#26 Intrinsic Value Doesn’t Exist

Did you get a chance to watch the new Hard Money Documentary?

Whenever you hear someone start talking about the “intrinsic value of money”, several things should become immediately obvious. Firstly, they have never read Mises on subjective value theory. Inherently, things are only worth what an individual is willing to exchange for it at a given moment in time.

Human Action covers this concept in far greater detail than I can here, but the important take away is that preferences of acting individuals changes from moment to moment and is based on a near limitless number of extraneous factors. Successful speculators are able to anticipate what others may value in the future, and attempt to act around that assumption profitably.

The second thing which should be immediately obvious in this context of “intrinsic value of money” is that the person speaking doesn’t understand the monetary premium of money like assets. In 2019, there was 327 metric tons worth of gold demand by the technology industry, out of a 3120 ton annual new gold production. That means roughly 10% of newly produced gold every year, is a result of industrial demand.

The question is, why then, does gold continue to remain profitable for gold miners and sellers if only 10% of the demand comes from industry? The demand comes in other forms, primarily speculative. People intuitively understand (thanks to gold’s long history) that gold is a good store of value (due to a high stock to flow ratio). This makes it a popular investment vehicle and arguably why it is also so popular for jewelry. You value gold jewelry because of its cost. You do not value stainless steel jewelry because it is cheap. That cost comes from the monetary premium of gold.

Coin Stock Photos

Anything can technically be used as money, but assets have various inherent properties that make them better or worse, relative to one another, as money. It just so happens, that gold had more of those properties than most base metals, and those properties naturally tended to cause individuals to favor using gold as money (as opposed to other materials).

So when you hear the term “intrinsic value is what makes gold (or any other commodity/asset) good money”, ask yourself whether or not this line of logic makes sense. Intrinsic value doesn’t exist, and that is a good thing for solving the problem of money.


Book of the Month:

The Ethics of Money Production by Jorg Guido Huulsman

-“The historical selection of gold, silver, and copper was not made through some sort of a social contract or convention. Rather, it resulted from the spontaneous convergence of many individual choices”

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