If you stop and think about it for a moment, the human preoccupation with gold seems very odd.
We are so used to gold being, well, Gold, that we don’t stop to think about it. Since the dawn of history, gold has served as a universal trade good. Every human culture, from the simplest hunter-gathers to space-faring modern industrial, trades for gold. In the arts of every culture, gold symbolizes the best, the purest and the most desired. Lust for gold has driven exploration, technology, war and individual murder. An alien anthropologist studying human history might easily conclude that humans need gold for some critical function. The alien would reason that gold must be a vital nutrient, a medicine or serve a central role in our technology.
Yet the alien would be wrong. Gold serves next to no functional purpose. Prior to the electronic age, people made only sparing use of gold’s corrosion resistance to line drinking vessels and such. Many cultures used gold to make monetary tokens but that use evolved out of gold’s existing role as a universal trade good. Coins were merely standardized chunks of a universal trade good. People didn’t covet gold so they could make coins from it, they accepted gold coins in trade because they valued the gold in the coins. People murdered for gold long before anyone thought to make money out of it.
So the human lust for gold presents us with a riddle. Why do we so universally value gold? What function does gold serve that makes it so sought after?
The answer is simple:
Decoration.
But not just any kind of decoration. The natural world and human effort produce many patterns and configurations of many substances that we universally find asthetically pleasing yet we seldom conquer to obtain them. We don’t lust for gold because we find it irresistably beautiful. No, we use gold for a very serious but non-material purpose.
We use gold to communicate status.
People and groups seldom hide their golden decorations. Instead, they thrust them into the faces of others. The practical uselessness and rarity of gold makes it ideal for this purpose. Only someone with vast amounts of surplus resources can afford to squander large amounts of those resources on something so ultimately worthless.
The pharaohs of Egypt used to parade their golden funerary objects before burying them in the ground. Most of the gold looted by the conquistadors did not stay in Europe for long, but instead flowed eastward along the spice routes, until it eventually ended up decorating the imperial buildings of China. The most common trans-cultural use for gold is the making of jewelry. In all cases, people intend for others to see their gold. They desperately need to communicate to others a message of status and power.
Gold is not the only material to fulfill this need. Precious gems are even more rare, more useless and more coveted. Across history virtually every rare and useless thing served as a status indicator at one time or another. Throughout the first two thirds of the industrial age, manufactured items conveyed status. People shunned homespun cloth and other homemade items in favor of mass-produced ones. Only after WWII, when industrialism reached the point that it could provide high-quality manufactured goods to even the poorest people, did people begin to seek out handmade items as status markers. Even today, manufactured items such as cars and electronics convey status. (Perhaps ironically, as the material wealth of civilization increased, gold gradually lost its once-overriding import. Industrial mining makes gold too common. Machining makes working gold too easy and too many artificial substances can mimic its appearance. In the developed world, golden decorations now connote status only among the very poor.)
Why do humans need so desperately to convey status that they go to great lengths to obtain gold? What significance does this have for contemory political behavior? I will save my thoughts on those questions for other posts.
Hasn’t gold’s primary function been to serve as a medium of exchange? It’s easy to overlook that function now, because we have fiat currencies that are adequately secure for most transactional purposes and are easier to handle than gold. But fiat currencies should not be taken for granted, and historically often were not. Gold is much less subject to political manipulation than are paper currencies, and it’s more liquid than are real estate and other physical commodities. I think it’s this balance of qualities that has made gold uniquely useful.
Gold:
a) is easy to work with primitive tools
b) does not tarnish
c) is not needed for practical purposes in traditional cultures
and therefore
d) is an ideal substance for decoration and status.
An economics guy from your university said it a long time ago: Veblen on conspicuous consumption. Move now to Marx: quantity drives out quality. Move on now to Darwin: ornamental displays to show an alpha person (status, worthy mating material).
and of course gold can be both refined, worked, and is enduring…voila! the gold standard and so we refer to old people (like me) as being in our Golden Years (but we will not endure)
Jonathan,
Hasn’t gold’s primary function been to serve as a medium of exchange?
