Asteroid 16 Psyche | Commons
Asteroid 16 Psyche | Commons
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Rejoice, people of Earth! News outlets are reporting that NASA is planning to visit an asteroid made of gold and other precious metals! At current prices, the minerals contained in asteroid 16 Psyche are said to be worth $700 quintillion — enough to give everyone on the planet $93 billion. We’re all going to be richer than Jeff Bezos!
OK, now for the bad news: This isn’t going to happen. Yes, 16 Psyche and other asteroids will probably be mined for their metals. But once those metals start hitting the market in large quantities, they’re unlikely to be precious for much longer. As any introductory economics student knows, price is a function of relative scarcity — flood the market with gold, and it will go from being a rarity to being a common decoration. Supply goes up, price goes down.

But in fact, there’s a more fundamental reason why a giant golden asteroid wouldn’t make the world fabulously rich. It’s because wealth mostly doesn’t come from big hunks of metal. It comes from the ability to create things that satisfy human desires.

A steel factory represents real wealth, because you can use it to make parts for cars, buildings and so on. A house does too, because you can live in it or rent it out. The skills and knowledge in your head are also a form of wealth, even though they’re not counted in the official statistics. Even a sandwich is wealth, at least until it goes bad.

But a giant asteroid full of gold only adds a little to real wealth. The metal would have various industrial applications and make nice jewelry and dental fillings, but it wouldn’t spark a new industrial revolution, or dramatically bring down the cost of goods and services, or in general make human life much better or more comfortable. Gold doesn’t command high prices just because it’s rare — plenty of rare things have little to no market value. It’s because it’s rare relative to people’s demand for it. And because a golden asteroid wouldn’t increase the world’s total demand for gold, there’s no way it could create quadrillions of dollars of new real wealth.


Also read: NASA mission Dragonfly will scout for signs of life on largest Saturn moon Titan


Something a bit like a golden asteroid happened once before. In about 1500, Spain conquered South and Central America and discovered large deposits of gold and silver. It then shipped these metals back to Europe and used them to pay for government expenditures (mostly wars). Because gold and silver were used for money at that time, a drop in the value of gold and silver meant a drop in the value of money — in other words, inflation.

Gold no longer is used as money, nor is the value of modern money pegged to the value of gold or any other metal. Thus, the arrival of a giant golden asteroid would probably not cause consumer prices to go up, and would instead simply cause gold prices to crash to almost zero.

So a giant asteroid wouldn’t make us all billionaires. But whatever space-mining company managed to claim the space rock would still probably be able to make a substantial fortune for itself. It would have to follow the playbook of the diamond company De Beers.

Diamonds used to be exceedingly rare, until large deposits were discovered in the 1800s in South Africa. The British businessman and colonial government official Cecil Rhodes consolidated all South African diamond mining under the De Beers company, an effective monopoly which later was controlled by the Oppenheimer family. Over the years, De Beers managed to defend this monopoly against challenges from various upstarts, by hoarding diamonds when prices were low and flooding the market to destroy competitors.

A monopoly allows a company to limit supply to keep prices high. But De Beers needed more than that in order to prevent diamonds from eventually becoming commoditized — and so it turned to marketing, launching one of the most effective advertising campaigns ever with the slogan, “A Diamond Is Forever.” This convinced couples all around the world that diamond engagement rings were an indispensable symbol of marital commitment. That symbolism represents real value.

Owners of a golden asteroid could conceivably try to pull a similar trick, launching advertising campaigns to get people to start using gold for more things — building materials, perhaps, or clothing. But it seems unlikely that they could persuade the world to pay a premium for the sheer volume of gold coming from an asteroid like 16 Psyche — especially if a rival company showed up with another golden space rock.

The impossibility of extracting untold riches from 16 Psyche teaches two important lessons about how wealth really works. First, it shows that a great deal of wealth exists only on paper — when you try to sell your assets, the price goes down. Liquidity — the ability to sell an asset for cash — is an important factor that tends to be forgotten when calculating net worth.

And second, this example shows that real wealth doesn’t actually come from golden hoards. It comes from the productive activities of human beings creating things that other human beings desire. De Beers’ fabulous fortunes ultimately came not from its control over a certain type of dazzling rock, but from its ability to convince the world that this rock could be used to communicate love and devotion.

If you want to get rich, don’t think about how to seize scarce resources. Think about how to use resources in an innovative way to make something people truly want or need.


Also read:NASA opens up the space station to tourists for $50 million a trip


 

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7 COMMENTS

  1. But when you pay your state debts by certificates of future gold mining in Psyche this is then a win,

  2. This title loses the forest through the trees. When the precious metals become no longer precious and commonplace. That’s where the “being rich” comes from. Abundance.

  3. The fact that is there enough money in the world right now to where no one needs to live in poverty, if the money distributed properly, and rich would still be rich. The biggest problem this earth faces is over population which is totally caused by corruption and totally unnecessary. Obtaining materials from asteroids would only serve to make life better.

  4. There are certainly a lot of details like that to take into consideration. That is a great point to bring up. I offer the thoughts above as general inspiration but clearly there are questions like the one you bring up where the most important thing will be working in honest good faith. I dont know if best practices have emerged around things like that, but I am sure that your job is clearly identified as a fair game. Both boys and girls feel the impact of just a moment?s pleasure, for the rest of their lives.

  5. Really? Can you research on conductivity of gold? Do you know how much electricity we will be able to save by replacing the normal cables with gold? Expected more knowledgeable article.

    • True that gold has a significant number of industrial & commercial applications owing to its relatively inert chemical & physical properties. But even if it became so cheap that every single fiber of copper (or aluminium cable) could be cheaply substituted with gold, the relative savings in electric power losses would not amount to massive savings in energy. Noticeable savings yes, but probably not so large as to allow the shut down of a few power plants. Sure, various electronics & dental fillings will get cheaper, but the true value addition in the energy sector would come from increased reliability, availability & distributed generation rather than conductor loss elimination.

    • I agree, the location of where this asteroid , was not
      Even discussed, nor how costly or even possible it would be to mine and transfer one pounds worth back to earth! My guess is the cost of that would make earths gold relatively cheap by comparison!

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