Thursday, February 06, 2014

How "Intrinsic Value" is Derived from Ego and Sex

In my mission to fully and completely understand the economics behind bitcoin I have gone through a handful of papers, scores of posts, and hours of podcasts.  I viewed attaining a 100% economic understanding of bitcoin as an intellectual challenge and while I will write about it at a later point in time, I did accidentally have an epiphany about something else while listening to Peter Schiff and Stefan Molyneux talk about bitcoin.  That epiphany specifically being intrinsic value.

Intrinsic value means, in simple terms, "real value."  For example paper dollars do not have intrinsic value.  It is only the goods and services you can purchase with said paper that does have "real value."  However, gold does have intrinsic value because the gold itself is valuable.

Or is?

This is the problem I think very few economists think through about currencies, intrinsic value, and specifically gold and silver.  We always assume gold and silver are valuable unto themselves, which made them the "ultimate" form of currency.  But if you look throughout history, especially in places where there was no gold or silver, you'll find other "substitute currencies" popped up.  Salt, shells, etc.  Even today in prisons cigarettes manifest themselves as the default currency.  In other words, the value of a currency isn't its "intrinsicness," but rather the physical qualities it has that makes it the ideal tool of exchange.

This results in a debate and is the essence of the debate Stefan Molyneux was having with Schiff - does a currency even need to have intrinsic value or just really good traits that makes it a superior currency.

Schiff argued that currencies like bitcoin and the dollar are not backed up by anything, which makes gold superior.  But this then brings us back to whether or not gold actually has intrinsic value.  However Schiff pointed out several times something that made me realize gold (and silver) do indeed have intrinsic value.  Namely, gold can be used for ornamentation.

Now when I say, "ornamentation" that is the polite was of saying, "sex and ego."  For while, yes, humans have always sought gold and silver, you have to ask why would they do so?  What is in it for men to grab a hunk of metal that has not the function of iron or the usefulness of bronze?

You can get laid.

Gold was (and still is) nothing more than peacock-feather currency.  It was a way to demonstrate you had wealth and power.  With gold you could either directly purchase sex (either prostitution, supporting a concubine, or a wife...or 6) or at least demonstrate you were wealthy and powerful by adoring yourself or your house with it.  Thus, gold, and by default, intrinsic value does not derive it's worth from something like "scarcity" (though it does need to be scarce) as much as it does play and ego. 

If you don't believe me, think about a world without women.

What would happen to the price of silver, gold, and diamonds?  Yes they have some industrial uses, and their scarcity and malleability would make them a decent currency, but they would not be trading anywhere near what they are today if there were no women to woo.

Therefore, we need to realize that functional currencies do not necessarily have to have intrinsic value.  Gold and silver have adequate enough characteristics on their own that make them great currencies, just as bitcoin, shells, cigarettes and salt.  But if you want something to have genuine "intrinsic value," something that goes beyond currency-functionality, then it needs to either stoke your ego or get you some play. 

The rest are all truly fiat currencies or commodities.

16 comments:

Ray Wolfson said...

gold (and silver) are rare and difficult to find, so they perfectly describe a amount of human effort and capital expenditure to find, extract and purify the metal.

silver is used in many industrial applications, and gold is also used in technology.

other commodities used in the past such as chocolate beans, tobacco, sea shells, herbs and spices etc. also carry intrinsic value.

money is a commodity of exchange.

when that commodity can be waved into existence by a government printing pieces of paper or tapping on a computer, then we have a problem of trust. eventually that trust issue, will trickle down into the trust of the currency itself, especially if the ability to print is abused.

