I just read a piece on the monetary metals by a writer that I hugely respect. In this rare instance, he is wrong. He describes Gold as a good with a declining marginal utility.
Many important new understandings emerged from Dawn of Gold. One of them (Chapter 8 – The Measure and the Measured) was that money is not a good. The logic is quite conclusive. Menger’s theory of marginal utility does not apply to money. Gold did not become money because it was the ‘most marketable good’, though that was a far more plausible theory than those that preceded it.
Money does not have a declining marginal utility that is measurable. Most economists assume that this is because it is so small. No, it is not measurable because it does not exist. It is Gold’s lack of declining marginal utility that makes it money.
The theory of marginal utility applies to all goods. Money is not a good. How can the measure also be the measured? It cannot. One can no more have a money that varies in value than one can have a metre rule that varies in length.
That is why fiat currencies always and everywhere fail. They do not and cannot have a stable value; thus, they cannot be the measure of value.
The belief that money is a good is a basic and profound error, which leads to many other errors. Not least of which is the Quantity Theory of Money – the theory that the more money there is in circulation, the less each unit is worth. It is all dogma and at odds with not only logic, but also current and historic experience.
It is because Gold has the one and only stable value that it is the one and only money.