Gold

"Gold is money. Everything else is credit." —J.P. Morgan

Gold represents the most enduring and successful form of money in human history, serving as currency, a store of wealth, and a unit of account for over 5,000 years. Its unique physical and chemical properties make it the ultimate embodiment of the five properties of good money.

Why Gold Is Money

Of all the naturally occurring elements on earth, gold alone possesses the ideal combination of characteristics for money:

Durability: Gold does not corrode, rust, tarnish, or decay. It can sit on a shelf for centuries without changing. It can be handed back and forth thousands of times without deteriorating. This durability is essential for money to function as a store of value.

Divisibility: Gold's softness allows it to be easily divided into smaller units without loss of value. It can be melted, cast, stamped, and engraved. The sum of the pieces always equals the original whole. This permits transactions of any size.

Portability: Gold's high density means significant value can be carried in a relatively small, transportable form. Unlike commodities such as oil or cattle, gold can be easily moved from place to place.

Scarcity: Gold meets all four criteria of scarcity—it is not easily obtained (requiring mining, leeching, and smelting), useful in its own right (jewelry, decoration, industrial applications), counterfeit-resistant (unique density and properties), and requires an economic choice to acquire (opportunity cost).

Acceptance: Gold has been universally accepted across civilizations and throughout history. Even today, gold is accepted by all nations as a medium of exchange for international payment.

The Process of Elimination

When examining the periodic table of elements for suitability as money, nearly all fail one or more criteria:

• Gases (hydrogen, noble gases): Not portable
• Organic materials: Not durable (decay)
• Common metals (iron, aluminum): Rust or too easily obtained
• Reactive metals (sodium): Dangerous
• Toxic materials (asbestos, mercury): Health hazards
• Brittle or hard metals (tungsten): Not easily divisible
• High-melting-point metals (titanium): Impractical for coinage

Only the noble metals—ruthenium, rhodium, palladium, osmium, iridium, platinum, gold, silver, copper, and nickel—remain viable. Of these, palladium and platinum are too rare to be practical for widespread coinage. This leaves gold and silver as the only two elements that meet all criteria for good money. Gold's superior resistance to tarnishing and corrosion gives it an edge even over silver.

Historical Significance

Ancient Civilizations: Gold has been valued since the earliest human societies. Ancient Mesopotamians, Egyptians, Greeks, and Romans all used gold as money. The Athenian Tetradrachm (510-38 BC)—a silver coin that became the standard currency of the ancient Mediterranean—demonstrated the power of precious metal coinage.

J.P. Morgan's Insight: John Pierpont Morgan (1837-1913), the American financier who built an empire in railroads, steel, and electricity, understood that gold represented real money while everything else—paper notes, bank deposits, even silver—was ultimately credit, a promise to pay. This distinction between hard money (gold) with intrinsic worth and paper money deriving value from something else remains crucial for understanding Bitcoin.

The Gold Standard: For centuries, countries implemented a uniform currency regime pegged to gold. Under the gold standard, the economic unit of account was based on a fixed quantity of gold. Gold coins circulated as currency (the gold specie standard). The U.S. Constitution specifically mandated gold and silver coin as the only acceptable form of currency states could use.

The Coinage Act of 1792 established the United States Mint and included the "Debasement Clause" in Section 19. Having learned from Rome, Byzantium, England, and Prussia, the Founding Fathers understood the dangers of currency debasement and made it punishable by death.

Price Volatility vs. Store of Value

Critics often claim gold is not a good store of value because of price volatility. This misunderstands what "store of value" means. It refers to durability and the ability to preserve wealth over time, not stable pricing.

Gold prices have indeed been volatile. From 1980 to 2001, gold declined over 50%, taking 27 years to recover its 1980 high of $698—losing 60% of its real value to inflation during that period. From 2012 to 2016, gold lost 30%. Yet despite these fluctuations, gold remains gold. Its physical properties never change.

The same is true for real estate and Bitcoin. Store of value means integrity and durability that prevent decay, wear, or corrosion through time, not price stability.

Gold and Government Debt

The continued issuance of government debt impacts gold's price. When governments borrow by issuing bonds, they increase the money supply. If this increase doesn't correspond to economic output growth, the value of debt-created money declines relative to gold. The price of gold rises as it represents a viable savings vehicle to preserve wealth for the future.

The End of the Gold Standard Era

After reigning supreme for 5,000 years, gold is no longer significantly used as a medium of exchange anywhere in the world. The success of metal money came with a hidden cost—rulers realized they could enrich themselves by debasing coins, slimming them down and mixing them with cheaper base metals.

By the mid-20th century, the Bretton Woods system (1944) had established the U.S. dollar as the world's reserve currency, with other currencies tied to the dollar and the dollar pegged to gold at $35 per ounce. This system collapsed in 1971 when President Richard Nixon announced the U.S. would no longer convert dollars into gold, effectively ending the gold standard and allowing the U.S. government to print money without gold backing.

Modern Role

Though no longer used as currency, gold remains:

• A reserve asset held by central banks
• A hedge against inflation and currency debasement
• A safe haven during economic and political turmoil
• The standard against which Bitcoin—often called "digital gold"—is measured

Gold's 5,000-year track record as money demonstrates that its unique combination of physical properties, combined with universal acceptance, makes it the ultimate form of commodity money.