Money, Value and Wealth

Money, Value and Wealth

Value

• Precious Metals have always been a store of value

• Gold• Sliver• Abstraction of Value• Transactional

representation of value

Gold

• Does not represent real wealth

• Looks pretty and shiny• Does not corrupt:– Oxidize or rust or dull– Philosophical value

• Difficult to counterfeit or reproduce– Alchemy

• Not good as currency

Gold, Value and Wealth

Gold is an interesting phenomenon relative to the notion we have universal agreement that intrinsic value resides there. Gold has relatively few uses and utility. It is not an especially productive asset. Yet it is considered a storehouse of value. It is shiny, and doesn't oxidize or corrode. Those properties have made it appear as a symbol of purity and perfection. But that seems a bit abstract as a reason for its historical value. It is difficult to counterfeit, as the alchemists painfully discovered. Underpinning Supply and Demand is a collective agreement of value. Please discuss your ideas of the difference between the concepts of Value and Wealth and what they mean in economic terms. And why do you think gold has been a defacto standard of value through history.

Commerce

• Traders and vendors would slice off little bits of gold coins and melt into new ones

• After a while the coin would be so reduced that no one would take it

• Vigorish

Eureka!

• Archimedes discovered how to test weight by displacing water

• Important because people would palm off gold plated things as solid gold

Wealth• Productive Assets• Test: does it make our

life sustainable or better

Wealth Examples• Food • Shelter• Healthcare• Safety– Police; Defense

• Predictable– Government

• Entertainment• Education• Knowledge

Hierarchy of Needs

• Maslow

Consumerism

• Advertising• Generation of false

needs• Material stuff and

empty bragging rights

Basis of Currency

• Gold Doubloons• Silver Certificates• Fort Knox• Pound Sterling• Bi metal Standard

Gold Standard

• William McKinley ran for president on the basis of the gold standard.

Going off Gold Standard

• 1971• Nixon Shock• Floating Currencies• Exchange Rates• Inflation• Vietnam War

Precious MetalsAlchemy and

Economics

Intrinsic Value in Precious Metals

• Utility?• Gold: incorruptible;

doesn’t rust or oxidize• Philosophical meaning

of value: permanence like the stars.

• Rare

Alchemy

• Get Rich quick• Turn base metals into

Gold• Fore runner to

chemistry

Famous people who were practicing alchemists or influenced

by alchemical texts• Isaac Newton– Hinge point

• Plato• Shakespeare• Leonardo Da Vinci• Rumi• John Milton

Isaac Newton

• Physics– Universal Gravitation– Laws of motion

• Calculus• Optics– Prism: separation of

white light into rainbow spectrum

– Reflecting Telescope

Isaac Newton• As Master of the Mint in

1717 in the "Law of Queen Anne" Newton moved the Pound Sterling de facto from the silver standard to the gold standard by setting the bimetallic relationship between gold coins and the silver penny in favor of gold.

Alchemical Processes

• Purification• Reduction• Conversion• Proto - Chemistry

Alchemists to Chemists

• Western alchemy is recognized as a protoscience that contributed to the development of modern chemistry and medicine

• Francis Bacon• Linus Pauling

The Story of Aluminum

Rare = Precious = Valuable

• Aluminum• Discovered in 1800s• So rare that the

pyramid on to of the Washington Monument is covered in Aluminum leaf.

• December 1884• Laus Deo

Pyramidion on top of Washington Monument

• Made of Aluminum• Inscriptions• Orientation to Sun• Meaning and

Significance• Obelisk

King of Siam Visits France

• King of Siam provided with aluminum plates as special guest

• All others even the king of France, eat on gold

Aluminum

• Aluminum in nature incredibly rare

• But aluminum in compounds incredibly ubiquitous

Real Alchemy

• Invention of Process to extract Aluminum using electricity

• Charles Martin Hall• Lab experiment• Scale up• Need lots of electricity• Enabling technology

Edison and DC

• Direct Current was the first distributed electricity

• New York City had the first electric lights and power distribution

• JP Morgan financed Edison’s electric operations

• Consolidated Edison became General Electric

Charles Proteus Steinmetz

Tesla

Mad Scentist

Tesla and Twain

• Twain spent a lot of time visiting Tesla’s lab in New York City.