Yes, but that role grew out of gold’s status as a universal trade good. Gold does have properties that make it ideal for making tokens out of i.e. it does not decay and its purity can be assessed by low tech means, but gold was GOLD long before people made coins from it.
People accepted gold coins in the past because that intrinsically valued the gold in the coin. Ditto for silver, copper and bronze. (The latter two in particular could be turned into practical items when times got hard.) People across the eras have used many materials to make monetary tokens from. The key attribute of such materials is that function, at least locally, as a universal trade good. A good example would be the use of seashells in sub-sahra africa up until the early 1700’s. In this case too, people coveted the seashells first as status items and only second as money.
Frankly, I am not really a fan of the gold standard in contemporary world. A gold standard (or any other material standard) ties the inflation or deflation of the currency to the global supply of the backing material. The California gold rush for example, triggered a bought of inflation because gold became suddenly much more abundant. Likewise, historic shortages of gold, such as in the late 1800’s creates deflation (free-coinage of silver anyone?) Given our contemporary capacity to generate any type of material in large quantities I think a gold standard would fail within a decade or so.
Now that everyone understands that inflation and deflation of fiat currencies results from a conscious choice to alter the number of monetary tokens, I don’t think fiat currencies will prove unstable long term. More importantly, however, I don’t think we have any other choice.
There’s a lot of overlap between trade good and medium of exchange.
Jonathan,
There’s a lot of overlap between trade good and medium of exchange.
That’s because mediums of exchange evolve out of trade goods. A trade good becomes suitable as a medium of exchange when virtually everyone in the economy will trade whatever it is that they have for that particular trade good. At that point, every other good acquires a “price” measured in the quantity of the universal trade good. People accept the universal trade good in all exchanges because they know they can reliably convert it to any other good they might need. At some point in its history, every medium of exchange was just a trade good like any other.
My favorite example is the use of coco beans in pre-columbian meso-America as money. Since virtually everyone drank coco, virtually everybody would trade for coco and coco went from being a valued trade good, to universal trade good and then to a medium of exchange.
Gold, silver and gems are interesting in this regard because they are the only trade goods that cross every cultural line in the world. Every human culture will trade for gold. I think every human will trade for gold because every human as a need to express status.
I don’t like gold. Diamonds are ever weirder.
*david still: Marx criticized Ricardo’s quantity theory, not supported it. In his view money is a measure of labor involved into production.
Therefore, speaking in Marx’ terms, there is no gold inflation/deflation: since you measure every commodity in gold units, and gold itself is a commodity, the fluctuation of price of gold becomes meaningless.
Shannon, speaking of your Califortnia Gold Rush example: here’s a different interpretation:
“…In Marx’s theory of money, (market) prices are nothing but the expression of the value of commodities in the value of the money commodity chosen as a monetary standard. If £1 sterling = 1/10 ounce of gold, the formula ’the price of 10 quarters of wheat is f 1’ means that 10 quarters of wheat have been produced in the same socially necessary labour times as 1/10 ounce of gold. A strong decrease in the average productivity of labour in gold mining (as a result for example of a depletion of the richer gold veins) will lead to a general depression of the average price level, all other things remaining equal. Likewise, a sudden and radical increase in the average productivity of labour in gold mining, through the discovery of new rich gold fields (California after 1848; the Rand in South Africa in the 1890s) or through the application of new revolutionary technology, will lead to a general increase in the price level of all other commodities.”
I think in Capital, speaking of universal trade medium, M. talks about a universal metal, be it bronze in Bronze age, or gold in Modern times: the choice was dictated by practical factors (easily mulliable, long-lasting, difficult to fake, doesn’t get spoiled, like coconuts or shells). Doesn’t matter what shape the universal medium was, coins, necklaces or chunks of rock, the primary function is still – universal trade medium; “status symbol” derives from that function.
And then there is its malleability:
The urge to display, and the need for status, are literally reptilian, and then primate, lodged in the deepest part of the human brain.
