforces the belief that gold is valuable.
If it were not for its continued usefulness in industry, it would very likely bubble and deflate.
I really wouldn't call that odd... we do it pretty often...
Just look at diamonds... their main value comes from being shiny.
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