Was writing a response to this question:
Then I thought that I might well put this into a blog post.
The vast majority of wealth in the world is purely subjective, a $1 million house is only worth $1 million as long as people is still valuing it that much.
The difference between gold and other assets is the magnitude in difference between “intrinsic” and perceived value.
A rare painting is very expensive during peace time, when people have the resource to contemplate attributing so much money to essentially paper and oil. But if, let’s say, a crisis such as war came, then the perceive value of a painting quickly diminish and people will value it as what it is, oil on paper. We can state that the magnitude of difference between intrinsic and perceive value for rare painting is enourmous.
Property might have less diferential in intrinsic and perceive value, but there’s still a differential. Even cash has a diferential between intrinsic and perceived value. If a government collapse, then its currency will likely to lose its value, eliminating the so called “wealth” of people who had relied on the subjective perceived value of that currency.
The differential between intrinsic and perceived value is more readily apparent during crisis such as war and when common sense scoffs at how ridiculously expensive an object is.
So, in essence, all non-gold non-currency wealth are worthless, because they have been paid for. They have been paid for with currency, and the seller holds the “real” wealth in currency, assuming the seller is willing to keep the currency he/she has as is.
Very unlikely since people typically dislike holding too much cash, preferring other asset, and thus to use the currency to buy another asset using. And then that currency again move hand.
As currency moves hand, it enables the purchase of assets. The same $1 million, can enable the purchase of $1 billion “worth” of asset.
The speed at currency change hands is called velocity. The higher velocity, the more asset a country or its citizen can buy while minimizing creation of new money (inflation).
What enables velocity? Productivity. The more productive a country is, the faster can they make purchases with the same amount lf currency, the faster they can grow their wealth, while minimizing inflation.
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