Anonymous said...

http://www.barnhardt.biz/2013/11/05/the-one-about-how-we-are-the-gold/

Anonymous said...

in the same way that society is all about getting laid.

as chapelle says, men would live in cardboard boxes if they could get women to fuck them there.

gold's value is in both its finite nature and the effort required to extract it.
this is why bitcoin is not just finite, but taxing to extract as the computational algorithms advance to reflect the increasingly difficult and competitive nature of hoarding a finite substance deemed valuable.

the reality of bitcoin is it is largely still used to gamble at SatoshiCasino and may due more harm than good simply for acclimating the public to the idea that fiat currency can be mentally abstracted to the point wherein it is literally arbitrary numbers on a screen.

long and short of it is if jamie dimon wants a piece of the action, you should think twice about what mechanisms are really at work

Anonymous said...

in the same way that society is all about getting laid.

as chapelle says, men would live in cardboard boxes if they could get women to fuck them there.

gold's value is in both its finite nature and the effort required to extract it.
this is why bitcoin is not just finite, but taxing to extract as the computational algorithms advance to reflect the increasingly difficult and competitive nature of hoarding a finite substance deemed valuable.

the reality of bitcoin is it is largely still used to gamble at SatoshiCasino and may due more harm than good simply for acclimating the public to the idea that fiat currency can be mentally abstracted to the point wherein it is literally arbitrary numbers on a screen.

long and short of it is if jamie dimon wants a piece of the action, you should think twice about what mechanisms are really at work

Like a G-6 said...

It's the human program that gives a traded class of objects value.

Things which are intrinsically valuable, which neither Gold or Bitcoin are in my following example, are things which first and foremost continue our machine existence in spacetime, that being energy. Living in a continuum which is utterly conservative and experiencing time in the direction of increasing disorder dictates that, as biochemical machines that break down, we need to replenish our structural form and locomotive potential (if there even is a distinction between the two). Food and water have always been the ultimate currency by which we derive our energy and maintain our existence.

Gold and other intrinsically worthless currencies are valued not for what they are, but the function they serve as a non-consumable (in the sense of eating it and it's no more), volume-limited good: act as a physical balance sheet for input of energy versus output.

You can trade Gold for energy in the form of food (direct supplementation), women via entropy reversal through genetic recombination, housing which serves as protection against accelerated systems degradation due to exposure to the environment, tools which enable cheaper and easier acquisition or reduced expenditure of energy, and so on.

Bitcoin serves a similar function to Gold and Silver, in that both are volume-limited intrinsically worthless materials. What one loses that Gold conveys (adornment) one gains with Bitcoin (cheaper cost of remote transaction). Something they both share is a lack of interference of the transaction, if the Gold is handed off between parties without intermediary. Bitcoin has an added advantage in that, so long as your wallet is stored correctly (wallet.dat is IN YOUR POSSESSION, ENCRYPTED, AND BACKED UP) your Bitcoins cannot be stolen without your express permission.

All of economic need arises from the second law of thermodynamics relating to a closed system. Arguably you can say the Earth is an open system with the Sun's radiation, but only so much of that radiation hits the Earth's surface, and there is only so much of the Earth's surface that can be inhabited to collect that radiation (not going into Dyson rings or spheres here).

Now, even though many intrinsically worthless things can serve as a medium of exchange for worthy items, not all "compatible" items are or can be used, and that is a limitation of the human program, or psychology. One reason Gold and Silver have such value as exchange mediums is because our psychological program is derived from older psychological programs which used and valued these items. Gold and Silver themselves remain mediums of exchange for the same reason Christianity, Judaism, Islam, Hinduism, and other religions remain in existence: your environment (parents and society) conveyed that use to you. Diamonds and rubies, though not appreciably any more worthless than gold and silver as an exchange medium, are not our medium of exchange today because they weren't yesterday.

That can change as the programs, like genes, do not copy exactly from generation to generation. Much like we are the emergent result of our molecular biology and chemistry, our programs and societies are the emergent result of us. To quote an old Native American somewhere, it's turtles all the way up and down.

FSK said...

Computer hardware, CPUs, and some electronics also use a tiny bit of gold and silver, which also gives intrinsic value to gold and silver.

Most wires are copper, because copper is cheaper. Gold and silver are better conductors of electricity, and sometimes they are needed.

Look at a 10-20 year price chart, with gold/silver/copper and stock indices on the same axes. Notice that gold/silver/copper clump together very nicely, compared to stocks. That's another indication of real value.

