Let’s talk about scarcity: what it is, and how it relates to the dollar, gold and bitcoin.
First let’s start by defining it. Scarcity is the gap between the limited supply of various resources and the limitless want of humans. The principle of scarcity is a core concept in the study of economics. Thomas Sowell, an economist at the Hoover Institute, defines economics as such:
There Are Two Different Types Of Scarcity: Relative Scarcity And Absolute Scarcity
First we’re going to talk about relative scarcity, and we’re going to use gold, a relatively scarce good, to illustrate it. If there is a sudden spike in the demand for gold, the price of gold goes up, but gold miners, seeing the higher prices, are going to work overtime and upgrade all their equipment to produce as much gold as possible, because profit margins are higher than they usually are. But, as the gold miners extract more gold, increasing the supply, the price of gold will decline because supply and demand are reaching their original equilibrium. So, what this means generally is that relatively scarce goods do not have a fixed supply, so whenever demand increases, supply will also eventually increase to meet demand.
Okay, now let’s go into absolute scarcity, and we’re going to use the Mona Lisa as our example. If there is a spike in the demand for the Mona Lisa, the price is going to spike too. However, its supply is not going to increase because it is impossible to make another Mona Lisa. The original creator, Leonardo Da Vinci, is dead, so he can’t make another exact replica of the painting. No one can. So, the
