The Austrian School of economics, which was founded by Menger, who taught at the University of Vienna, has always been distinguished above all from the other schools of economic thought by its systematic devotion to a theory of subjective value, meaning imputed value.
If this theory of economic value applies to all scarce resources, this must include gold. There is nothing unique economically about gold's value. It is valued by individual decision-makers in terms of the same subjectivistic process that applies to all scarce resources.
Then where resides gold's stability of value over time? In the minds of acting individuals. Also, in the reality of geology. There is far greater stability of geological conditions than subjective assessments. . . .
When people speak of gold's intrinsic value, this reveals their realization of gold's historic value. Gold has had long historical value, as Roy Jastram's book, "The Golden Constant," revealed over three decades ago. But this constancy is over decades or even centuries, not mere years. . . .
Masses of people once understood what a gold coin was. Their successors do not understand what a futures contract is, or a derivatives contract. Neither did the well-educated fools who lost trillions of dollars a year ago, and whose careers were salvaged only by the Federal Reserve and the Treasury, as run by a Goldman Sachs former CEO.
The Byzantine gold standard lasted over a thousand years. The modern gold coin standard lasted only for a century, 1815–1914. It broke apart because of World War I. Governments wanted to inflate, and the gold coin standard hampered this. So, politicians and central bankers abolished it by fiat.
Modern warfare does not deal lightly with restraints on state power. The gold coin standard was such a limit. It transferred to common people the power to veto the war effort, merely by taking their bank IOUs to gold to the bank and demanding gold coins. . . .
Those who do not trust the wisdom, motivation, and tools of central bankers have a way to express their lack of trust. They can buy some gold coins.
[Click here for links to all of North's installments on What is Money?]
Friday, October 23, 2009
Gold has no intrinsic value
In Part 8 of his series, What is Money?, Gary North writes: