BigV and X

One of the best things about home are the long chats I have with dad! We discussed this on the way to buy vegetables..  I felt it was worth sharing!

Now consider this large village BigV. Lets say 200 sq.kms big. It has a variety of resources and can generally sustain itself. Now, in BigV a certain item X is very important. It is a religious/cultural symbol and every household in BigV is expected to have X. As BigV grows, it needs more and more of X and there isnt enough X within BigV.

Now what does BigV do? It buys X from other villages. Now, the interesting thing about X is, it has very little use outside BigV. So all other villages produce X and sell it to BigV. Sometimes directly (when BigV has what they want) and sometimes indirectly ie. sell X to someone else, who sells it to BigV (this happens when BigV doesnt have what they want). Since BigV is among the largest villages, and it is growing rapidly, the demand for X is also growing rapidly. The supply of X cannot keep up and hence X has become quite valuable. People hoard X so they can sell it to BigV later. Everyone knows that the people of BigV want X really badly, and they ll buy it no matter what the price. So the value of X keeps going up.

All villages thus produce X to satisfy BigV’s growing demand and the people of BigV spend a considerable amount of their effort producing goods that can be exchanged for X (because X has become quite expensive, you see). And the amount of X in BigV keeps increasing (because it is not a consumable). 

You might ask - why is X so important to the people of BigV? If BigV stopped hoarding X, they can probably use their time and effort for better things.

Yes very true. But thats how cultural/religious symbols are. Not always logical. :)

Now, consider the following:

Supply of X will run out soon. What happens then? Everyone in BigV cant have X anymore. Will it lose its value?

Or what if say, 200 years later, culture changes, and X loses its importance in BigV? 

In either case, what happens to all the X that is stored in BigV? Is it worthless now? And what of all the effort the people of BigV made to acquire X? Gone to waste?

And finally, what is the point?

BigV is India and X is gold!

Only around 10% of the gold produced in the world is used in industry. Everything else, is for invesment and jewellery. 

The current price of gold is USD1500 for 31 grams.

India buys 20% of the gold produced every year. (around 500 tonnes. Which translates to USD 25 billion per year. Which is 2% of India’s GDP)

10% of all the gold ever produced (around 13,000 tonnes) is in India.

So, what happens when gold loses its symbolic value?