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What That Giant Asteroid of Gold Would Really Do to the Economy – Article by David Youngberg

What That Giant Asteroid of Gold Would Really Do to the Economy – Article by David Youngberg

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David Youngberg

July 22, 2019

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In Greek mythology, Psyche was a woman of such beauty that she inspired jealousy in the love goddess Venus. The 19th-century Italian astronomer Annibale de Gasparis named a massive asteroid after her. How appropriate that it turns out that 16 Psyche, one of the biggest asteroids in the asteroid belt, is made out of a metal famous for inspiring lust: gold.

Unlike gold discoveries of the past, there’s no rush to harvest Psyche. NASA wants to send a probe only to study it, prompting several articles to erroneously breathe a sigh of relief. According to one:

….if we carried [Psyche] back to Earth, it would destroy commodity prices and cause the world’s economy – worth $75.5 trillion – to collapse.

No one tries to explain how cheap gold would cause an economic collapse, and for good reason: it wouldn’t.

Psyche has a lot of gold—about $10,000 quadrillion worth at current prices. The eye-catching headlines that claim it’s enough gold to make “everyone on earth a billionaire” are, of course, complete fantasy. Selling that much gold would cut prices nearly to zero.

Harvesting Psyche would not cause an economic collapse.

If gold was still used for money, that much gold would create massive inflation, resulting in a lot of economic hardship. No country uses the gold standard anymore, so that’s hardly a concern. Rock-bottom gold prices would certainly be devastating for gold mining companies and people who keep their wealth in gold bars. That’s really bad for them, but they’re a tiny part of the global economy.

Perhaps the confusion rests in simple reverse causation. Recessions definitely cause lower commodity prices, but lower commodity prices cause recessions no more than umbrellas cause rain.

Harvesting Psyche would not cause an economic collapse. If that much gold could cheaply be brought to market it would be a boon, not a bust. It’s impossible to predict what a world of cheap gold would look like, but the story of aluminum gives us a hint.

Even though it’s the most abundant metal on the planet, most aluminum is trapped in bauxite and was difficult to purify for most of human history. Pure aluminum was incredibly rare, and there was once a time when the stuff of soda cans was more precious than gold. Aluminum bars were displayed next to the French crown jewels, and pure aluminum caps the Washington Monument.

Cheap gold probably won’t give us an economic boom, but that doesn’t mean it wouldn’t be an economic boon.

Techniques like the Hall–Héroult process changed all that. What was once the metal of monarchs and monuments became readily available to everyone. It’s so cheap that we now use it in fishing boats, airplanes, and beer kegs. Its foil version keeps food fresh—we throw aluminum away all the time.

Making aluminum cheap didn’t cause an economic collapse. Quite the opposite. It made society wealthier because refining improvements made everything else cheaper, thereby creating new opportunities. Wood that once went for beer kegs could be used for something else. Aluminum boats don’t corrode in water, and this application freed up steel and timber that would otherwise be used to replace degrading vessels. Modern airplanes wouldn’t even be possible without aluminum, and their existence frees up fuel, time, and materials that would have otherwise gone to passenger ships and trains.

True wealth is not found in precious metals, and Bloomberg’s Noah Smith rightly points out that harvesting Psyche won’t cause a new industrial revolution. But he goes too far when he claims that it won’t make society richer because, holding everything else constant, a cheaper resource is the definition of economic progress. It’s only a question of magnitude.

If a future entrepreneur were to harvest Psyche, it would certainly be devastating to the gold industry. For everyone else, it would be a stellar improvement.

Harvesting Psyche, if it can be harvested at the right price (a big if), would make society richer because that much gold would allow us to reallocate our efforts to other endeavors. No one knows what exact effects cheap gold would have because the price of gold has never been anywhere near zero. While gold has limited production applications now, who knows how people will adapt if gold is functionally free? There are substitutes, and there are substitutes for substitutes.

Gold, for example, is incredibly ductile and an excellent conductor of electricity; perhaps houses would be wired with gold instead of copper, freeing up copper that could be used in other ways. Or maybe there’s an industry that’s only possible with cheap gold, like aviation is for aluminum. We can’t look at how gold is used now, with its sky-high price, and assume it’ll be the same with a rock-bottom price. Cheap gold probably won’t give us an economic boom, but that doesn’t mean it wouldn’t be an economic boon.

If a future entrepreneur were to harvest Psyche, it would certainly be devastating to the gold industry. For everyone else, dirt-cheap gold would be a stellar improvement.


David Youngberg is an associate professor of economics at Montgomery College in Rockville, MD.

This article was originally published on FEE.org. Read the original article.