• These two men came to be friends—essentially, as mutual fanboys.

• A bromance.

Invention of AC

• Nickolai Tesla• Harness the power of

Niagra Falls• Generators• Electric Motors• Distrbution– Transformers

Creative Destruction

• Competing Systems:– Direct Current– Alternating Current

• War of the Currents• Edison electrocuted

dogs to “prove” the danger of AC

George Westinghouse

• American entrepreneur and engineer who invented the railway air brake and was a pioneer of the electrical industry.

• Westinghouse/Edison Rivalry

Electrification of the World

The Story of Electric Power

• "The evolution of electric power from the discovery of Faraday in 1831 to the initial great installation of the Tesla polyphase system in 1896 is undoubtedly the most tremendous event in all engineering history"

• -Dr. Charles F. Scott, Professor Emeritus of Electrical Engineering at Yale University and former President of the American Institute of Electrical Engineers

Faraday• Michael Faraday, FRS

was an English scientist who contributed to the fields of electromagnetism and electrochemistry. His main discoveries include those of electromagnetic induction, diamagnetism and electrolysis.

Electrification of the World

Nikola Tesla and George Westinghouse built the first hydro-electric power plant in Niagara Falls and started the electrification of the world. Adam's Power Station (Power House No. 3), the only remains of the old Niagara Falls Power Plant.

Harnessing Nature’s Power

The first use of Niagara Falls Power Company electricity was by the Pittsburgh Reduction Company (later to be renamed Aluminum Company of America), which used an electrolytic process invented by Charles M. Hall. The company was founded in Pittsburgh in 1886 but transferred operations to Niagara Falls during this period because of the prospect of cheap and reliable electrical power.

Charles Martin Hall(December 6, 1863 – December 27, 1914) American inventor, music enthusiast, and chemist. He is best known for his invention in 1886 of an inexpensive method for producing aluminum, which became the first metal to attain widespread use since the prehistoric discovery of iron.

U.S. patent #400,666Hall's method of processing the metal ore was to pass an electric current through a non-metallic conductor (molten sodium fluoride compound was used) to separate the very conductive aluminum. In 1889, Charles Martin Hull was awarded U.S. patent #400,666 for his process.

Oberlin College's most prominent benefactor: Aluminum Statue

ALCOAIn 1888, together with financier Alfred E. Hunt, Charles Martin Hall founded the Pittsburgh Reduction Company now know as the Aluminum Company of America (ALCOA). By 1914, Charles Martin Hall had brought the cost of aluminum down to 18 cents a pound and it was no longer considered a precious metal.

Value of Aluminum

• Over 1000 uses• Value as scrap

Gold: ubiquitious?

Gold from Sea WaterSeawater contains vast quantities of dissolved gold, perhaps as much as $10 trillion (US) worth, though in dilute concentrations. Recent evidence suggests that much of the earths continental gold deposits have biological origins. Certain bacteria are believed to have been involved in the precipitation of gold out of dilute hydrothermal solutions. A possible avenue for commercially viable gold recovery from seawater might involve such a bacterium, or a specifically engineered microbe.

Could we return to Gold Standard?

• Exchange Rates• Credit Rating of

Treasury Debt Erodes• Hyper inflation• Nostalgia for underlying

hard concrete value to money

Transcendence

Electronic Banking

• Immaterial transactions• Bookeeping • Bank accounts• Wire transfers• Computers• Networks

Square

• IPad dongle

Cyber security

• Debit & credit cards• Readers• Magnetic strips• Vulnerable networks• Passwords• Target• Banks

Bitcoin

• A move in the opposite direction toward transcendent unregulated immaterial notion of value representation.