Civilization must involve more than one person. Indeed, a diverse citizenry determines a society’s level of civilization. And money is what enables a diverse group of people to cooperate in their many and varied endeavors. Practically all civilizations over the course of human history have – largely independently – agreed upon using gold as money.
A Short History of Money
If an enormous chest of money had washed up on the island inhabited by Robinson Crusoe and his friend Friday, it would have been useless to them. Instead of using money, those two eventually came to exchange goods and services with each other. This saved them the time and effort of each doing all the chores – gathering food, building a home, etc.
For example, if we assume that Friday was better at catching fish, and Crusoe better at making lumber – and that Crusoe wanted fish and Friday wanted lumber – each of the men would benefit from the exchange of surplus fish for surplus lumber precisely because they each value fish and lumber differently (one person’s surplus is another person’s desired value).
As a result of their exchange, Friday and Crusoe are better off than they were before. And they didn’t need money to do it; they bartered. But such exchange only allows people to cooperate on a primitive level. This is largely because of “indivisibility” and a “lack of coincidence of wants.” If a furniture maker wants milk and a shirt, how does he divide one of his tables to pay the farmer and tailor? What if a music teacher wanted eggs, but couldn’t find a chicken farmer interested in piano lessons?
The music teacher would have to find out what the chicken farmer did want, locate someone who possessed this good who wanted music lessons, and through exchange obtain the product to then exchange for eggs. This is called indirect trade, a cumbersome exercise. What’s the solution? Gradually, some goods – as a result of their high utility or universal appeal – become valued by enough people that these products become mediums of exchange. Money.
Examples of items that have been used as money include feathers in pre-Columbian Mexico, seashells and fishhooks. If you’re not convinced that things other than little paper rectangles can act as currency, just visit a prison, where cigarettes are generally the going means of purchase.
Eventually, the rarest, most desired, storable and divisible goods displace all others as mediums of exchange. Over history, gold has been spontaneously selected by humankind as the most universally valued good in the world.
This is because gold has unique characteristics that appeal to people. Unlike butter, gold can be stored for future exchange. Unlike an expensive painting, it is divisible. Compared to other metals, gold conducts electricity better, doesn’t tarnish, has a unique yellow color, and is highly malleable. It is also resistant to bacteria, non-allergenic, and inert to human skin. Finally, it is rare – out of 92 naturally occurring elements, it is the 73rd most common.
The Money Monopoly
No matter who has been at the reins of the state, in whichever form the state took, governments have always tried to monopolize money by making illegal all forms of currency except those it mints. Never have people possessing that power not abused it. The Roman state made more gold coins by clipping bits off the edges of existing coins, replacing them with copper. The nation state of today insists that the bits of paper it prints are legal tender, even as they print them furiously.
But there’s a problem with making more money. Namely, when there’s more currency floating around, the little bit in your bank account is effectively smaller. This causes prices to go up – inflation. People are very perceptive, and they gauge quickly that there is more money on the streets, when the same amount of goods and services are in circulation. The only ones who profit are those who get hold of new money before everyone else recognizes the charade. And who would such people be? Inevitably, they are the ones closest to the people printing the money – the government.
Inflation also affects the way we consume. Some people mistakenly believe that prosperity correlates directly and positively with consumption. The truth is that consumption is possible only as a result of real prosperity created by savings and investment, rather than the printing of fictional paper wealth. People today are pushed to consume more because inflation has made it very difficult to save.
The worst part is that the average person thinks they are getting something out of the deal. But would such a person really rather that the government funded, say, daycare by using created money, if they knew that the cost of this “gift” would be the destruction of their savings?
Gold for the Poor and the Working Class
As people have come to exchange with each other to a greater degree, more and more people have survived longer, prospered and brought progeny into a better world. With more people came more goods and services for everyone. But as people came to live longer, the problem of saving emerged – what if we don’t want these products today, but will need them at some point in the future for retirement or a child’s education? What if we want to build up our wealth over a certain period in order to purchase some larger item? Saving – the storing of the value in some form that retains its worth – is what has elevated countless people out of poverty over the course of human history.
When gold was used as money, an expanding population – along with a finite amount of gold on the surface of the planet – meant that the amount of money available to each person decreased. This is known as deflation, and resulted in prices decreasing. But these newly prosperous people wanted to save, leading to an increased demand for money, which over the centuries spurred gold mining in order to meet the need.
Unlike printing little bits of paper at the whim of a politician, gold mining relies on the extraction of metal from the earth through labor. Being thus a substance of real value, gold stimulates real and prudent saving and investment. Of course, a component of the demand for gold is the demand for its use as a commodity. Industrial uses take up about 300 tonnes a year of the roughly 2,500 tonnes of gold produced annually. These uses vary from plating on Buddhist temples to electronics. The average push-button phone, for example, has 33 gold-plated electric points.
The Future of Gold
It used to be that the state needed to tax its citizens in order to achieve its objectives, whether those were wealth redistribution or war. But taxation has limitations; when people are taxed too much, they move elsewhere if they are able to, or else stop working. So what other options does a government have for financing its escapades?
The original paper money created by governments could be redeemed for gold. This is called a “gold standard.” When it existed, it coincided with some of history’s most significant rises in real wealth. In the twentieth century, however, states reneged on their promises of gold redemption, divorcing legal tender from any sort of physical measure of value. This has enabled politicians to print money at random to finance war and political ambition. We have borne the results in the form of devastating losses of life, the destruction of savings and massive debts. These are direct results of the State’s new means of taxation: grabbing our savings through inflationary printing of money.
There is one gleaming (and non-allergenic) hope, however. Just as Indonesians ran to their rivers to pan for gold during the last collapse of Indonesian paper currency, people, where and when they have been allowed to, have turned to gold as a store of wealth. Lord Keynes may have viewed this as “hoarding” but most know it as saving for the future. If people who wish to stop gold mining succeed to any degree, they should be aware that it is the poor and working people of the world that will have a much more difficult time saving, and thus will suffer.