Gold - The Metal Money
Updated: Jun 23, 2021
Today I was sitting at my desk thinking about Bitcoin and the answer to the question of why Bitcoin is so valuable -- it's digital gold. Understanding this, I began to get curious about why gold was the element of choice for a store of value. To find the answer, I did some digging on the interwebs.
According to The National Mining Association, gold was first used in modern-day Eastern Europe in 4000 B.C. to create decorative objects. This was its primary use due to the metal's aesthetic appeal and malleability--the ability to shape it at the owner's will. Gold had this purpose from 4000 B.C. to 1500 B.C. It was around 1500 B.C. that gold was officially adopted as a medium of exchange due to its scarcity by the ancient Empire of Egypt. From there, gold eventually made its way into hands' of other countries as a medium of exchange. It was the worldwide adoption of the metal over time that brought it much of its value.
Gold coins and later paper money were introduced to provide convenience to the countries using the metal as a store of value. This was great until it wasn't. Problems with the varying valuation of the gold coins and the paper money eventually arose throughout countries due to each country's varying ratio of silver to gold within the gold coins. Looking to handle the problem, governments decided to come up with a solution which we know today as the gold standard. The gold standard can be explained as "a monetary system in which the standard economic unit of account, for example, the U.S. Dollar, was based on a fixed quantity of gold" (FocusEconomics). Adopting this system was beneficial for citizens. It allowed citizens of varying countries to have a clear understanding of the worth of their dollars. Thanks to the gold standard, people were then able to go to a bank and exchange a fixed amount of money for a fixed amount of gold, making it clear what the value of their paper money was.
At the end of World War I, many countries were left trying to figure out how to pay for the costs of the war. To do so, they could either raise taxes on their citizens to bring in more money, or they could print money with the "understanding" that they would pay the money back. I'm sure you can guess what option many countries picked. From there, the gold standard was used less and less, allowing the United States, in particular, to be exactly where it is now--trillions of dollars printed, creating trillions of dollars in debt.
Anne Marie Helmenstine, Ph.D. “How Is Gold Formed?” ThoughtCo, www.thoughtco.com/how-is-gold-formed-4683984#:~:text=Scientists%20believe%20all%20the%20gold,today%20because%20of%20asteroid%20bombardment.
FocusEconomics. “Who Discovered Gold?: A History of Gold & the Gold Standard.” FocusEconomics | Economic Forecasts from the World's Leading Economists, 26 Apr. 2016, www.focus-economics.com/blog/gold-the-most-precious-of-metals#:~:text=Gold%20%7C%20A%20History%20of%20Obsession&text=The%20known%20history%20of%20gold,BC%20to%20make%20decorative%20objects.
“Gold.” Geology, geology.com/usgs/gold/.
“History of Gold.” Only Gold, onlygold.com/facts-statistics/history-of-gold/.