More of Everything for Everyone – Article by Bradley Doucet

More of Everything for Everyone – Article by Bradley Doucet

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The New Renaissance Hat
Bradley Doucet
July 4, 2012
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At any given time, I like to be reading one fiction and one non-fiction book. Rarely, though, do my choices dovetail as serendipitously as they did just recently when I was reading Abundance: The Future Is Better Than You Think (2012) by Peter H. Diamandis and Steven Kotler alongside The Diamond Age (1995) by Neal Stephenson. The former is a look at the world-changing technologies coming down the pipe in a variety of fields that promise a brighter future for all of humanity. The latter is a story set in such a future, where diamonds are cheaper than glass.If Stephenson’s world of inexpensive diamonds sounds farfetched to you, consider the entirely factual tale that Diamandis and Kotler use to kick off their book. Once upon a time, you see, aluminum was the world’s most precious metal. As late as the 1800s, aluminum utensils were reserved for the most honoured guests at royal banquets, the other guests having to make do with mere gold utensils. But in fact, aluminum is the third most abundant element in the Earth’s crust, behind oxygen and silicon. It makes up 8.3 percent of the mass of the planet. But it is never found in nature as a pure metal, and early procedures for separating it out of the claylike material called bauxite were prohibitively expensive. Modern procedures have made it so ubiquitous and cheap that we wrap our food in it and then discard it without so much as a second thought.

The moral of the story is that scarcity is often contextual. Technology, as the authors explain, is a “resource-liberating mechanism.” And the technologies being developed right now have the power to liberate enough resources to feed, clothe, educate, and free the world.

The Future Looks Bright

Peter Diamandis is the Chairman and CEO of the X PRIZE Foundation, best known for the $10-million Ansari X PRIZE that launched the private spaceflight industry. He conceived of the project back in 1993 after reading Charles Lindbergh’s The Spirit of St-Louis (1954) and learning about the $25,000 prize funded by Raymond Orteig that spurred Lindbergh to make the first ever non-stop flight from New York to Paris in 1927. Diamandis also holds degrees in molecular biology and aerospace engineering from MIT and a medical degree from Harvard.

Diamandis and his co-author, best-selling writer and journalist Steven Kotler, do not attempt to paper over the plight of the world’s poor, who still lack adequate clean water, food, energy, health care, and education. Still, there has been significant progress “at the bottom” in the past four decades. “During that stretch, the developing world has seen longer life expectancies, lower infant mortality rates, better access to information, communication, education, potential avenues out of poverty, quality health care, political freedoms, economic freedoms, sexual freedoms, human rights, and saved time.”

It is technology that has improved the lot of many of the world’s poor, and in Abundance, we get a quick tour of dozens of the latest exponential technologies that are poised to make serious dents in humanity’s remaining scarcity problems. There is the Lifesaver water purification system, the jerry can version of which can produce 25,000 litres of safe drinking water, enough for a family of four for three years, for only half a cent a day. There is aeroponic vertical farming—essentially a skyscraper filled with suspended plants on every floor being fed through a nutrient-rich mist—which requires 80 percent less land, 90 percent less water, and 100 percent fewer pesticides than current farming practices. There are advances that promise to make solar power more affordable and easier to store, which is going to be huge given that “[t]here is more energy in the sunlight that strikes the Earth’s surface in an hour than all the fossil energy consumed in one year.”

Stephenson’s The Diamond Age actually gets a mention in the chapter on education thanks to its depiction of what experts in artificial intelligence (AI) refer to as a “lifelong learning companion,” which has a central role to play in the novel. The Khan Academy has already shaken things up with its 2,000+ free online educational videos and two million visitors a month as of the summer of 2011. But things will be shaken up again soon enough by these AI tutors that “track learning over the course of one’s lifetime, both insuring a mastery-level education and making exquisitely personalized recommendations about what exactly a student should learn next.” With mobile telephony already sweeping the developing world and with smartphones getting cheaper and more powerful with each passing year, it won’t be long before there’s an AI tutor in every pocket.

Abundance, Freedom, and the Ultimate Resource

To sum up, in the world of the future, although there will be more humans on the planet, each one of us will be far wealthier on average than we are today. We will have more water, more food, more energy, more education, more health care, and make less of an impact on the natural environment to boot. And the healthy, educated, well-fed inhabitants of the world of tomorrow will be freer as well, no longer kept down by force of arms and blight of ignorance. We’ve already had a glimpse of what mobile phones and information technology can accomplish in last year’s Arab Spring, regardless of whether or not Egypt has made the most of the opportunity.

Not that we should be complacent, though. There are no guarantees, and any number of factors could derail us from the path we’re on. But there are powerful forces pushing us in a positive direction. The X PRIZE Foundation is doing its best to spur innovation with various prizes modelled after its initial success. Technophilanthropists like Bill Gates are also doing their part. And then there are the poor themselves, the bottom billions who are becoming the rising billions. As Diamandis and Kotler write, echoing the late Julian Simon, author of The Ultimate Resource:

[T]he greatest tool we have for tackling our grand challenges is the human mind. The information and communications revolution now underway is rapidly spreading across the planet. Over the next eight years, three billion new individuals will be coming online, joining the global conversation, and contributing to the global economy. Their ideas—ideas we’ve never before had access to—will result in new discoveries, products, and inventions that will benefit us all.

I still have a hundred pages or so to go in The Diamond Age, so I don’t know how that story turns out. But in the real world, all signs point to technology-fuelled increases in abundance and freedom in the poorest regions of the planet over the next couple of decades. Abundance encourages us to do everything we can to help those technologies develop and spread, to the benefit of the entire human race.

Bradley Doucet is Le Quebecois Libré‘s English Editor. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also writes for The New Individualist, an Objectivist magazine published by The Atlas Society, and sings.