Econ 201: Everything You Need to Know about Gold

Daniel Altman: Everybody’s talking about gold these days.  And I wish I had some to show you, but I don’t own any, so sorry.  The thing about gold is it is a very important part of our financial system when we’re looking at the expectation of inflation because even though inflation can mean that the value of currencies goes down, gold is supposed to hold its value.  And that’s because people will always accept gold in trade for other things, so we hope. Gold has intrinsic value, gold is nice to look at and it’s useful in a lot of commercial products.  But it’s also accepted and has been symbolically for hundreds of years as a medium of exchange, as a unit of account, and as a store of value.  

There could have been another focal point.  Perhaps it could have been quartz.  Quartz would have been seen as a great store of value.  But traditionally quartz doesn’t have that role even though, like gold, there’s probably a limited supply of quartz crystals in the world.  Gold is where it’s at.  And everybody sort of accepts gold; that’s what makes it valuable.  

The problem is, if we were to base our monetary system on gold, as some people like Ron Paul had proposed, we would have a fixed amount of gold equal to one dollar and every time we wanted to issue more currency, we would have to make sure that we had that much more gold in our treasury.   What happens then though? Think about what would happen if somebody discovered a huge amount of new gold that we didn’t know about in the world.  All the sudden, the supply of gold would be much higher and that would probably mean that the price of gold would go down in world markets.  But that would have a profound effect on our own currency too because each of our dollars would now be worth less, through no fault of our own.  

So we would have a devalued currency simply as a result of this discovery of gold.  That’s not something that we want to mess around with because it means that other people and other events can control our monetary policy, which is one of our most basic tools for affecting our economy and our economic cycle.  So if you want to use gold as part of our monetary system, you have to think very hard about the fluctuations that we’d be exposing ourselves to. 

Directed / Produced by

Jonathan Fowler & Elizabeth Rodd

 

Economist Daniel Altman on gold's economic stability and why we shouldn't return to the gold standard.

Why the ocean you know and love won’t exist in 50 years

Can sensitive coral reefs survive another human generation?

Videos
  • Coral reefs may not be able to survive another human decade because of the environmental stress we have placed on them, says author David Wallace-Wells. He posits that without meaningful changes to policies, the trend of them dying out, even in light of recent advances, will continue.
  • The World Wildlife Fund says that 60 percent of all vertebrate mammals have died since just 1970. On top of this, recent studies suggest that insect populations may have fallen by as much as 75 percent over the last few decades.
  • If it were not for our oceans, the planet would probably be already several degrees warmer than it is today due to the emissions we've expelled into the atmosphere.
Keep reading Show less

Vikings unwittingly made their swords stronger by trying to imbue them with spirits

They didn't know it, but the rituals of Iron Age Scandinavians turned their iron into steel.

Shutterstock
Culture & Religion
  • Iron Age Scandinavians only had access to poor quality iron, which put them at a tactical disadvantage against their neighbors.
  • To strengthen their swords, smiths used the bones of their dead ancestors and animals, hoping to transfer the spirit into their blades.
  • They couldn't have known that in so doing, they actually were forging a rudimentary form of steel.
Keep reading Show less

Health care: Information tech must catch up to medical marvels

Michael Dowling, Northwell Health's CEO, believes we're entering the age of smart medicine.

Photo: Tom Werner / Getty Images
Sponsored by Northwell Health
  • The United States health care system has much room for improvement, and big tech may be laying the foundation for those improvements.
  • Technological progress in medicine is coming from two fronts: medical technology and information technology.
  • As information technology develops, patients will become active participants in their health care, and value-based care may become a reality.
Keep reading Show less