The Illusionary Value of Gold

Poor is the man who can boast of nothing more that gold. Ring photo

-William Scott Downey, Proverbs Ch 1, #11 (1858)

In the article, The Shared Delusion of Money, I discussed some of the delusions surrounding the “value” of money. The other day I overheard someone talking about how they wanted gold and diamonds for the time when the country collapsed and paper money would be worthless. I find this sad for two reasons. First that someone is so pessimistic as to believe we’ll be living in a barbaric Mad Max like future. Secondly I find it extremely sad that someone who is 220px-Mad_max_beyond_thunderdomeplanning for such a future would actually want gold and diamonds. If you are living under the Thunder Dome you are far better off having guns and ammo than gold and diamonds.

People tout gold as a safe investment because they claim it has intrinsic value, unlike paper money. The problem is that gold does not hold much intrinsic value to humans per se. In a post-apocalyptic world items with intrinsic value will have survival properties. Food, medicine, tools, weapons, etc. Gold and diamonds are decorative luxury items. In a collapsed society they have little to no value. The only value they have would come from the survivor’s lingering belief that there is value in gold. You can’t eat gold or wear diamonds, thus in that type of world they are of no use.

From a purely economic sense all value that tangible items have, from gold or diamonds to tulips or Beanie Babies, is an shared illusion agreed upon by society. That illusion can change in the blink of an eye and their worth can vanish. So care must be taken when thinking about where to place your energy in preparing for an uncertain future form a financial standpoint.

Viceroy TulipAt the height of the tulip investment bubble in 1635 40 bulbs might sell for 100,000 fls. An annual salary for a construction laborers would be about 525 fls. Yet by 1637 flowers that had a few weeks before sold for 5,000 fls. sold for a measly 50 fls. One could also look at the Beanie Baby (BB) phenomena to see how ephemeral value can be. Some people spent $100,000 in collecting enough BBs to sell off in order to put their children through college. Who wouldn’t take that chance when at auction a 200 year old inlaid Biedermeier chest sold for $1,250 and a brand new $5 retail BB sold for $3,200.

Others make money writing investment books speculating on future prices. In the Beanie Baby Handbook the author estimates that the 1995 “Peanut” would sell for $7,500 in 2008 (10 years from the publish date of the book at the height of the Beanie craze 1998). A quick look on Ebay as I write this shows several “Peanut” models for auction ranging from a buyout price of $3.00 to $499.99. Only two have actual bids and those bids are at $8 and $2.

Even the safe investment of gold is not totally safe.  In 1980, gold peaked around $850 per ounce and then in January crashed, spending the next 10 years averaging $400 an ounce. All these examples illustrate how we give the illusion of value reality, that lasts until the illusion shifts and then a new value is put in place.

 The desire of gold is not for gold…. It is the means of freedom and benefit.

-Ralph Waldo Emerson, The Complete Works of RWE – VII Society & Solitude (1870)

Of course as Ralph Waldo Emerson says, people do not want gold for economic reasons, but for the safety and comfort that it brings. It tells us a lot about our fears that when we believe the future to be dark we turn toward gold for security. We want to believe that things we acquire will protect us from the scary future. Unfortunately since all inanimate objects have no value except for what society agrees, there is no true safety with gold, diamonds, or any other “valuable”.

True comfort in the future lies with the people whom we have ties and connections to. Family, friends, even society at large if we live in a just and caring society. Yet fearful people want the gold because gold doesn’t judge our worthiness, gold doesn’t need to be treated nicely, and gold never wants us to care for it too. Relying on people is much harder than relying on a lump of rock, or a pile of paper money.

In our hearts we know that our well being in the future, whether bright or bleak, will be enhanced by out family and friends far more than the gold that glitters. We just need to remember that more often.

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