The price of gold is primarily driven by investment demand. Silver and copper are primarily driven by industrial demand. The fact that they stay together over time shows that real value is being measured.

C.J. Caswell said...

Intrinsic value is a ridiculous idea. All values are subjective, so the question is, what gives it value TO YOU? In the case of money, it's valuable to you because it's valuable to other people, an inherently social tool. Which makes perfect sense. Why do you learn a language? Because other people use it. Language is a currency, too.

The interesting thing about gold is the chicken-and-egg problem. Why does gold get you money and sex? It's heavy, shiny, and yellow, but so what? That's not where the ornamental value comes from; there are plenty of materials much cheaper than gold that look better to most people. No, the value of gold is symbolic, and what's it's come to symbolize is wealth and power... precisely because it was useful as a currency. Gold isn't valuable as a currency because it's attractive; gold is attractive because it's come to symbolize power. People have been trading it for so long that it's become a primal instinct to see someone decked out in gold and associate them with high rank.

Why has gold been such a good currency for so long? Simple: it doesn't corrode; it's extremely malleable, meaning it can be broken down into subdivided units easily; its density means that a lot of it is compact; and of course, it's rare, making inflation difficult. These traits will survive, no matter what else about our world doesn't.

There's nothing wrong with bitcoin, but you do have to have a little faith...

Yasmin Adam said...

I like your post. Very impressive way of writing....appreciate the great information about bitcoin currency. Keep posting similar article.Thanks…

Anonymous said...

You should aquire some Bitcoin in at least micro amounts and try it! Try the exchanges, visit faucets, some sort of micro investment, set up a miner even if it never wins the 50btc jackpot, try a mining pool too, buy something like an ebook, buy something from a real reteller... Try it all!

Long Lost Friend said...

I argue that value is never "intrinsic." Something is always assigned value from outside itself, by human beings. That is true whether we are talking about rookies in the NFL draft, Girl Scout cookies, precious metals, or bitcoin.

The value of something is determined by its scarcity/rarity and its desirability. Some would also throw "utility" into the mix, but I would lump that under "desirability" as well. Just because something is useful, that doesn't mean that someone will want it.

The converse is true as well: people pay big bucks clamoring for things all the time that really have no added utility (designer clothes being but one example). They are more desirable to those who wear them, but the only "utility" is greater happiness of the wearer (and perhaps a slightly increased chance of getting laid).

Bitcoins are scarce, and while they are becoming more useful as more individuals and merchants hop on the bandwagon, the Wild West roller coaster price reflects the fluctuating desirability of the currency.

Apple's campaign against Bitcoin cannot possibly hope to shut it down in the long run, but it can affect the psychology of those who are on the Bitcoin fence and influence a 15% drop in the price of BTC in the short run.

Long story short, gold is valued not only because it is scarce, but because it is desired. The Captain is correct in his assessment: if the women were gone, the so-called "intrinsic value" of gold would be much less.

Like a G-6 said...

The materials of life themselves (food, water) are intrinsically valuable.

Things traded for those materials only have value because the materials have value. Gold's value is secondary to food.

kurt9 said...

I'm not sure I believe in the concept of intrinsic value as that independent of market value for material goods. The reason is that, if you get into financial trouble and have to sell what you have, the only real value of such material goods is the value you can get from them when you get rid of them.

Any, yes Virginia, I really do consider all non-libertarian world-views to be nothing more than the justification of parasitism. I really do believe this.

Acksiom said...

I haven't read your economics sources, so I have to ask if they address the value inherent to currency in general from its use as an alternative to naked force?

Because that's one of the reasons why you get 'cigarette' economies even in prison.

Currency is a civilizational advance on par with agriculture etc., and in all the analyses I've seen of crypto- and neo-currencies and economies, none of them mention the efficiency advantages of a decentralized virtual currency that thereby (and for other reasons) relies less on the ability to initiate force against others.

In the case of bitcoin, for example, some of those normally force-related efficiency costs are being handled by the substitution of the public record of the blockchain documentation.

