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Golden asteroid, which will probably not make us all rich



Rejoice, people of the earth! News agencies report that Nasa plans to visit an asteroid of gold and other precious metals.

At current prices, the 16 psyche asteroid minerals are said to be worth so much that each person on the planet receives $ 93 billion (Dh341) .54bn). We'll all be richer than Jeff Bezos.

Now for the bad news: That will not happen. Yes, 16 psyches and other asteroids are probably mined for their metals. However, once these metals are on the market in large quantities, they will probably not be valuable for much longer. As any introductory economics student knows, price is a function of relative scarcity – flooding the market with gold and turning it a rarity into a common decoration. Supply rises, price drops.

In fact, there is a more fundamental reason why a huge golden asteroid would not make the world richly fabulous. This is because wealth is usually not from large pieces of metal. It comes from the ability to create things that fulfill human desires.

A steel factory stands for real wealth because it allows you to make parts for cars, buildings, etc. A house too, because you can live or rent in it. The skills and knowledge in your mind are also a form of wealth, even if they are not included in official statistics. Even a sandwich is prosperity, at least until it gets bad.

But a huge asteroid full of gold contributes little to real prosperity. The metal would have various industrial applications and would make pretty jewelry and fillings, but it would not trigger a new industrial revolution or drastically reduce the cost of goods and services, or generally make human life much better or more comfortable. Gold does not get high prices just because it's rare ̵

1; many rare things have little or no market value. That's because it's rare relative to people's demand. And because a gold asteroid would not increase global demand for gold, it could not create billions of dollars of new real wealth.

Something like a golden asteroid has happened before. In 1500, Spain conquered South and Central America and discovered large gold and silver deposits. These metals were then shipped back to Europe and used for government spending (mostly wars). Since gold and silver were used for money at that time, a drop in the value of gold and silver meant a fall in the value of money – in other words, inflation. The value of modern money is tied to the value of gold or another metal , The arrival of a huge golden asteroid would probably not lead to a rise in consumer prices, but only to a fall in the price of gold to almost zero.

A huge asteroid would not make us all billionaires. But whatever the space company could claim, it would probably still be able to make a considerable fortune for itself. It had to follow the playbook of the diamond company De Beers.

Historically, diamonds were extremely rare until large deposits were discovered in South Africa in the 19th century. British businessman and government official Cecil Rhodes consolidated all South African diamond mining under De Beers, an effective monopoly later controlled by the Oppenheimer family. Over the years, De Beers managed to defend this monopoly against the challenges of various climbers by hoarding diamonds when prices were low and flooding the market to destroy their competitors.

A monopoly allows a company to limit supply to keep prices high. But De Beers needed more than that to stop diamonds from becoming a commodity – and so the company turned to marketing, launching one of the most effective advertising campaigns ever with the slogan "A Diamond Is Forever." This convinced couples around the world that diamond engagement rings were an indispensable symbol of marital engagement. This symbolism represents a real value.

Golden asteroid owners might be able to try to play a similar trick by launching advertising campaigns to get people to use gold for more things, such as building materials or clothing , But it's unlikely that they could persuade the world to pay a premium for the sheer volume of gold that comes from an asteroid like 16 psyche – especially when a competitor with another golden space rock appears.

The impossibility of gaining immeasurable wealth starting at 16 teaches Psyche two important lessons about how wealth really works. First, it shows that much wealth exists only on paper – if you try to sell your assets, the price goes down. Liquidity – the ability to sell an asset for cash – is an important factor that is often forgotten when calculating net assets.

Second, this example shows that real wealth does not actually come from gold treasures. It comes from the productive activities of the people who create things that other people desire. De Beers' fabulous fate was ultimately not based on the control of a certain kind of dazzling rock, but on his ability to convince the world that this rock can be used to communicate love and devotion.

If you want to get rich, do not think about how to use scarce resources. Think about how you can use resources in an innovative way to make people really want or need something.

Bloomberg

Updated: July 9, 2019, 12:29 pm

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