It is entirely human, then, that so much effort, both physical and mental, would be expended finding and fashioning gold and jewels into symbols of status for display purposes. Their rarity and unusual properties are only notable to sentient creatures who can identify such features, and create an aesthetic to value them.
As with anything else, gold has value because human beings endow it with value, for their own reasons and purposes.
In other cultures, such endowments are made upon feathers, crystals, animals, shells, and a myriad of other things. The measure of something’s value, in many ways, is not its utility, but our level of desire for it.
I have finally come to believe that, while the mind may moderate human existence, it is the deeper drives and desires that truly motivate so much of what we are, and have been.
What are nukes in today’s world but the jewel encrusted sceptors and golden crowns of past pharoahs and emperors—tools to awe and impress.
The more things change, the more they stay the same.
Tatanya,
Doesn’t matter what shape the universal medium was, coins, necklaces or chunks of rock, the primary function is still – universal trade medium; “status symbol” derives from that function.
I don’t think so. I think status symbol precedes trade medium for gold and many other money materials. It’s kind of chicken and egg feedback loop but I think the history is clear that people first trade for a material because they have a specific function for it. Only after the material becomes so heavily traded that anyone in the economy will accept it in barter for any other trade good does it rise to the level of universal trade medium. Once it reaches that level of acceptance of course then displaying great piles of it becomes a status marker in of itself.
I think gold definitely followed the evolution I describe because the only low-tech use for gold is for decoration. People who traded very little nevertheless traded for gold even though they seldom had the opportunity to trade it down the road for something else. Instead they consumed the gold by creating decorations with it.
Marx and other classical economist erred in believing that an absolute value for any economic good existed and could be quantified. The only meaningful expression of value is how much of another good someone else will trade for that good. The existence of universal trade goods or fiat money obscures this but doesn’t alter the basic reality. Neither does trying to make human labor a universal trade good. Gold in any form does have a price and that price is the amount of other commodities or human labor that people will trade for any given amount of gold.
No absolute value for anything exist. Things only have a relative value which changes over time. The difference between classical economics and modern economics is something like the difference between classical newtonian physics and post-Einstien physics.
I meant to say in my previous post that Marx was wrong and that gold does indeed have a price. Price is after all only an expression of how much of something else we will trade for it. The existence of money obscures this basic principle but it is easy to see with a few thought experiments that there is a finite maximum of any good (including labor) that people at any point in time will trade for gold.
That maximum is the true “price” of gold.
Clever posts and insightful comments are also a means of display – the blogosphere wouldn’t be what it is if not for that urge
Wade has it right: all this time we spend blogging and commenting is quite the display of status (yes, we’re all so smart and rich that we can spend countless hours just writing). Ah, it’s wonderful to live in such a fundamentally wealthy society, eh? :-)
Shannon, while gold provides decoration and can serve as a status symbol, these are uses of gold that only stem from it’s qualities, which are the source of it’s value.
It’s physical properties (malleabilty, luster, resistance to corrosion) make it a unique metal and attractive and hence valuable. If gold were as common and inexpensive as brass or steel, I’d suggest that most folks would prefer a gold braclet over the others. Gold is neat.
When the relative scarcity of gold is factored in the value of the metal becomes even greater. With the great value of the metal it is, or can be, a convienient repository of wealth in it’s own right. Of course this convienience has added to it’s utility and value.
What motivates people is not money, it is endorphins. Endorphins are manufactured in the body whenever a person does something his/her genetic pre-disposition approves of. Sex causes the body to produce endorphins because reproduction is the sine qua non of our race. But other behaviors cause the body to produce endorphins. For some it being admired; for others it is being an admirer. For some it is abusing someone; for others it’s being abused.
Whatever floats your boat. Everyone is wired genetically differently and everyone gets his/her endorphins in different ways. Money, gold, trade are only one means out of many for getting endorphins. For example, one can trade gold for endorphin from sex or get it a hundred different ways without trading gold. Indeed those who trade gold for sex may get as many endorphins from the act of trade, the preliminaries to the act of trade, and the consequences of the act of trade as they get from the act of sex itself.