The idea comes from observing how ubiquitous personal recording is beginning to serve some of the same positive social functions of personal armament. Just as currency serves as a more efficient alternative to naked force, cameras, because of the internet's efficiency at information transfer, are beginning to do so likewise, and returning that to bitcoin points out how it, and other alt-currencies, may be succeeding because of those unaddressed superior efficiencies.

Acksiom said...

And right on cue, BAM!

http://www.foxnews.com/tech/2014/02/07/russia-bans-bitcoin/

Bitcoin decreases the value of the state's monopoly on force by more efficiently substituting the near-immediate public record information for some of the benefits that the state's monopoly provides.

So of course the russian state bans it right at the point when they can expect a major inflow of capital. It's such a potentially disruptive competitor -- compare the driving effect of the russian white-grey-black market percentage to that of ours, forex -- that they can't afford otherwise.

Is any of that sensible to a econ pro?

Second Set of Books said...

My comment is in 2 parts... apologies on the length.

Part 1:
I disagree with your assessment that paper money has no intrinsic value while gold or silver or some other rare metal or stone does. I think both have intrinsic value, because society has agreed that they both have potential (usefulness/ desirability). It is possible to trade paper money for gold, and gold for paper money, even exchange. And it's possible to use either to exchange for food, or a car, or a house or whatever. The whole if A = B and B = C then A = C thing.

Value is nothing more than a formula that goes something like (Supply – Demand) + Potential = Value

Now as to getting laid:

Historically, women derive the better part of their value from intrinsic sources. Men tend to derive the better part of their value from extrinsic sources.

Attractive women have naturally high intrinsic value for the simple fact that they are born with a pussy. A woman only needs to own a vagina and be pleasant looking and not terribly offensive to be around for men to desire her (Potential). And since the Demand for pleasant looking, non-offensive vagina outpaces Supply, especially here in the west, it doesn't take much for her Value value to be positive. And Men aren't looking for much else anyway.

Men have less intrinsic value. Men are born with dicks, and if a man is pleasant looking and not terribly offensive to be around that's perfectly well and good and not a detractor from the value formula, but since the Supply of pleasant looking, non-offensive dick greatly outpaces (natural) Demand, something else needs to be added to to the formula to raise his Value into positive territory. Here is where extrinsic value comes in. Men, unlike women, have the ability to increase their Potential by adding external elements – money, status, power, cool and interesting hobbies/lifestyle etc. Men generally don't care much about a woman's money, status, power or hobbies, so those external things added to her life don't add much Value in the eyes of men. It doesn't matter if she's a barista or a Ph.D or a celebrity, if she has a vagina, is pleasant looking and non-offensive, men will find value there.

Second Set of Books said...

Part 2:
All men need to do is realize that this is the way things are, it's the way things have always been, and it's the way they'll always be, and they'll be in a prime position to tip the scales in their favor.

A woman and her intrinsic value are pretty much fixed entities. Sure, she can lose weight or put on makeup or try to be kinder, less bitchy, less entitled, happier, more feminine (all adjustments to her intrinsic value). Men on the other hand, have all of these same adjustments (in their masculine form – lose weight, add muscle, be less needy, more decisive, better leader, more masculine) plus they must also add extrinsic elements – money, status, power, lifestyle – to increase their Value. And these extrinsic elements are by far more adjustable than a woman's intrinsic elements.

A man can become more valuable by putting in the hard work to earn more, accept more responsibility and a higher position in his company (status & power), learn an instrument and join a band (status & power), or arrange his affairs to have a desirable lifestyle. Women can't make these adjustments. Or, they can, but men generally don't care. They're pretty much stuck with what they were born with, save a small scale of variability. And then there's time decay (hey, how can you have a discussion about intrinsic and extrinsic value without bringing up stock options?). And they know it. This is the seed of the parasitic vines of feminism, solipsism and hypergamy. If they can't adjust their Value up, they try to adjust ours down

So, Men, stop thinking so hard about what women want. Like us, they're just looking for Value in us (as they define it), same as we're looking for Value in them. Go out with friends, live your life, continuously better yourself. When your Value becomes positive, they'll find you.