Gold: A Valuable Thing to Store

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Whenever you hear someone speak of gold’s having intrinsic value, you can be sure that he has a confused theory of economics in general and monetary theory in particular. There is no such thing as a free lunch. There is also no such thing as intrinsic value.

The meaning of the word “intrinsic” is always difficult to pin down. It means “autonomous.” It implies fixity. There is neither in economic life.

It was Carl Menger’s profound insight in 1871 to recognize that economic value is imputed by each individual. The value of the tools of production, the value of land, and the value of labor expended in the creation of a final consumer good do not move forward in time from the value of the inputs. They move in response to entrepreneurs’ estimates of future value imputed by customers. This was Menger’s great discovery.

Economic value is subjective. It cannot be measured. There is no objective measuring rod of economic value. Nevertheless, the outcomes of competing bids for specific goods are objective: prices. How can this be?

Each person ranks the importance to him of those scarce resources he is interested in. That is to say, he imputes value to each economic good in relation to all the other economic goods that he is considering. He has a scale of values: first, second, third, etc. He imputes these rankings to specific resources. He then bids for ownership of an array of goods, either as a future buyer (seller of money) or as an existing owner (buyer of money).

Would-be customers compete against other would-be customers. On the other side of the potential transaction, would-be sellers compete against other would-be sellers. Out of these competing bids on an open market comes an array of objective prices. Subjective, imputed value produces objective prices by way of a gigantic auction.

High bid wins.


To say that anything has intrinsic value is to say that it possesses economic value that is immune from the imputations of individuals. It is also immune from changing conditions of supply. It is immune from the process known as market pricing: competing bids. In short, it is autonomous.

Nothing is autonomous except God. There is no market for God. He is not for sale.

God has intrinsic value. Nothing else does.

Whenever someone speaks of intrinsic value, he is attributing to a scarce economic resource an incommunicable attribute of God. The language of intrinsic value divinizes some aspect of the creation. This is always a conceptual mistake.

A person who uses the adjective “intrinsic” has not thought through the assumptions and implications of this adjective. He is nave about the topic of economic value and valuation. He may mean well, but his economic theory is deeply flawed regarding the most important topic of economics specifically and social science in general: imputation.


Imputation is an individual’s act of valuation. It relates a person’s present scale of values — subject to revision — to objects in history. History is always changing, which means that people’s imputations are always changing. There is no way to measure these subjective changes. There no fixed plumb line of economic value.

We can see this by means of an analogy. There is a story of a man who told his friend about the implications of Einstein’s theory of relativity, as interpreted by people who do not understand algebra. “Space is curved.” His skeptical friend replied, “Compared to what?”

This is the issue of economic imputation, too. To what unchanging ruler can economic changes be compared?

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.

Geological stability is one of the two primary sources of gold’s relative stability of value over time. The other is gold’s relative stability of value over time. How can this be? Because historical continuity of gold’s relative price offers evidence for future continuity of its relative price. That which has been will probably continue to be, generally, plus or minus, give or take. “It’s close enough for government work!” On the contrary, it’s close enough for anti-government work.

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.


Gold’s startling fall in price from $850 to $250, 1980—2001, reveals just how non-intrinsic gold’s value has been. The money supply doubled, prices doubled, and gold’s price fell by 70%.

Anyone who says that gold has intrinsic value needs to explain this in terms of economic theory. If he appeals to something unique about gold, which makes it different from other commodities, then he is a monetary crank. A monetary crank is someone who argues for a theory of money different from his theory of the rest of the economy.

The defender of gold’s intrinsic value faces the same problem that is faced by those who once defended Ptolemy’s geocentric, geostationary universe: reality does not conform to the theory. There are still defenders of geocentric, stationary universe. They see the stars as circling a stationary earth. They cannot explain why the geosynchronous-orbit satellites do not fall to the earth due to its gravity. They deny that the earth spins. So, given their view, they cannot explain the balance between the effects of the earth’s gravitational pull and centrifugal force’s push into space. But this does not faze them.

Neither does the fluctuating price of gold faze true believing intrinsic-value defenders of gold. It is not gold’s price that fluctuates, they say; it is all those other prices. This argument does not console the person who bought gold in 1980 and sold in 2001.

To claim intrinsic value for gold is to divinize it. Critics of gold dismiss what they call the cult of gold, or the religion of gold. When applied to someone who insists on the intrinsic value of gold, the critics have a point.

The defender of intrinsic value is relying on a pre-1871 theory of economic value. He is claiming that there is objective value out there somewhere. The last major economist who defended such a theory of economic value was Karl Marx. He defended the labor theory of value. His economic analysis could never escape the problem of the waterfall. No one made it through human labor, but it can have high economic value. Why?

Menger would have answered: “Because people value it.” But why? “That is for them to say. It is not for an economist to say.”

Gold’s price rose sharply when it looked as though the Federal Reserve System under G. William Miller would undermine the dollar’s value. Gold fell after Paul Volcker and the Board of Governors reversed course in the fall of 1979 and reduced the creation of money. Volcker and the Board allowed two recessions to destroy equity on a massive scale. This policy was unique in post-World War II Federal Reserve history.

Gold is a mass-inflation hedge. It is not always a mild inflation hedge. We learned this, 1980—2001.

Some defenders of gold are merely confused about the theory of value. Others are cheerleaders. They do not invoke the crucial economic facts of gold: its constancy in value over time, which is the joint product of limited supply (geology) and imputed value. People trust gold as an investment asset with relatively stable purchasing power over time. People will trade gold for other resources because they expect others to do the same in the future.


Gold has possessed stable value over long periods of time. Gold is sometimes said to be a store of value. This should be worded differently. Gold is a valuable thing to store.

When someone says that gold is a store of value, the imagery is that of an item whose value does not fluctuate. Value is somehow poured into gold, and uniquely so. But there is no such process of pouring value into gold. Gold is poured into castings, and these shape it. Its value comes from people’s quest for a reliable means of exchange. This is no longer true. Gold is no longer a means of exchange. It is no longer money, except among central bankers. But it is still a valuable thing to store.

Critics of the gold coin standard dismiss its long stability of value. The critics have a vision of a new mankind. This new collective mankind can rationally agree on anything they want to serve as money. There is no longer any need for the barbarous metal, as John Maynard Keynes once called gold.

But then the larceny in men’s hearts begins to find new ways to get rich at the expense of the public. The public does not understand these new schemes. 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 700 years (320s—1030s). 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.

When politicians and bankers agree to be limited by gold-owning citizens, gold is a valuable thing to store. But it sometimes gets far more valuable when governments and their agents, central bankers, inflate the currency unit.


Gold does not have intrinsic economic value. No resource in history does. History is the realm of change. In such a world, there is no intrinsic economic value.

There is imputed economic value. There is historic economic value. Neither of these concepts of economic value rests on a theory of the supposed autonomy from free market pricing.

In a free society, final users of any asset have authority over its free market pricing. Owners of gold possess uncommon authority, for gold allows people to invest on the assumption that the larceny in men’s hearts focuses on money, and central banks in turn control the supply of money. 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.

This upsets politicians. It also upsets court economists, who are well-paid sycophants of central bankers. The more unreliable the decisions of the central bankers, the more upset the economists are with owners of gold. They do not want the price of gold to rise. Such an increase would signal a voice of protest by a small group of private citizens.

If you would like to protest the extension of centralized government power over your life and society in general, buy a few gold coins. I like protests that can turn a profit. This is such a protest.

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

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