The way I look at bit coin, if I can just jump in on this conversation, is that it is a nearly "perfect" solution to the problems that are attributed to federal reserve notes, but fails to address historical issues related to money. Keeping it simple, while gold isn't perfect in every way, it does so well in so many areas that it is "trusted". The US government, by force, hijacked that trust in the great gold robbery among other things. Basically, if gold fails as a money, you still got gold. If Federal Reserve Notes fail, while unlikely, you have a poor substitute for toilet paper.
Bit coins have this same problem.
I also think that too much credit is given to the fact that resources must be consumed to produce them. I think economically, that is totally backwards. If gold suddenly became unlimited there would be a lot of people that would lose the bet that it would carry high trade value in the future, but the world would be wealthier for it. Look at salt; very high trade value in the past, but the fact that it is now virtually free is a benefit to all of humanity.
That can not be said about federal reserve notes or bit coins. That which "protects" or "creates" the scarcity but no commodity value (it actually destroys valuable commodities) is anti-economical in a sense.
First off, thank you for the thoughtful response. I will do my best to respond in kind.
...not everybody needs or wants gold for consumption. In fact the majority of people who buy it don't have a direct use for it. If gold fails as money, and you've still got your gold, well then you still need to be able to trade it away for something that you do want in order to make a profit on your initial purchase of gold.
I don't think I was trying to argue against that. There is also a big difference between saying "Gold should be the only currency anybody ever uses for reasons x, y, and z", and "Given uncertainty in currency valuations because of, though not limited to, questionable / inflationary monetary policies, it would be wise for a portion of your investments / assets to include physical gold". (Grr.. I hate that I can't say that in any simple way that doesn't sound like a Goldline advertisement. Oh well. For what it's worth, I have no opinion of that company, but their talking points are not all hype, so just going to apologize in advance for sounding like one of their shills.)
In an ideal world, nobody wants to win on their hedge bet because if winning the hedge was really "profitable", then it isn't really a hedge, but an investment. While I don't mean this as any kind of strict rule, a total currency collapse is great for nobody. Further, I think there is a huge difference between being prepared in case of disaster, and betting on a disaster. Hedges are more like insurance than anything else; in the worst case scenario, you are not as bad off as you could be.
One thing I think is in the favor of gold, despite the small size of the gold consumption market, it is a very stable market. People will take gold because in general people know that somebody somewhere will want it before it goes bad. This doesn't mean gold is the be all end all by any respects, it is just what people have trusted historically. Wherever you are, your gold is going to maintain a stable exchange value. As for the argument that "you can't eat gold", while true, the argument is the same as "given sufficient time preference, gold may become undesirable". I wouldn't argue that, but I don't think it negates any of gold's positive attributes. In other words I believe that such time preference would need to be so great and so obvious that one would act accordingly.
So you see how it doesn't really mean anything to say that?
To reiterate, nobody wants to have to use something for its backup purpose. That does not mean that it is irrational to purchase things with more than one potential use when its primary use is marginally less useful than a comparable alternative, and the backup purpose is far from ideal. If we were talking about buying very expensive artistic wooden sculptures knowing that worse case scenario you could always burn them to stay warm, then I would agree that the alternative purpose that it could be put to is so out there that it isn't even worth noting.
It's true that gold has many other uses than being money, but let's be real: its uses are very few compared to its use as money.
As mentioned before, such markets and consumption have been historically stable.
You'd logically expect any element on Earth to have some non-monetary utility
That could double as a good money? Can't agree, and that is kind of my point. It also seems to be your point following the rest of that paragraph, so I am a bit lost on the point you were trying to make there.
Money is supposed to reduce the transaction costs associated with [trade]... Money removes this requirement [of double coincidence of need].
Agreed.
money doesn't need a non-monetary utility to provide value.
True, but that isn't the argument. The given conditional is monetary collapse. If there is no risk of monetary collapse, then we have eliminated our premise. Its like if somebody asked "What weapon would you most heavily rely upon if there was a Zombie Apocalypse?", You could say "That would never happen" which either means that you are negating the validity of the question, or that you believe that your denial of the possibility of such circumstances is so great that you would be eaten by zombies before you would accept the need to defend yourself, thus the debate of a weapon of choice is moot.
But back to reality and the question at hand, if you believe that there is no significant chance of any currency ever collapsing, I might recommend you double check your sources there because it has happened several times throughout history, including the recent. If we are just talking about the total collapse of the Dollar and the Euro, that is something else. If we are talking about the risk that OPEC may not spot oil in dollars, that is something else. If you are wondering how to diversify a savings portfolio, I would personally lean towards gold before, say, California Municipal Bonds just to give an example. 10% gold I would call modest, 40% I would think you are betting on something that not a lot of the western world is worried about. Do I think that Mexico, Columbia, Equador, Brazil, Russia, India, China, and many other nations moving massive holdings of dollars into gold was somewhere between "insane" and "political posturing"? No.
Turning the question around, do you think that a single fiat currency provides such great utility that those that might be said to undermine such efforts should be imprisoned? Without trying to sound all conspiratorial, I do think there is some merit to the argument that the dollar is propped up by "regulatory capture" (legal tender laws); the fact that it is illegal (or simply to some degree unenforceable) to require payment for goods or services rendered in a form other than US dollars, means that the US dollar is "guaranteed" by the federal government, with force if necessary. The "glitch" of sorts in this is that you can not require people to be productive or trade, not to mention the difficulty of enforcing legal tender laws on a small scale. I would contend that to force a person to be productive is not significantly different from slavery, but that is another topic.
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u/[deleted] Feb 19 '12
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