Author: Curt Doolittle

WHY IS GOLD VALUABLE?

There are many scarce things that are not valuable, and there are many non-scarce things (diamonds) that are valuable. The plague is rare, and it is not valuable. Meteoric iron is scarce, not very pretty, and too scarce to be used as money. If scarcity were enough, then meteoric iron would be more valuable as currency than gold. But it isn’t, because not enough people want meteoric iron’s utility in tool making as want gold’s utility in signaling.

Gold is valuable because:

a) it is scarce enough that it takes great effort to mine and cast, and therefore hard to alter the market price by supply fluctuations, and even holds its value across centuries, but it’s not too scarce to cause frequent monetary shortages – and silver is a substitute when there are monetary shortages.

b) It’s divisible easily in to smaller units – a necessary property of money.

c) each of the units is small enough and valuable enough that one need not carry wagon loads for commercial purposes.

d) It’s identifiable as what it is (unlike paper money) its very hard to counterfeit. It’s consistent in weight and heavy enough that simple tools can be used to measure it’s consistency.

e) It is an excellent store of value because it does not tarnish or rust.

f) It’s pretty – it can be worked and reworked, formed and reformed at low temperature, and it’s useful as a means of decoration and jewelry so it can be used to signal status, and that does not deteriorate – even across generations. It is the most malleable material and so a very small amount of it can be hammered out and used in foil to give the illusion of even greater wealth.

g) and because it’s a status symbol as well as durable, identifiable, and optimally scarce, then EVERYONE recognizes it and everyone wants it. And that universality is what makes a good currency.

In other words it’s identifiable, durable and desirable and transformable, as well as scarce enough to hold a stable market price, but not so scarce that it cannot be used as money.