Austrian economics – ECONOMIC COMMANDER

Last weekend I finished the book Overdressed, which probably seems like an odd choice for one like me. To be fair, I do own a few bathrobes, yet little in my wardrobe comes near the likes of Imelda Marcos, or some Zoomer shopping haul queen. I basically buy what I need, and keep a few unique items around for the rare occasion when fanciful taste is needed. It would certainly be nice to have more, but I simply have not gotten around to caring enough.

Obviously many people disagree, and in many cases with good reason. They’re not the question at stake. Instead, the book’s author dropped a term I had never heard of, even though it manifests in the real world remain as anything but uncommon: the Veblen good. The word’s namesake lies with Thorstein Veblen, an early 1900s economist who became associated with the progressive movement for his non-Marxist critiques of capitalism. Put simply, the term refers to a product which defies the laws of supply and demand by becoming more desired as it increases in value.

For many, the very idea is problematic. Of course supply and demand remains undisputed; just look at Chinese imports and general technology: they all went through the price floor as production and sales picked up over the years. But other goods do not. Rare wines, whether real or fake, are craved, even as they sell at millions on the bottle. Luxury cars can be priced well over the threshold of a townhouse’s mortgage loan, and still people chase the driver’s seat. One might even claim something similar for stocks, which can become overpriced mammoths and still attract the barking madness embodied by those pursuing extreme wealth.

Whether Veblen goods are a consequence of effective marketing by the rich to sell their lifestyle as being superior, nothing changes the underlying reality of how such products come to control our lives. Think of how many folks you know driving spruced up trucks or Hellcats simply to get them to and from work. There’s hardly any street racing or hard construction involved in use of those vehicles, just a fair-weather attempt to impress others. But whatever emptiness may clutch the actualized routine of luxury ownership, the prices continue being raised to great joy from buyers. I will have something everyone else doesn’t, goes the grey matter, along with countless more cerebral motherboards.

I suppose it’s like grinding an axe against the hordes of development at this point. Nevertheless, at times my heart wonders how much worse off we would actually be if folks did more with less, and treated what they had not as objects, but family. A few more monks, and a lot less celebrity.

Hanging around investing circles results in the brain being peppered by a plethora of loaded talking points. These might include specimens such as “Value Investing,” or “Contrarian Growth,” themselves miniature tribes to help organize the sphere of economic debate. An especially lovable variety is the claim summarized as, “Gold is better because it has intrinsic value.”

Yet does this argument stand up in the real world? The term “intrinsic” is defined as “belonging to the essential nature or constitution of a thing” by our frat bros at Merriam-Webster. Applied to gold, the concept becomes a little bit dicey, to say the least. To be clear, Burl Ives’ beautiful metal can be employed to build a variety of modern technologies, so in that realm its naturalistic state may hold value, providing of course that no replacement substance is found. Other metals such as silver enjoy similar advantages, although they do not necessarily track the same price levels as those bright yellow blocks.

That being said, as a firm medium of exchange versus the mocked “fiat currency,” gold’s worth should be called into question. Currencies or assets are ultimately worth something based upon how individuals (or large groups) value them. In the United States, our government has long since adopted a policy of monopoly money inflation, but this doesn’t mean people ignore a $20.00 bill lying on the sidewalk. The piece of paper holds value due to perceptions of the institution behind it. Because America remains a major world player with powerful military resources, we have not been relegated to the status of the Zimbabwean Dollar or Argentine Peso, even against eternal criticisms by Austrian-leaning economists. Inflation is of course real in the United States, but our country’s position prevents it from becoming as visibly horrible and destructive as it might otherwise be. Were the nation to lose its international standing, or if large swaths of the population suddenly reject paper money, this would of course change.

Gold on the other hand appears safe because there is a limited known supply on earth, and it cannot be printed by central banks. True, but technology exists allowing scientists to create the metal in a lab, and while it is presently cost-prohibitive for businesses, could a powerful government with the ability to print endless sums of a (valued) currency not pursue the endeavor, and succeed in flooding the market? There is also the possibility of more sophisticated approaches being developed to reduce the expensive nature of the process, which would radically disrupt the metals bazaar.

Placing all else aside, gold like any paper currency retains value largely due to how people perceive its worth. If we take the extreme scenario of inflationary and societal collapse peddled by libertarians, the glistening doubloons will only matter for those who wish to have them, or folks seeking to construct things from the metal. Most people are liable to be interested in bartering for guns and food, two resources less popular in the Wonderful World of Mike Maloney. Not to mention the influence of private armies who could well issue their own currency, enforced as always by the barrel of a gun.

With all this I seek not to dismiss the importance of precious metals in an investment portfolio. My own includes them (but more so silver), and concentrating your resources into one asset alone is risky. It is however crucial to not drink deeply of the popular swill pushed by gold marketers. Last time I checked, most (if not all) are taking payments in that crisp-smelling green paper doomed to make our bank accounts absolutely worthless.

Stay safe and take the Gold Pill.

Tag: Austrian economics

Veblen Goodness

Does Gold Really Have “Intrinsic” Value?