Of course there are some who get their endorphins (ala uncle Scrooge) from the mere possession of wealth; but for most people wealth is just a means to acquiring endorphins. Paradoxically, jewelry is a cheap way to get endorphins because instead of trading money for admiration one can keep the gold, wear it, and get the admiration for free. And remember the admirers get endorphins from the act of admiration. If you don’t believe this is possible, then think back to how you felt when your team won a major game. You got endorphins through the act of admiring someone else.
And of course thousands visit the crown jewels every month, and pay for the visit, and in return they get endorphins (and perhaps a free meal) each time the tell someone else about that experience.
Economic man is dead. In fact he never lived. People maximize endorphins and it is in this context that all human behavior, normal and abnormal, can be understood.
“The answer is simple: Decoration”
Flowers are also used for decoration. And more abundant. But gold is more durable.
Gold almost uniquely has a number of properties that makes it ideal as a medium of exchange. Unlike shells, gold is easy to divide. Unlike coco beans, gold is uniform. Unlike salt, gold does not dissolve. Unlike silver, gold is soft and easy to work. Unlike copper, gold does not rust.
That gold connotes status is a function of its mix of properties that make is valuable as a medium of exchange, not its cause.
“I think status symbol precedes trade medium for gold and many other money materials”
If you could point to an example of gold used in high status artifacts before its use as a medium of exchange, you would have a point.
“Frankly, I am not really a fan of the gold standard in contemporary world”
A viable alternative to today’s fiat currency would be shares in an actual basket of actual commodities. The value of some of the commodities in the basket would rise vis-a-vis the others as others would fall. The next effect would be to keep the value of the commodity script stable and outside the grasp of public officials and their public choices.
Last sentence should read: “The ~net~ effect would…”
Steve,
If you could point to an example of gold used in high status artifacts before its use as a medium of exchange, you would have a point.
A medium of exchange can only function in a diverse, widespread and reliable economy. An individual will only trade for gold with the intent to use it as medium of exchange if they know that the practical good they need will soon be obtainable in exchange for gold. If someone needs food immediately, they won’t trade for gold unless they already know of someone who will trade gold for food. Isolated people with few trading opportunities will only trade for gold in order to make material use of the gold itself.
Probably the best example would be the peoples of Papua New Guinea. Papua New Guinea is so geographically rugged that it isolated virtually all the people into small pockets that did not interact. Telling, the island has somewhere between 850-1000 languages, not dialects but actual separate languages. This vast diversity is the result of extreme isolation. Prior to the arrival of Europeans their was virtually no trade on the island.
Yet, they continue to use gold. Most commonly, individuals found gold in open veins or stream beds and then worked it into personal decorations. They don’t keep gold in raw form just so they trade it later. Very few such opportunities exist. Within each isolated culture, people do not trade per se but rather exchange bonding gifts. Gold decorations are the most highly prized bonding gifts in most if not all of the local cultures.
Indeed, it was reading about Papua New Guinea sometime back that actually planted the idea in my head. The people of Papua New Guinea don’t covet gold as medium of exchange because they don’t really exchange.
Approaching the problem from another angle think of it in terms of feedback loops. How does a feedback loop get started in the first place? No material can become a medium of exchange in the first place unless it is already nearly universally accepted in trade already. People will only trade for it initially if they have some non-trade use for the material.
As a non-gold example I would point to the famous tulip mania of the Dutch Republic. Tulips were first grown as mere aesthetic objects with little or no trade value. However, once the concept of active breeding caught on, people started competing to create new and more beautiful varieties. Rare tulip breeds became status items for which people would pay a great deal. Soon, people began buying tulip bulbs merely to resell them to others. For a time, tulips became a medium of exchange as people settled debts with them and traded future contracts. The feedback loop for the tulip mania started with the tulips use as personal aesthetic objects, which evolved into status objects, which evolved into speculative investments and finally into a medium of exchange.
In short, something has to have some inherent use before it can become a medium of exchange.
So PNG demonstrates that gold as a medium of exchange is an unintended byproduct of gold as a universal object of human vanity and status rivalry.
