amateurpolymath asked: Why is gold so much better than fiat money? It has few industrial applications, and very little is needed to make a large quantity of jewelry. If we want money to have value outside its use as money, wouldn't a titanium/copper/etc. standard be preferable?
The basic rules of determining what can be used as money are this:
- A lot of people have to want it — otherwise there’s no point
- It should be relatively portable — i.e. small quantities have value, because you don’t want to carry around a wheel-barrow full of stuff just to go buy milk
- It should be durable — so trading doesn’t become a game of hot potato
- It should be easily verifiable — so counterfeiting is not a constant worry
- It should be protectable — I know that’s not a word, but you get the idea
Other characteristics could no doubt be added to this list, but you get the basic idea.
Now, gold has historically been a popular substance for money because, for better or worse, it fits the criteria:
- It has value because people think it has value. That’s what matters. The human race has a long-standing fascination with gold, regardless of utility. It’s pretty, and we value it. (This is where baseless paper money fails, by the way — we only value it as only as the organization saying it has value sticks around; once that organization goes away, it’s just a novelty item.)
- Small amounts are valuable, making it portable.
- It’s malleable as metals go, but pretty sturdy in the grand scheme of things, so it’s durable.
- It’s easily verifiable. As a metal, it has a specific melting point, weight, feel, etc. which allow us to pretty quickly (and using pretty primitive tools) determine if it’s real.
- It’s protectable. It’s inanimate, and small amounts are valuable. This is something we can easily hide and/or hold on to.
That said, there’s no reason why we have to stick to gold in particular. Certainly other metals or commodities could be used as a basis for money, especially if certificates were issued (as would be practically necessary for lower value metals, like copper).
But old habits die hard, and I don’t see humanity’s love affair with gold going away any time soon.
So, you just stated why gold is no different than fiat money…
No, the difference is this:
- If the American government disappeared tomorrow, the dollar would be worthless — just like marks from Wiemar Germany or Zimbabwe’s currency now that Zimbabwe’s government no longer supports it. No one values baseless paper money without being told to by law, because it is not a commodity.
- If the American government disappeared tomorrow, people would still value gold. Gold’s value is subjective, yes, but it’s a subjective value which people decide for themselves, independent of legal requirements.
This is much more comprehensive than my usual comment of it being precious because it’s difficult to obtain and finite.