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 ?
In: 115
I don’t think you have to be a subscriber to access this (short) piece but I’m not sure.
https://www.newyorker.com/magazine/2004/11/29/why-gold
Gold used to make sense as a medium of exchange because it had struck a good balance between rarity and availability. It doesn’t rot or go bad like organic things, and doesn’t tarnish, rust, or turn to dust like other metals do. It sticks around and doesn’t change in any environments you’d find humans in. Thus, creating a large stockpile of gold for a long time was a good way to hoard value and thus power.
In recent decades things like nuclear research materials have outpaced gold in the value and power they can confer. D20-18, for example is far more valuable than gold, gram for gram. And that’s one of the tamest things you can come across in this world. Don’t get me started on things like plutonium or other trans-uraniums.
In economies with such materials available gold sort of “loses its lustre” so to speak. It’s no longer a high concentration of value or power as needed by the powers that be.
Because we said so, literally. Everyone agreed that it’s valuable and then base everything else on it.
Gold is extremely dense. Moreso than any other commonly found element (Tungsten is similar and there are some denser platinum group elements but those are really rare and not yellow). That means gold is effectively impossible to counterfeit and easy to verify with simple measuring devices.
It doesn’t rust or corrode, so it can store value indefinitely.
It’s also soft so it can be easily worked cold allowing change to be made long before standard coinage, just split a small amount as needed.
It’s also rare enough that one person can carry a lot of value on their person.
All these factors make it nearly perfect as a trustless money. So it was very widely used as money by many societies.
Regarding pegging currencies to gold: [Here](https://www.youtube.com/watch?v=-rANSHB4q1Y) is a very good explanation of how this doesn’t solve the problem.
Gold is extremely rare, and has industrial used. How rare? A**All the gold ever mined in the history of the world could fit in 3.5 Olympic sized swimming pools.**
Source: https://www.nevadaminingresources.com/uploads/1/3/3/7/13375159/the_worlds_gold_facts.pdf
It doesn’t have intrinsic value, beyond its usefulness in manufacturing/electronics/etc.
It has trade value, in that you can go to pretty much any country in the world and be able to exchange it for the local currency. In that sense, it functions as a universal currency.
Latest Answers