The answer to this question is simply no. However, I want to follow up with another question. Do fiat currencies have intrinsic value? Another no, quite obviously. But I’m going to step it up a notch and argue that even gold has no intrinsic value whatsoever. So, neither fiat money, gold nor Bitcoin have an intrinsic value, but why is that?
Let’s start by saying that intrinsic value is an abstract concept introduced by the classical economists that relied on the Labour Theory of Value. It proposed a cause-and-effect relationship between human labor and value, meaning that a produced good is valuable because of the labor behind it. A few years later, this theory became obsolete with the introduction of the Subjective Theory of Value at the hands of Carl Menger, the founder of the Austrian School of Economics.
To explain its core principles, we can say that value of a good is determined by the importance that a person places on it. Value is not something intrinsic to either labour or goods, instead it’s given by individuals with needs and wants. This means that people derive value from the relative utility they can get out of any good.
The Diamond-Water Paradox
Utility is not enough to determine value. If that was the case, water would be infinitely more valuable than diamonds, since its utility for us is obviously much greater than gems. The answer to this paradox lies within the concept of marginal utility, which is the utility or benefit of the last unit of a good consumed. In fact, people are not valuing all the diamonds in the world versus all the water in the world, instead they are looking at the marginal utility of the two goods. Consumers value an additional diamond more than an additional unit of water.
Marginal utility dictates that the value of a good or service decreases as the quantity consumed or available increases. An example is food. Its value is very high if you don’t have any, but becomes worthless when there is more than you can eat.
Even though we need it to survive, water has a lower marginal utility because of its massive supply. In the end, it’s the scarcity of these goods that is the real derivation of value. While we’ve seen that there’s no such thing as intrinsic value, we can claim that any particular resource or good has an intrinsic scarcity.
So, after this brief digression, let’s get back to the real world, to our forms of money keeping in mind that, while they don’t have any intrinsic value, people derive a subjective value from utility and scarcity. Let’s begin with the easy one.
1. Fiat money
Clearly the lesser medium as it lacks intrinsic scarcity. Its issuance is controlled privately and the supply can be expanded and contracted whenever. Stripped of one aspect of subjective value, fiat can only rely on utility. Being legal tender, which means that it’s a medium of exchange enforced by the state, every citizen must use it. To put it bluntly, fiat is valuable because the state says so. Fiat money by definition has no intrinsic value. The only value that fiat money has is the threat of legal force if someone refuses it.
Fiat money has always been imposed by the coercive power of the state. It is not the money of the free market, but the money of a partially enslaved society.
2. Gold
Gold is a tangible physical commodity and, unlike Fiat, it has intrinsic scarcity since it’s rare and expensive to mine and produce. Its main utility is also derived from its scarcity, and it also holds a historic value. As we saw already earlier, it’s the marginal utility of gold that makes it so valuable. It has been used as money for thousands of years, and it still holds its utility as a store of value.
3. Bitcoin
This is where things get interesting. Like gold, it’s expensive to mine and requires resources to produce. Being a digital asset, Bitcoin combines the best elements of physical monetary media, without any of the physical drawbacks to moving and transporting it. Bitcoin also has a finite supply. When 21 million bitcoins are mined no other unit will be introduced. But why is there demand for Bitcoin over fiat currencies? Simply because the subjective evaluation carried out by the people put Bitcoin as the preferred medium. Its properties are considered, from some individuals, better than those of fiat currencies. Anonymity, decentralized system of clearance, cryptographic trust, etc. And the benefits are not only on a technological level, but they concern economics and politics as well.
Bitcoin was not introduced by the government, it’s not enforced by any law, it’s the product of the free market. Nobody is in charge and no particular group of people is calling the shots. Bitcoin is the non-violent way to get out of the current flawed system, securing my wealth beyond the reach of the monetary policy enforced by fiat currencies.
Bitcoin is the best form of sound money ever invented, a new medium that we can use to reclaim the control over our economy and the safety of our private property. Bitcoin is the single most important step towards economic freedom.
