One common objection that cryptocurrency advocates encounter is that bitcoin and most other cryptocurrencies have no intrinsic value. They assert that other assets, such as gold, do. When pressed for what they mean by “intrinsic value”, the response offered is generally “a value inherent to the good itself”. Gold (and sometimes silver) seems to be the favourite example due to its industrial use as a conductor of electricity and its aesthetic use in jewellery.

A note on definitions

Before we parse misunderstandings regarding gold’s intrinsic value, let us first cover definitions. What this article attempts to do is critique the notion that gold and other goods have intrinsic value – using the common use of the word ‘intrinsic’ as I described above. For gold, this refers to its metallic properties, which (Peter Schiff, for example, asserts) makes it valuable somehow in itself. This definition of “value in itself” must be differentiated from ‘intrinsic value’ as the term is used in the field of finance in the context of stock valuations.

The origins of value

Disagreement around the origin of value predates bitcoin by at least hundreds of years. The classical economists of the 18^th and 19^th centuries debated the matter and came to some erroneous conclusions – not fully debunked until the 1870s by three economists, each working independently: Carl Menger, Léon Walras, and William Stanley Jevons. Classical economists Adam Smith, David Ricardo and Karl Marx, for example, fallaciously believed that value of a thing originated from the labour that went into its production.¹

Interestingly, the origin of value had already been properly understood by the Spanish scholastics long before Adam Smith published his economic treatise in 1776. For example, Diego de Covarrubias y Leyva, a minister for King Philip II in Spain, accurately stated in 1555 that: “The value of an article does not depend on its objective nature but on the subjective estimate of men, even when this estimate is foolish.” About a decade prior, another Spanish scholastic by the name of Saravia de la Calle wrote that: “Those who gauge the just price of an article by the labor, costs, and risks borne by the person who deals in or produces the merchandise are seriously mistaken; for the just price springs from the abundance or lack of goods, merchants, and money, and not from costs, labor, and risks”.²

Yet, not surprisingly, one age-old misunderstanding about various goods (including money) supposedly having “intrinsic” value still haunts the bitcoin community today. In 2010, the year after bitcoin’s launch, one participant in the early web forums to which Satoshi Nakamoto was a participant, for example, argued that bitcoin could be “valued for intrinsic properties amenable to exchange”. Perhaps he referred to bitcoin as a payment network and thought that this had value in itself (capital-b “Bitcoin”).

In a 2018 debate between ShapeShift founder Erik Voorhees (a cryptocurrency advocate) and Euro Pacific Capital CEO Peter Schiff (a gold advocate), Schiff makes the case against cryptocurrencies when not backed by a commodity. Bitcoin, Schiff says, “has no value into itself as a commodity”. Voorhees responds appropriately that value requires a valuer, emphasising the subjective nature of value.

Economist George Selgin also addresses this point in his brilliant book Good Money on privately-issued coin money in Britain during the Industrial Revolution. He writes that “The expression [‘intrinsic worth’] is misleading because all economic values are subjective rather than intrinsic to goods themselves”.³

Conclusion

The value of gold is not derived from its metallic properties, its beauty, or anything of this nature. The value of anything – gold included – is derived from the minds of individuals. As such, nothing has intrinsic value in economic terms (once again, ignoring the different sense in which the term is used in finance). Once we notice that one individual may value the same piece of gold higher or lower than another, we are able to understand that the value of a thing is always subjective, just as Covarrubias rightly noted in the 16^th century and as the classical economists later discovered again in the latter half of the 19^th century.

References

HUERTA DE SOTO, J. (2008): The Austrian School: Market Order and Entrepreneurial Creativity, Cheltenham, Edward Elgar Publishing Limited.

SELGIN, G. (2011): Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775-1821, Oakland, The Independent Institute.

SKOUSEN, M. (2009): The Making of Modern Economics: The Lives and Ideas of the Great Thinkers, 2^nd ed., Armonk, M.E. Sharpe, Inc.