i guess i framed the question wrongly or too generically;
as i understand, there are 4 qualities necessary for an item to become widely accepted as money;
a) divisibility; maintains unit value when it gets chopped up into smaller pieces
b) transportability; easy and worthwhile to transport, which means that it has to be of high value
c) durability; maintains value over time, preferably indefinitely
d) it has to have high demand in the barter system first before it can stand out as a candidate for money
it is the last point that i am asking my question;
there is a conundrum here when i thought about this; the barter system is recognized as a primitive system where every man trades for his own needs/wants. if that is the case, what the heck would anyone need gold for? and as a consequence, how can gold have high demand in the barter system in order to qualify as money?
i’ve had a day to ponder about this and i think that the important thing is to recognize the society’s development as a whole, not just money itself; as money is merely a part of the entire society; political, legal, religious, cultural, economical, demographics etc. I like to think of it like blood running through the human body; it serves not much purpose itself (you can drink it as water), but more as a medium that nourishes the various parts of the economy and keeps things running.
the key thing that i clearly forgot was that it takes time for the barter process to eventually transform itself into a medium of exchange. back then, they do not see things as we do; gold-silver or grains as money? they didn’t know what to make of the yellow metal because there was no use for it.
as the barter system proceeds barring any natural disasters, the society will eventually evolve as well; different products emerge and gradually, the difficulty of having so many different prices for one good impedes the growth of the society. at this point, since there is absolutely no value seen in gold, there is too little of it or there is no technology that allows its use as money to develop, some other forms of money will begin to develop. this could be anything; grains, beans, shells, tools etc… anything that the society deems suitable as money and allows it to develop.
remember, as is widely known, gold itself is a rare earth element, which means that for it to become accepted as a currency, surely it would take hundreds of years for enough of it to mined, distributed into the society and gain value in the eyes of the population/s. given that successful civilizations all used gold at some point in time probably testifies to its usefulness as money in moving the society as whole to greater heights.
but it still doesn’t solve the problem of how gold became widely accepted; how did gold “gain value” in the eyes of the population? after all, as i stressed before, there was practically no use for it… the technology of smelting did not exist and even if it did, there might not have been enough for it, it was also too soft itself to be used as a weapon (rocks/stones probably hurt more when thrown and also served better as speartips).
it is fair to say then, that the other forms of medium being used as money (grains, beans, tools etc) served its function of allowing the entire society to develop, so that some guy/gal decided to use gold to “decorate” themselves. this little trend probably started either in religion or in the opinion leaders at the time, for like the politicians or public figures today, they serve as trendsetters. in this way, demand for gold increased and its corresponding value also increased due to its scarcity and “endorsement” by the public figures and opinion leaders then.
still, it would take time for enough gold to be mined or traded into the society for it to gain prominence and undoubtedly, some form of struggle ensued as gold gradually replaced the other forms of money as the most widely accepted medium of exchange.
there is another factor that must not be forgotten; the legal/judicial factor. from what i see of documentaries today, even the most primitive tribes have some form of judicial system and perhaps, some form of tax system. any society must have some guards; even today our habit is to keep one man awake at night in wild to stand guard. in ancient societies, how are these guards being paid? or perhaps, what do you use to pay the central authority for security? naturally, it would be anything that was deemed money at the time; by this action, that money also gains in reputation amongst the population as being sound, like their central authority/security forces.
so that’s how gold became accepted as money even though it did not exist, nor have any demand in the previous barter system. the progress of the society in question must be taken as a whole in order to understand the development of money… indeed, in tracking the development of any trend/issues in the society, everything else must be taken into consideration together with time. to do otherwise would be “backward analysis”, “jumping to conclusion” instead of using forward analysis.
so what about today? what about the folks on this website that wish for a return to the gold standard? what purpose does it serve? if we are going back to gold, what process might it take? is it probable? can it replace the functions of paper money today? are there enough of it to go around? what might be the general perception of the public?
darn it, so many questions… lol… that’s enough for today i think.
