Gold Is Not A “Commodity Money”

Gold is mined from the earth, in the same way as other metallic “commodities” including copper, lead and tin. Therefore, it is difficult to say that gold is not a “commodity”. However, I will argue here that gold is not “commodity money”. Let me explain what I mean.

What is “commodity money”, besides gold? In human history, many things have served as common mediums of exchange. Wheat, of course. Rice in Asia. Silk fabric has a surprisingly widespread history in Asia; in the Andean and Mesoamerican civilizations (Incas and Aztecs), textiles were a common commodity for exchange before Columbus. Cowrie shells have a very long history of being used as money, even in the early 20th century in some primitive African societies. Salt, cattle and tobacco served as goods for exchange. Sometimes prices are quoted in whale teeth or women.

What all these “commodity money” have in common is: they are found only in primitive societies. It doesn’t take long—basically, once society becomes sophisticated enough to mine metals—before gold and silver become the main form of money (often used alongside other products at first), and eventually the only form of money.

The earliest complex civilization on Earth was Sumer, in Mesopotamia. The early Sumerians used shell rings as change, but already in time Laws of Eshuna (1930 BC), prices were listed in silver shekels only. (The weight of the shekel was about 8.4 grams.)

In all complex civilizations—Ancient Egypt, Ancient Greece, Ancient Rome, Ancient Persia, Ancient India, Ancient China—gold and silver were used as money, and other forms were phased out, mostly before 1 AD. During all this time, the market value of silver and gold was very stable, so they effectively served as a single system.

From that time until the middle of the 20th century – two thousand years until President Nixon accidentally blew up the world gold standard system in 1971 – money was based on gold and silver. (I wrote a book about it: Gold: the final standard.) In the seventies of the 18th century, the centuries-long service of silver as money alongside gold came to an end. The value of silver, for the first time in centuries, has become very unstable, making it unusable as money. From that time onward, the entire world migrated toward using gold, and only gold, as the basis of money. Among less disciplined countries (common even in the nineteenth century) the alternative was floating fiat currencies rather than some other commodity.

So we can see the problem with calling gold “commodity money”. With the withdrawal of silver in the late nineteenth century, gold stands alone as the main basis of money—a role it has held for literally thousands of years.

People who call gold “commodity money” are often kidding you a bit. They imply that gold should be ranked along with salt and cow hides among the charming monetary artifacts of primitive tribal societies. But when American men walked on the moon in 1969, the US dollar was based on gold, priced at $35/oz. The decade of the 1960s—the last decade of the nearly two-century gold standard era in American history—is even now considered the best decade since 1914.

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