(This item originally appeared at Forbes.com on May 20, 2023.)
Gold is mined from the earth, in much the same way as other metallic “commodities” including copper, lead, and tin. Thus, it is hard to say that gold is not a “commodity.” Nevertheless, I will here claim that gold is not a “commodity money.” Let me explain what I mean.
What are some “commodity monies,” besides gold? In human history, a lot of things have served as common media of exchange. Wheat, certainly. Rice in Asia. Silk cloth has a surprisingly widespread history in Asia; in the Andean and Mesoamerican civilizations (the Incas and Aztecs), textiles were a common exchange commodity before Columbus. Cowrie shells have a very long history of serving as money, even into the early 20th century in some primitive African societies. Salt, cattle and tobacco have served as exchange commodities. At times, prices have been quoted in whale’s teeth, or women.
What all these “commodity monies” have in common is: They are found only in primitive societies. It does not take very long — basically, when a society becomes sophisticated enough to mine metals — before gold and silver become the premier form of money (often used alongside other commodities at first), and finally, the only form of money.
The earliest complex civilization on Earth was Sumer, in Mesopotamia. Early Sumerians used shell rings as small change, but already by the time of the Laws of Eshunna (1930 B.C.), prices were quoted in silver shekels alone. (The shekel weight 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 unified system.
From that time to the mid-20th century — the 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 that: Gold: The Final Standard.) In the 1870s, silver’s many centuries of serving as money alongside gold came to an end. Silver’s value, for the first time in centuries, became highly volatile, making it unusable as money. From that time forward, the whole world migrated toward using gold, and gold alone, as the basis of money. Among the less-disciplined countries (common even in the nineteenth century) the alternative was floating fiat currencies, not some other commodity.
So we can see the problem with calling gold a “commodity money.” With the withdrawal of silver in the late nineteenth century, gold stands alone as the premier basis of money — the role it has had for literally thousands of years.
People who call gold a “commodity money” are often playing a little trick on you. They are implying that gold should be classified along with salt and cowhides 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, at $35/oz. The 1960s decade — the last decade of the nearly two-century gold standard era in American history — is even now considered the best decade since 1914.