Striking.
I must say that theory makes more sense than Zacharia Stitchin’s theory that gold lust was programmed into our ape ancestors by our alien overlords so that our forerunners would more readily work in the mines in pursuit of the element that would replenish a dying alien atmosphere.
“Why do humans need so deserately to convey status…?”
My answer to that question is, simply, that many folks are really insecure creatures. In some instances, in my opinion, it’s not much of a future monetary “thing,” but a silly way to step up above one’s peers. The fancy car (Beemers and such) offer similar, personal, status wedges. In light of all of this gold nonsense, the whole premise is boring.
Studies indicate that displaying status is a human universal, and that it’s not limited to insecure people. Of course many people shun obvious displays like gold and use different means. Apes are obsessed with status, and those with the highest status get the most sex, food, grooming, etc. Status seeking is likely hardwired into us. It explains schadenfreude. It also means that even if everyone’s wealth increases substantially, those on the lower end will still be unhappy due to their lower status.
There is a great video from many years ago by some scientists who were studying primate social life. They were studying chimps, and had followed a troop for several months.
As an experiment, they put a mechanical leopard in some high grass near a water hole used by the chimps and filmed the encounter. The troop came to the water, and the mech leopard, (leopards are a particular hazard for chimps) moved its head and growled.
The younger males, who walked point, started screeching, the females and children in the middle fled back the way they came, and out of his rear guard position came the alpha male. He charged without hesitation and attacked the leopard, striking it, and running back to the group.
When the leopard didn’t flee or attack, gradually he and the other males came back and attacked again, becoming more bold as the leopard didn’t respond. This went on for several minutes, until the mech was badly damaged.
My point is that gold is just a symbol of status, a human way of displaying their size and wealth, just as the chimps compete with size, strength, and ferocity.
Humans also compete in these areas. Gold is actually a sign of a further development in the human psyche, even if the impulse is every bit as primitive.
Status, by the way, used to include some very distinct responsibilities, including exposure to real physical danger, even to the point of being the first to attack the leopard.
In our more advanced and sophisticated culture, the men and women who are willing to take on this role are derided as fools who are “stuck” in their task, at least by some, while very high status is accorded to those who find ways to evade any potential risk other than financial. (And, no, I am not referring to the chickenhawk argument, which I despise)
There is a trendy attitude that status seeking is somehow suspect, but that is nonsensical. It is as natural as breathing, or sex, which is often its impetus and object.
It is our standards as to what endows status that are worthy of derision—well deserved towards any society which devotes multiple newspaper pages and thousands of TV minutes to the incoherent ramblings of illiterate sports figures, while most people don’t even know who Norman Borlaug is, much less that he has been instrumental in feeding several billion people who would otherwise have starved.
Gold is not the enemy, nor is the love of it, but the set of values which allows men and women of honor to be derided and scoffed at, while fools and cowards strut on center stage. That truly is a greater danger, and flaw, than the mere wish to possess some desirable object.
I skimmed the comments, but I don’t think I saw this:
Gold (and other precious metals) are a commodity that requires human resources to excavate (especially in a highly profitable cost-benefit ratio).
So the ability to command the use of gold/precious metals meant that one had the POWER to commandeer human resources for its harvest.
POWER OVER OTHER HUMANS.
In other words: The ultimate coin of the realm; including and up-to modern times, however exercised/realized.
To veryretired:
I’d really care to see a video of these same chimps a few days later, if you will — in the glorious presence of a real, live, big and bad, hungry ol’ leopard. That, so-called, alpha male would suffer a serious, life-altering, problem. Reminds me well of a bunch of punk ubanites who decide to pounce upon a senior citizen (who’s seen by them to be weak and defenseless, and therefore an easy mark for a robbery). Well, as it should turn out, the old fellow is, at once accosted, and promptly dispatches each of his attackers —with a licensed handgun, god bless him. How’s “that” for perceived status. The only other issue, thereafter, is his need for an attorney, and wise, measured, testimony before a grand jury —to bolster justification. Status of a licensed, concealed, weapon has it’s price, too.