Money is defined as something that functions as a store of value and medium of exchange. In the 4th century BCE, Aristotle identified five reasons why gold IS money. By definition, almost anything can foot the bill (pardon the pun), however some things obviously work better than others. For example, it’s hard to exchange things people don’t want and some things don’t store value as well as others. But again, just as an example, the Romans used cattle and salt for money, giving rise to pecuniary and salary (“pecus” in Latin is cattle and “salis” is salt). However, for a great deal of world history precious metals and gold in particular emerged as the most universally recognized form of money. As Aristotle enumerated, there are good reasons for this and none of them are new. They are just as patently valid today, as they were then.
Aristotle suggested that proper “money” must be all of the following:
- It must be consistent, i.e. easily recognizable, with each similar piece as useful as and valuable as the next. This is one reason that an oil painting, just as an example, isn’t a consistent medium of exchange. Each piece is unique. A painting the same size and by the same artist is not consistent, it could vary dramatically in value.
- It must be convenient, i.e. either small in volume or easily portable (at least cattle can be made to walk). Lead is valuable and useful, but to be of sufficient value, it would most probably not be easily portable.
- It must be divisible, i.e. convertible into larger or smaller pieces, so as to accommodate transactions of any required size. For example, half a Mona Lisa wouldn’t be worth much.
- It must be durable, i.e. shouldn’t fall apart or evaporate between transactions. This is why fruits or vegetables aren’t useful as money. They can too easily spoil or be eaten by insects between transactions.
- It must be intrinsically valuable, i.e. something people want or can use. It is necessary for humans to eat, so cattle could be a useful means of exchange even if neither participant of the exchange is a butcher. It only matters that I can get I want for what you give me in exchange.
Unlike today’s fiat currencies, gold and other real money can’t be created out of thin air. Not even Roman emperors had the audacity to assume they could print “This is money because I say so!” or “IOU” on a piece of paper and have it be accepted for exchange by citizens. Gold is exceptionally good for use as money and paper is good for making books, but paper is not at all good for making money, any more than lead is good for making balloons. Gold serving as money is simply the result of the natural market process, by providing an optimum means of facilitating exchanges and storing value.
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