August 2017
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Debunking the Intrinsic Value Argument

I have to admit to having updated my mind about the “intrinsic value” argument that many people cite as a justification for treating gold as a money (vs paper currency). I’ve previously attempted to explain away this argument as a side-effect of other properties[Gold is Money] or to dismiss it as an unrelated feature[The Commodity Money Myth]. Now I have some good reasons to believe that the entire argument is unsound.

First, a conversation that I had with a fellow camper at the Jackalope festival.

Person: Gold is money and Bitcoin only a currency.
Me: Ok, what’s the difference?
Person: Well, money can operate as a store of value.
Me: Interesting, how do you store something subjective?
Person: *mumble something about intrinsic value that I find unconvincing and irrelevant*

If you take the Subjective theory of value seriously, then it’s obvious that “intrinsic value” is an illusion. Gold has held its value for a long time, sure, but that’s because people, individuals, continue to have a high subjective value for that material. I don’t see a big problem expecting similar valuations in the future, but that position says much more about human preferences than it does about a shiny yellowish metal.

Next, a dismantling of the argument’s structure.

To say that gold makes a good money because it has some other uses (jewelry for the Ancients, electronics also for modern society) is to cite competing non-monetary uses! Do you really find it convincing to hear someone say “Y is a good X because its useful for non-X” or “Let’s trade with this substance instead of putting it to these other uses”? Consider some of the implications:

  • If the other uses become more highly valued than facilitation of trade, your commodity money will disappear from circulation.
  • Those other uses have to compete with use as money, making them have a higher price than they otherwise would.

Wouldn’t the world be better off to use that gold industrially or culturally rather than sequester it away in a vault? Cryptocoins can help with that liberation, for they have no competing uses. By explicit design, their highest value use is to facilitate trade.

Furthermore, under the theory of intrinsic value: the more competing uses a substance has, the better a money it becomes. Ridiculous! The very structure of the intrinsic value argument undermines what it attempts to buttress.

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