I hear some economics arguing that currency should be pegged to gold as a way of ensuring that its value isn’t arbitrary / volatile but I don’t understand how this would solve the problem. I understand that gold is a scarce resource that is difficult to mine but is it this alone that gives it intrinsic value ?
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Almost all people who promote the idea of going back to any sort of gold standard are people who invest or trade in gold. Its a purely self serving position.
You don’t need to be an economist to understand there is no difference between the perceived value of gold and the perceived value of currency. Backing one with the other does not make either more “real”. They are both worth what people think they are worth.
A carpenter can buy some food from a farmer and the farmer can buy furniture from the carpenter with currency whether there is gold in some vault somewhere or not. The work done and the value created doesn’t depend on gold existing and it is converted to currency which then holds that value. It does not need anything beyond that to prove its worth.
Gold is valuable as a store of value because of it’s stock to flow value. Gold doesn’t corrrode so current stock of gold doesn’t decrease therefore maintaning it’s value, the incoming flow of new gold is also consistently low conpared to other precious metals.
Gold also fulfills the properties of money – durability, portability, divisibility, uniformity, limited supply, and acceptability
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Gold is fairly uncommon, sure, but the real value the gold has is the fact that *people think it’s valuable*. Because people are willing to trade gold for other things of value, that gives gold value as money. If everyone tomorrow just decided that that was dumb, gold wouldn’t have the value it has anymore.
(Gold still has value industrially even if it doesn’t have value as money, which is annoying if you need to use gold for industrial purposes.)
Also, it has intrinsic properties that make it a good currency for ye’ olden times.
1) Its shiny and pretty and doesn’t rust. (which was a really bid deal in pre-industrial times)
2) Its almost uniquly heavy, so you can use common scales and liquid diplacement to determine purity.
3) Its scarce.
4) Its malleable, making it easy to mint new coins with new faces or symbols.
It’s pretty, easy and cheap to store.
It doesn’t have “inherent” value but due to its nature as something that’s easily stored and minable it’s price is roughly stable making it the best physical thing to tie a currency to.
Outside of industrial use, gold basically has no real value. Let’s say that society collapses tomorrow. You’ve been buying up gold for $1,000/ounce because you know a guy that gets you a “great deal” and you wanted to be prepared.
Well, now your gold is worth only as much as you can trade it for. Which would be a lot less than $1k per ounce.
It’s big part historical. We consider it valuable because it was considered valuable in the previous generations.
It eventually boils down to why the first humans considered gold precious. Probably because it’s shiny, easy to work with, you could find it in the rivers without a problem.
Earliest civilizations didn’t even use it as money, they made jewelry of gold. Some civilizations only gave gold jewelry to the dead people as it was considered from the world of the dead. But divine properties were generally attributed to gold.
So it’s a shiny, rare enough, divine thing. Inherently valuable.
Other than the basics like scarcity, aesthetics, etc that have already been covered, I have heard speculation that the reason gold is of such special history importance, even among other precious metals, is its chemically unreactive nature.
People have always been attracted to the idea they could make a statue out of gold and, other than dust and dirt getting caked on, it will look exactly like the day it was made in 500 years.
Lots of almost-but-not-quite-right answers in this thread. It’s inherently valuable because of its use in electronics, automotive, aerospace, and medical equipment. But I get the feeling that is not what you’re asking. Answers of “it’s pretty” are also not quite correct.
Gold is subjectively valuable because human beings have chosen it as a fungible store of value. Fungible means it can be exchanged with others, and store of value means its value is relatively stable over time. Imagine you are a member of a neolithic tribe. Every day, the people in your tribe need to decide how to best organize their limited labor capacity to best ensure the tribe’s survival. You are Albert, and you are really good at building fences, but you’re bad at hunting. Your friend Bill is bad at building fences, but he’s a great shepherd. You build Bill a pen for his sheep, and in return he gives you 1 sheep to eat. Congratulations, you’ve invented bartering.
But now let’s say, you don’t need a sheep now, you need one in the winter when animals are even tougher to hunt. But you can’t build a fence in the winter because the ground will be frozen then. Bill can’t give you the pig now because you’re no good at animal husbandry–the pig will die by wintertime under your care, or if you slaughter it now, it will rot. So, you and Bill agree that you’ll build a fence for him now in the springtime, and he’ll give you a pig in the wintertime in return. He owes you 1 pig. Congratulations, you’ve invented debt.
But now say, you need to buy a bow and arrows from Charlie from the tribe over the hill. This is much more expensive. You can build Charlie a fence, but that’s not enough. He also wants a pig come wintertime. What if you could transfer your debt to Charlie–tell Bill to give half that pig to Charlie in the winter. But Charlie doesn’t know Bill–why should he trust that he’ll give him a pig in the winter? You trust Bill as a member of your tribe, but Charlie does not. The debt is not fungible. To surmount this problem, you need to invent a universal store of value, also known as money.
Money needs to have two characteristics:
1. It needs to hold its value over time (i.e., not decay).
2. It needs to be rare.
Recall that one problem you had with taking a pig now is that a pig doesn’t hold its value over time. If you butcher that pig now, it will rot. Likewise, the fence you build will gradually deteriorate. Neither of those things that you bartered with are particularly good at staying the same over a long period of time. Ideally, money solves this problem by staying the same so that you can use it now, or in the winter, or 3 years from now.
Second, it needs to be rare. Specifically, it needs to be at least as difficult to obtain more (in this case, mine from the earth) as the labor a given quantity represents. So it needs to be more difficult to mine new gold and add to the money supply than it is to build a fence or raise a pig. This makes sense, because if it were easier to mine gold than do the work of what it represents, everybody would simply choose to mine gold instead. This is why we can’t use sticks or rocks as money.
This is where gold comes in. [Look at the periodic table](https://www.thoughtco.com/difference-between-element-family-element-group-606682). All elements heavier than Iron, that is with an atomic number higher than 26, are made inside exploding stars. And the heavier it is (higher the number), the rarer it is. So, gold meets Criterion 2: it is rare. Now, look at gold, atomic number 79. Each family (column) in the periodic table is comprised of elements with similar properties; this has to do with the way electron orbitals are filled. Look above gold and see silver, and then copper. Three metals we associate with coinage, increasing in value as atomic number (i.e., rarity) increases. This is not a coincidence. Metals of Family IB are extremely non-reactive, they tend to not react to the environment. So these metals also meet Criterion 1: whereas your fence decays and the pig rots, gold is going to stay the same over time.
This is why gold is valuable. Because groups of humans chose it to be money, it has intrinsic characteristics that make it work well as money, but it’s not those intrinsic characteristics that make it valuable, it’s the fact that it’s a fungible store for what’s ACTUALLY valuable–the labor of your fellow members of your tribe–that it is so.
TL;DR: Gold is valuable because it’s rare and doesn’t decay, which allows it to stand in as currency to allow human beings to trade goods and services with one another, even if they personally don’t know each other.
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