Why did gold become money? - July 10, 2019

Why did gold become money?

We all know that gold was synonymous with money in the past. We also know that it’s still valuable up to this day. What’s more, it’s not only valuable, it’s more and more popular. How has it become the phenomenon that it has through time? Science has the answers!

To find out the answer to why gold is so important, we should turn to scientific explanations. Over at NPR, Sanat Kumar, a chemical engineer at Columbia University gave a great explanation on why gold had became money in the past, and what gives it its value. He also explained why other elements, even silver, “lost” this race.

Periodic Table of Elements (2019)

 

Be stable (at room temperature)

There are 118 elements in the periodic table but many of them are just too reactive to be used as money. Or as Kumar put it: "If you expose lithium to air, it will cause a huge fire that can burn through concrete walls". That’s not a great feature to have for money. Other elements are not as hectic as lithium but they can still corrode very fast and start to fall apart even in room temperature.

Gases didn’t make the cut

As now we know, an element that’s used as money must be chemically stable. There are many of them that qualify as such. Hydrogen, nitrogen, and oxygen are all from the right side of the periodic table, and they are all stable. But (non-surprisingly) they are gases, meaning they can’t really be used as money, so they are out of the competition.

Look out for radiation

There are other attractive elements in the bottom rows of the periodic table, but guess what? They are radioactive. What does that mean? If we made money out of radioactive elements, we would be dead in a year. (If we wanted to be funny, we could also say that we all know most good investments are at least 5-years long, so an instrument that kills in a year is not a sound choice from an investor’s perspective, either.)

The 30-member shortlist

The chemist left us with 30 elements that are suitable for money at first look. None of them is a gas, too reactive, or deadly. But there’s another very important requirement to make it valuable: it must be rare. That leads us to eliminate materials like nickel and copper since there are many of them. Still, the perfect material shouldn’t be too rare, like osmium, which is only present on Earth from meteorites.

Five elements remain (which are all precious metals): rhodium, palladium, silver, platinum, and gold. Rhodium and palladium weren’t discovered until the 1800s, so they couldn’t be with us from the dawn of time.

Gold wins the race

We’re left with three elements: silver, gold, and platinum. Silver was widely used as money, but it’s a bit reactive and it tarnishes over time. Not as good as gold or platinum. But here’s one last bit that decides the race: platinum melts at 1650 degrees Celsius. That means that it was impossible to make platinum coins without magic (or industrialized technology).

So gold wins: it’s rare but not too rare. It’s also stable and easy to work with, even for young, less developed civilizations. That’s why the chemist believes that gold is “the sweet spot” for money and in our Earth environment it had to become money. Money we still give great value to in the present.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.