Friday, July 23, 2010

On the Intrinsic Value of Precious Metals

It is often said that precious metals have no intrinsic value, and thus the man who claims it as a safe asset and store of wealth has been mislead by superstition. Economists, financial advisors, and politicians of all stripes perpetuate this sentiment. Gold, they claim, is just like anything else – it’s only valuable to the extent to which it’s trusted by people. Yet, this is not quite accurate. Gold, silver, and other precious metals do indeed have intrinsic value, and it’s time for the source of this value to be understood. Certainly, financial experts have no excuse for ignorance on this subject.
To understand the value of precious metals, let’s first examine other commodities. Most commodities have an obvious intrinsic value. Lumber can be used to build houses and furniture, grain can be used as food, and oil for energy and a variety of industrial purposes. Spectators are quite able to see the intrinsic value in these things. No reasoned individual would claim that oil is simply a shiny goo, valuable only because people “have faith” in it. It is valuable because it can be turned to gasoline and, when combined with an automobile, is able to convey you and all your stuff across vast distances.
Likewise, it is not from mere faith that grain derives its value, nor from trust and international contract that lumber commands a price on the market. Value in these commodities is clear and demonstrable, and it summons no great mental effort to comprehend.
But where is the intrinsic value of gold? Or silver? One can’t build houses, nor eat, nor drive a car with these commodities – their value must come from elsewhere.
To be sure, gold is shiny and has long been used in the crafting of jewelry and ornamentation. It is always desired for these purposes. However, few wars have been fought over pearls, which also make lovely jewelry. No, it is neither the glimmering earrings nor necklaces which comprise the majority of gold’s intrinsic value. It is something else.
As to silver, we know it as a wonderful conductor of electricity. As such, the metal has intrinsic value in the production of circuits and electronics. Yet, this benefit was entirely irrelevant for most of man’s history, yet silver has always been precious. Like gold, the intrinsic value of silver must come from something other than these obvious societal uses.
So where do precious metals get their value? Their value derives from nothing less than their efficacy as a medium of exchange – as a money. It may sound weird at first, or perhaps tautological, to claim that gold is valuable because it can be used as value, but this is precisely the point. Precious metals, by their natural characteristics, are simply those commodities which are best suited to be used as money. A brief examination readily testifies the point.
Ponder, for a minute, what possible product on Earth could be used as money? Technically, anything could be used as money. We could all trade with cattle, or with sand, or with venti mocha lattés. But, what is it about these things which make them impractical as money? Cattle die, for starters, which is not ideal for savings. Sand is too plentiful… try to buy an ice cream cone with sand. You will need much of it. Venti mocha lattes are the most valuable per ounce, but they get cold, and will certainly expire with time. Continue this thought experiment with other items – you will come to realize that most things, while very useful for certain purposes, are lousy as money.
Eventually, you will stumble upon gold, and you will realize that it works beautifully as money. It is durable (it never rots or rusts), it is divisible and combinable (unlike diamonds), it is homogeneous (every ounce is the same as every other – unlike cigarettes, seashells, and birthday cakes), and it is scarce (unlike sand or grain).  Silver mirrors these attributes, though it seems to be less scarce and thus less valuable per ounce.
It should then become apparent that gold has intrinsic value because of its natural properties and the circumstantial geological composition of the Earth. Perhaps on another planet, if gold extended forth from every hillside, it wouldn’t make a practical money, as truckloads would be required for the smallest of purchases. But we’re not on another planet, and thus gold and other precious metals have proven themselves, over thousands of years, as the most effective money. This is where their intrinsic value comes from.
How do we then consider these metals against fiat paper currencies (such as US Dollars), which have been the modus operandi  since the gold standard was fully abandoned in the 1970’s? Well, there’s really only one important difference. Dollars can be, and are continually, printed at whim by governments that need to buy the votes of the public. Gold and silver do not suffer the same embarrassment.
So the next time you hear a commentator state that gold has no intrinsic value, remember what is being overlooked – its ultimate value as money itself.
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Sunday, July 4, 2010

Independence Day, 2010

As the 234th 4th arrives and passes, a prudent and reflective people should consider the meaning of the date, ponder the ramifications of the events which took place, and examine with a certain tenacity whether the goals set forth in those days have been met and maintained.

Upon such reflection, of immediate and practical alarm is the terminology now used to refer to the occasion. “Independence Day,” as a moniker, is employed rarely, set aside in favor of the much more arbitrary and meaningless “4th of July.” Why should this be so? Christmas is not celebrated as “December 25th” and New Year’s not as “January 1st.” One does not hear of the “January 1st Weekend Holiday Sale.” Why, then, does a far more important date than those mentioned above – a date (amongst others) when men stood up to tyranny – become reduced to mere Gregorian arrangement?

Certainly, the explanation may be little more than circumstantial. Perhaps there is no good reason for the change in terminology other than that it “simply happened.” Such a position would be more defensible, however, if the citizens of America had upheld the principles of Independence Day elsewhere in their lives and in their government. Yet such principles have not been upheld, but in fact routinely and systematically marginalized, trodden upon, and lambasted to the point where all it takes to now be considered a treasonous extremist by both the government and the public is to carry a gun, protest taxation, and proclaim under the 1st Amendment that one is doing so. Indeed, the opinions espoused by Thomas Jefferson may have, in today’s America, put him in heady competition with bin Laden as enemy combatant number one.

The sad irony of today’s Independence Day is that one cannot, at the same moment, hold the Declaration of Independence in high regard while also holding in high regard the State under which Americans now trudge. One cannot maintain a straight and honest demeanor while advocating the principles of limited government – so clearly enshrined in the Declaration – while also saluting the leviathan empire of the modern Federal Government. It is no less than intellectual folly to simultaneously advance the principles of liberty while giving consent or credence to the overgrown brambles that suffocate that very concept in a pattern strikingly congruent with the election cycle. Put more simply, one cannot pledge allegiance to the flag without spitting on the very ideas that made those arbitrary colored stripes of cloth worthy of respect.

The United States of America has many fitting labels, yet the one Americans hold most dear – The Land of the Free – has not been appropriate for some time. Perhaps one can then understand the subtle change in terminology for this national holiday, as it betrays a tacit admission by the citizenry that independence is no longer found in sufficiency to warrant celebration, and instead the mere historical date of past men’s liberation has become adequate justification for the fireworks.

Happy Independence Day to those out there still fighting for freedom. Article page