What if there was infinite amount of gold (or silver) in the Universe. Would it become useless (or unjust, don't know how to put it) as money or not? Assuming, of course, that it has same (or no less) value to people.
The point is, that now gold is scarce (amount of it is limited), so it makes sense, that people value scarce things much more, than that which is almost abundant (like oxygen, water) or truly infinite and easily copyable (like ideas, information etc).
So suppose, that even though amount of gold is infinite in the Earth (or Universe), but digging it requires time and resources, so it's never like that when you can just pick gold from ground. You have to work hard to produce it. Hope this makes sense.. Am I missing something? Why again people value gold (or silver, doesn't matter here)?
:)
(english is not my native language, sorry for grammar.)
If gold was as abundant as sand, then it's price per volume and weight would be far too low to use as a money. Think of the price you pay now for a cubic meter of sand and divide the price you pay for a computer by that number.
The Story of Trade and Money (by Walter Block)
Gold and the Periodic Table of the Elements (with Sanat Kumar)
http://www.npr.org/blogs/money/2011/02/15/131430755/a-chemist-explains-why-gold-beat-out-lithium-osmium-einsteinium
Like everything else, the value of gold, whether for use or as money, is influenced by supply and demand. If it was in infinite supply, the meaning of supply including "being readily available", its value would be close to zero.
If there was an infinite amount underground but was it was all expensive to reach, when would someone dig it out? Only when the digger was able to sell it at a profit. Which would depend on how badly people want it [=how much they are willing to pay].
Right now in the real world we have a similar situation. There is some gold down there that is not being dug up, because it is tucked away in expensive hard to reach places. When the price of gold goes high enough, it will mined.
People value gold and silver because they have some use, such as jewelry and the like, because they are portable, rare, divisible into small units, difficult to counterfeit, [and maybe some other qualities I forget] which make something a valued medium of exchange [=money].
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It's easy to refute an argument if you first misrepresent it. William Keizer
Consider this possiblity: would if, as you suggest, the value of gold became relatively worthless, comparable to or even cheaper than paper. *The government could use gold as fiat money* :) I'm sure coin collectors would know better than I, but throughout history the value of money has often been higher than the metal of which it's made, today as ever.
I kind of lost you in your last paragraph, but let me point out the following: we already have "worthless" money, that is, fiat money. Paper is fairly abundant and, though not entirely worthless, relatively worthless compared to gold. It's worth something, in the form some dollar bill or another, due to a combination of government sanction and general acceptance.
This can easily lead into a discussion of QE2 and the price of gold, but I'll set that aside for now.
Paper is fairly abundant
Paper is fairly abundant but U.S. dollars aren't, and you will go to jail for a very long time if you try to produce it. Additionally, paper is not superabundant.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
I heard not too long ago that the copper found in British 1p and 2p coins is actually worth more than the face value of 1 or 2 pence. I don't know if that is still the case or if it was just that the price of copper had temporarily spiked, either way it's a funny old world.
In the US, the nickel in a nickel is worth more than a nickel.
But on reserves, when we used to have a gold standard was there realy the sum of paper currency in reserve? With the GDP of today's countries would it even be possible to have a single commodity based currency. If we had a copper based currency for example, with a value that was tied to the price of copper and for every unit of currency we had a weight measurement of copper in reserve. There would not be enough room to store all the copper and having all the copper in storage would not be practical and it would effect the price of copper, by pushing the price up. We could have a currency that is backed by a copper mutual fund, but then is that realy a reserve based currency and how is it different than our current currencies regarding reserves?
I read somewhere that there was never enough gold in the vaults to cover the amount of paper money that promised gold on demand.
Here's a line from wikipedia on "Nixon Shock":
The year 1970 was the crucial turning point, which, because of foreign arbitrage of the U.S. dollar, caused governmental gold coverage of the paper dollar to decline from 55% to 22%.
Thank you all for the answers.
The reason why I asked this was one post on one of the Mises blogs (http://blog.mises.org/16594/the-morals-issues-of-money/#comment-775284), one person said this and it got me wondering a little bit:
"So increasing the money supply is evil thus all gold and silver mining should be abolished under a gold standard?"