A Brief Essay on How Gold Has Shaped Our Economy
Gold has significantly shaped the history of man, his economics and his over all perception of life to being a simple hunter gatherer to a man who is driven by the power of capitalism and understands the value of wealth and its possession. Gold when discovered nearly 40,000 years ago when Paleolithic man picked up a piece of rock which had gold deposits in it. Gold had never helped man develop tools of his early needs like arrows or spears or even for agricultural purposes. Being malleable, soft it did not have much use with early man. Bronze discovered about 10,000 years and silver later, were valued much more compared to gold which was discovered much earlier. A bright yellow illuminating object that may have caught the attention of early man was often traded as a valuable piece of object much later on as the system agriculture essay of barter did not have a place for gold nor was it used. Gold was probably used in some form as a shiny object that could have been used to some extent in jewelry and even for scaring the enemy when engaged in war. But it was only recently about 5000 years ago when the social status was devised and man divided the society into classes that he understood that this is a rare metal and thus precious and started using it in more aesthetic manners including jewelry, for worship and for trade. Gold started to be considered as a mark of royalty or power and richness and became a prerogative of the high and the powerful to be owned. Gold has always been considered to be incorruptible without blemish. In some cultures gold is synonymous to the power of the sun. The Aztecs and the Incas believed that gold came from the sun, considering it to be its sweat and excretion. The mighty and rich Egyptians considered there kings to be direct descendants of the sun and gold as the one true flesh of that king. Thus gold had a significant impact upon all these ancient empires and their cultures. The Egyptians at about 3000 BC were the first to start a monetary system entirely of gold and silver. Their power and influence across the Nile grew with the discovery of the Nubian gold mines. Exploitation of the Nubian mines lead to unimaginable wealth and the establishment of the first true great empire of the world. The Egyptians had established a system of economics and the first monetary exchange based on gold and silver and thus creating an economic order based out of currency and not barter.
Trade and the development of barter
Even since man has had the realization that he alone cannot provide for everything that he needs, he understood the importance of trade. When there was no money, people still traded using whatever they could lay their hands on. Shells, fruits, crop, and anything that was important and has some sort of value attached to it would be traded. This gave rise to a system of trade that we call as barter. Man would exchange a hunt with another for getting wine, exchange wine for clothes, and clothes for any tools that he would need. Generally the chief item of trade among the people of Asia and Europe was cattle. Cows and oxen were traded as means of exchange for goods and services rendered. This resulted in the specializations of trade and men started living in societies where each man had a role to play in the larger scheme of things. So a potter would still be able to east without knowing how to grow crops and a wine maker would have the pitchers that he needs to store his wine without having the know how. A common form of sustenance thus resulted in what we call as society. In some societies, still today, people would trade using items and not money as in coinage and paper currency. Precious metals came after cattle and started to be used as a supplementary form of exchange and then slowly took over as the primary form.
Why money was needed?
During the days when barter trade was prevalent every item would have a fixed exchange rate compared with the other items that were traded. 1 bag of rice for 2 new clothes, 20 bags of rice for a cow and so on. However in a simpler trading situation this would have been possible where the number if items on exchange were few. When the market expanded, things became complicated and more and items were started to be traded. Barter became complicated because hundreds and thousands of items now needed an exchange rate to be traded properly. This gave birth to money. When money was introduced, every item in the market had a fixed exchange rate based on a unit of currency or money.
Rise of gold as an international standard, why it was popular?
Gold has always been accepted universally. It has significant value attached to it which is why people readily accept it as a form of payment. The significance of gold as an international standard of payment rose when it was accepted internationally as a form of payment. This was during the hay days when gold standard operated as a basis of international payments. However the International Monetary Fund took gold out of the equation and ensured that it no more plays a significant role. Gold as a means of reserve in the international market fell from nearly 70% to a mere 3%.
During the years 1880 to 1914 gold formed the basis of payment internationally. All currencies were valued to a fixed amount of gold which was held in reserve. The governments would have to repay the amount of the printed currency in gold when presented. This was done to ensure that the paper currency which was in circulation has a fixed value and the governments would not print excessive amounts of paper currency and thus create cheap money in the process. The basic idea was to restore the confidence of the people on the circulated paper currency and ensure the survival of it.
However the international gold standard started to dwindle out and by 1913 the United States had about 90% of their money supply from paper money and demand deposits. However the scenario again changed after the first Great War. Post the First World War, there was a popular sentiment which wanted the old gold currency to be restored. High inflation and taxation had the entire Europe and America reeling. The United States was the first country to return back to the gold standard. This was followed by several European nations who also returned back to the gold standard. However during the First Great War the economies had been hit severely. The pressures of having run the war for years, the economies started to find the pinch and slowly started to detach themselves from the gold standard.
1934 was the year when the United States reeling under the pressures of the Great Depression, introduced the Gold Reserve Act. It practically gave a monopolistic control over possession of gold in the country to the government of United States. Private possession of gold was banned. The price of gold was sent to $35 an ounce and the dollar was devalued as well. The idea was to boost the economy by inducing production when gold was made rare in the market