why do people use money when gold is a perfectly good object of value to trade?


People have traded gold for a really long time. With accurate measuring devices and the internet for variable prices, why do people use individual nations currencies and crypto which are often unstable?

In: Economics

Because you can always print more money, but you can’t produce more minerals such as gold, silver, diamonds, etc.

Say you want to buy some gum for $1.50. How would that transaction go? Would you give them a tiny little grain of sand sized piece of gold? Don’t you think it would be dangerously easy to lose a lot of money walking around with tiny little flecks of gold?

Gold is impractical for large financial transactions.

Let’s say you manage to find an employer willing to pay you wages in gold, and other merchants who will sell you things like groceries using gold. Great.

Now you’ve saved up and you want to purchase a house. How are you going to do that? Typically you need a loan from a bank – would you want the bank to just hand you 30 POUNDS of gold for a $300,000 house?

You gonna carry pockets full of gold bars around?

Precious metals are used in a wide variety of things from jewelry to industrial uses so we’d rather use them for that.

Precious metals also change in value from minute to minute. You can’t say for sure that the value of a stick of gum will be equal to 1 copper peice. It gets even more unpredictable with larger purchases where 1 gold bar can buy you a range Rover one second and a Honda civic the next.

A gold coin’s value is based on weight, and that weight can be easily manipulated. Also people can mix cheaper metals into the gold to increase weight. Basically it’s way too easy to counterfeit and stores don’t have the time to check every coin.

Why does gold have value? Because we believe it has value. We all accept the shared belief (or delusion) that gold is precious and valuable. Otherwise, it’s no different than quartz or pyrite; a pretty rock.

If you’re pinning the value of a substance on a shared acceptance, then any currency is just as valid, so long as everyone believes it has value. If we accept the same shared belief (or delusion) that paper with the proper markings is valuable, then it has value.

Paper money has the convenience of being much more portable, controllable, and adjustable. The only variable for gold as a currency is the physical amount/mass; purity is just a stand-in for equivalent-mass of pure gold. Money can vary in amount and denomination. One bill can be worth hundreds or thousands of another bill, meaning you can represent far larger sums in a practical form. I can have ten bills in my hand that represent a meal ($10) or the downpayment for a cheap car ($1000), with the only difference being the patterns printed on it. Trying to handle weights of gold to match that variability of value will be much more frustrating.

Why bother with gold when there are cheaper and more serviceable alternatives? What makes something money is widespread acceptance, not that it has some inherent value. Pointing out that the internet and accurate measuring devices make trading in pure gold possible sounds ridiculous when I don’t need any such things to trade in the bills and coins I’m using right now. Fiat money also can’t be debased and isn’t subject to fluctuations in commodity prices like money made out of a commodity.

Imagine a simple tiny economy. You and your 4 friends have 10 gold coins each. The total economy is worth 50 G.

Everyone is happy exchanging coins for services, right?

But imagine now that you start making really beautiful carved flowers out of a local stone. You sell them for 1G each. They are worth 1G. And you make 1 a week.

So, in the space of a month you have added 4G with of product to the economy; there’s 10% more value in the system. But the amount of gold representing that wealth hasn’t increased. So some people have a mix of gold and flowers. Now, they could now barter with both as they have value, but now you have to carry stones and gold around; gold is not your currency, you are just using the value in the items. You can’t just produce more gold coins to represent the new wealth in the economy because there’s no more gold where you are.

This is why fiat currency is so powerful – you can represent wealth and wealth creation without having to back it with a specific resource. As economies grow you can simply create more ‘exchange tokens’. Barter of physical valuable items is unnecessary.

Banks full of gold only work if you have enough gold to cover the value of everything in circulation and you can change that amount as the economy changes.

Because humans multiply exponentially.
You will read things as “economy growth”. But that means more people in the same area, on the same resources. If populations were 0 growth (1 dies, 1 is born), money wouldn’t be needed

When coins were made of gold and silver people would file shavings off them, make coated fakes, the coins thus were destroyed and degraded, practically it is easier to create a currency that is linked to the value of gold than to carry the actual gold