The golden asteroid should not make us all rich

Rejoice, people of the Earth! According to the press, NASA plans to visit an asteroid in gold and other precious metals.

At current prices, the minerals contained in the 16 Psyche asteroid would have enough value to give everyone on the planet 93 billion dollars (Dh341.54 billion). We will all be richer than Jeff Bezos.

OK, let's get to the bad news now: this is not going to happen. Yes, 16 psyches and other asteroids will probably be exploited for their metals. But once these metals begin to hit the market in large quantities, they will probably not be valued anymore. As all novice economics students know, price is a function of relative scarcity – flood the gold market, and go from a rarity to a current decoration. The supply goes up, the price goes down.

But in fact, there is a more fundamental reason why a giant asteroid would not make the world fabulously rich. This is because wealth does not usually come from big pieces of metal. It comes from the ability to create things that satisfy human desires.

A steel mill is a real asset because it makes parts for cars, buildings, and so on. A house too, because you can live there or rent it. The skills and knowledge present in your head are also a form of wealth, even if they are not counted in official statistics. Even a sandwich is a wealth, at least until everything goes wrong.

But a giant asteroid filled with gold only adds a little real wealth. The metal would have various industrial applications and would make nice jewelry and dental fillings, but it would not trigger a new industrial revolution, would not drastically reduce the cost of goods and services, nor would it make human life any more enjoyable or more comfortable . Gold does not demand high prices simply because it is rare – many rare things have little or no market value. It's because it's rare compared to people's demand. And since a golden asteroid would not increase the total demand for gold in the world, it could in no way create quadrillions of dollars of new real wealth.

Something that looks a little like a golden asteroid has already happened. Around 1500 or so, Spain conquers South and Central America and discovers large deposits of gold and silver. He then shipped these metals back to Europe and used them to pay public expenses (mainly wars). The gold and silver being used at that time as currency, a decline in the value of gold and silver means a decline in the value of the currency – in d & # 's Other terms, inflation.

Gold is no longer used as currency, and the value of modern currency is no longer related to the value of gold or any other metal. Thus, the arrival of a giant asteroid in gold would probably not raise consumer prices, but would simply give up the price of gold to a level almost zero.

So, a giant asteroid would not make us all billionaires. But no matter which space-mining society succeeds in claiming space rock, it will probably still be able to build a substantial fortune. He should follow the game book of the diamond company De Beers.

Diamonds were extremely rare until large deposits were discovered in the 1800s in South Africa. Cecil Rhodes, a British businessman and representative of the colonial government, brought together all diamond mining activities in South Africa under De Beers, an effective monopoly that was later controlled by the Oppenheimer family. . Over the years, De Beers has managed to defend this monopoly against the challenges of different countries, amassing diamonds when prices were low and flooding the market to destroy its competitors.

A monopoly allows a company to limit the supply to maintain high prices. But De Beers needed more than that to prevent diamonds from becoming a commodity – and that's why the group turned to marketing to launch one of the most effective advertising campaigns ever launched with the slogan "A diamond, it's forever". This convinced couples around the world that diamond engagement rings were an indispensable symbol of marital engagement. This symbolism represents a real value.

Owners of a golden asteroid could possibly try to solve the same problem by launching advertising campaigns to entice people to start using gold for more things – building materials, perhaps, or clothes. But it seems unlikely that they can persuade the world to pay a premium for the volume of gold coming from an asteroid such as 16 Psyche – especially if a rival society came up with another space rock. golden.

The impossibility of extracting unspeakable riches from 16 Psyche teaches two important lessons about the actual functioning of wealth. First, it shows that much of the wealth exists only on paper. When you try to sell your assets, the price goes down. Liquidity – the ability to sell an asset for money – is an important factor that tends to be overlooked when calculating net worth.

And secondly, this example shows that true wealth does not really come from gold reserves. It comes from the productive activities of human beings creating things that other human beings desire. The fabulous fortune of De Beers does not ultimately result from his control over some kind of dazzling rock, but from his ability to convince the world that this rock can be used to communicate love and dedication.

If you want to get rich, do not think about how to grab scarce resources. Think of the innovative way of using resources to create something that people want or really need.

Bloomberg