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The scarcity of gold is not a reason for its wide spread use in the old days. Actually, had it been really scarce it would have never come to be such a widely recognizable medium of exchange; effectively gold can be mined in almost any place in the world. So not being scarce has partly provided its "value" has money. To prove this is the fact that the world gold stock is about three times that of silver, but the price is some 40 times over. And note that even in resource terms the outlook for gold mining is much better than for silver, whose commercially viable stocks at current prices should be gone within the decade.
I would substitute the term "valuable" for "useful". The thing about gold is that it can't be falsified, due to its high density (double that of lead and silver). Up to the XIX century no other element known to man got even close to such weight per unit of volume. Today about six other elements are known in the same range of density, of which only Tungsten is easier to mine than Gold, though its low electrical conductivity make it somewhat difficult to use for falsification.
In conclusion: Gold was (is?) a preferred currency for its supply is incredibly stable, more than anything else. An investor can be certain this asset will never loose value rapidly, unless against other assets that may become in short supply.
Gold is not a solution to this crisis (or to any crisis), but thinking that the emergence dynamics that made it a currency (or at least an high liquidity asset) are not in place anymore is missing an important part of the plot. Central Banks stock gold for some reason.
Vencit omnia veritas.
Silver is around 0.070 ppm, while gold is around 0.004 ppm
res humą m'és alič
But this industrial utility is a relatively new thing, compared to the gold standard.
Austerity can only be implemented in the shadow of a concentration camp.
You should held a sovereign on one hand and a coin of another metal in another hand to understand what I mean. You could also go after the history of the word karat. Besides that, other metals exist that do not corrode and are easy to divide.
Vencit omnia veritas.
But then the European merchants started trading with China and India by sea. In China and India, gold and silver were exchanged at a ratio of between 1:10 and 1:12, whereas in Europe it was 1:14 or 1:15 (or at least Smith claims these ratios in Wealth of Nations). So with the silver going East for arbitrage purposes, the European merchants would use gold to clear transactions at home.
Gold was also one of the main products of the European expansion to the Atlantic and the Indian. Early on it came from Guinea, then from Central America and in the XVIII century from Brasil. This eventually had a depressive effect on gold.
Vencit omnia veritas.
In the east California gold encouraged shipbuilding and other manufacturing for shipment to California. The discovery of gold in the Yukon helped pull the country out of depression as outfitting produced new business activity and then the gold from Alaska and the Canadian Yukon expanded the money supply again. But it is far from optimal to have your money supply strongly affected by the vagaries of discovery.
As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
It beats having it controlled by the Bundesbank.
To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
The ratio in the Earth's crust is about 1:18, makes me wonder what may have been at the root of that bias.
Probably simply accidents of history and geography.
But since my Google-fu turns up nothing on the geographic distribution of precious metals, I made an economic toy model which suggests that a larger market or a market with lower elasticity relative to the abundance of supply will cause the more common metal to trade at a higher price relative to the less common metal.
Larger markets for precious metals with lower elasticity seems to me to be a sensible consequence of the East being richer - both in absolute and per capita terms - than the West during the relevant period. And the American colonies would expand the supply of precious metals relative to the size of the European market, further increasing the effect.
But that's speculation based on a very crude model.
How unlike our own, dear, times!
Skepticism is the first step on the road to truth. -- Denis Diderot
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