A friend of mine and I had a discussion about the gold standard
and the use of currency
during a car trip. It came about from us discussing Alan Greenspan
, interest rate
s and how our government manages to keep the dollar
at a reasonably constant value over time.
My question to him was, why did people start using gold for trading all these years ago? He immediately said that it was to supplant the barter system (as seeya discusses above) and to make the transfer of goods and services more efficient.
But why gold, I asked him. Does gold, in itself, have some intrinsic quality that makes it valuable to people? The only reasons we can come up with, at least in a pre-industrial age context, is that gold really has no useful qualities besides that it's shiny, pretty, and neat to look at. There is no other reason for people to have wanted to hoard any amounts of gold besides being able to say "I have the biggest pile of pretty, shiny stuff in the village."
But why select gold as the tool to use in barter, I asked? Why did the ancients not select another metal, such as the far more common copper, or silver, or perhaps even the more rare platinum? My friend suggested that perhaps it was because it *is* shiny to look at, and is universally accepted as something exotic and hard to come by. I think there are more simple reasons for this: gold, having its natural rarity, makes it impossible for counterfeiters to come up with a store of faked gold to use as currency (Perhaps this is one reason there were so many alchemists in the ancient world). This prevents the problem of "printing lots of bills" so to speak, and resulting in rampant inflation.
Obviously there are economic concepts in place today that results in us having stable currencies not backed by gold, but that's why there are people like Alan Greenspan at the helm.
adds that gold is also valuable because it doesn't tarnish or rust (read: corrode), and maintains its luster a long time.