Why Is Gold Money?

Now that the bull market in gold is approaching its tenth anniversary, people are starting to notice.

That alone should tell us that even with its ups and downs, this bull still has a ways to run.

Behind it all lies a philosophical issue, one which I discussed two years ago: Is Gold Money?

The philosophical divide looks like this: Is gold a default currency that people turn to when they no longer trust that government-created currencies will retain their value?

Which would imply that gold is intrinsically valuable, the only real money.

Or, is gold just some yellow dirt that people have always mistaken for money?

If gold does not have any intrinsic value, then its use as currency must be the product of a mass delusion.

Yet, if all people at all times in all places have held this belief,
then maybe it‘s not just an illusion.

You cannot really run a scientific experiment to decide who is right and who is wrong. Nonetheless, and very cleverly, NPR called up a chemical engineer and asked him to go through the periodic table of the elements-- you know it well; it hangs on the wall of every high school chemistry classroom-- and try to ascertain why gold, and no other element, has been always served as a medium of exchange.

For the story, click on this link.

After eliminating the elements whose chemical properties would make it useless or inefficient as a medium of economic exchange, the professor concluded that gold, and only gold, has all the properties needed to function as currency.

This doesn't really tell us whether or not gold is really money, but it does tell us why gold has always been used and recognized as a store of economic value.