Gold as a Medium of Exchange and Savings

Written by Lewis E. Lehrman

Consider the natural properties of gold.  Gold is durable, homogenous, and fungible.  Indeed, by its intrinsic scientific nature, gold is imperishable, indestructible, and malleable.  Gold has a relatively low melting point, facilitating coinage.  Gold is portable and can be readily transported from place to place in exchange for other articles of wealth.  Large and small quantities of gold can be safely stored at low cost and then exchanged for redeemable, convertible and convenient monetary certificates, bank deposits, and notes.  Like paper, gold is almost infinitely divisible into smaller denominations.  But, unlike the near-zero marginal cost of producing paper money, gold—like other articles of wealth in the market—requires real labor and capital to be produced.  The real labor and capital invested in producing a unit of gold is, therefore, an objective value proportional to the objective labor and capital invested in producing a unit of all other products and services in the market for which real money, gold, might be exchanged.  A mutual exchange between the gold monetary unit and other goods and services is therefore a transparent, equitable exchange among producers and consumers, between owners of capital and owners of labor.  But almost no marginal labor and capital is required to produce an additional unit of paper money.  Thus, legal tender paper money is overproduced—tending always toward depreciation and inflation.  Over the long run, the exchange of forced and spurious paper money for the products of real labor and capital has not maintained equitable exchanges between labor and capital in the market.  Market exchanges based on depreciating paper money and floating paper currencies lead to speculative privilege, thus to injustice in exchange—whereas the gold monetary standard sustains equitable exchange by maintaining its constant purchasing power over centuries against a standard assortment of goods.Because of its imperishability and density of value per weight unit, gold can be held and stored (saved) permanently—at incidental carrying costs per unit of value.  Precious metal monetary tokens (gold and silver) survived millennia of monetary experiments with inferior or perishable alternatives such as shells, grains, cattle, tobacco, base metals, and many other monetary tokens which are either consumed, perishable, bulky or of insufficient value for large-scale exchange over long distances.  For example, perishables are not storable for long periods at very low cost; nor are they portable over long distances to exchange for other goods; nor are they useful and efficient to settle debts promptly.  For more visit    

Sign up here to be notified of new blogs from Gonzalo Schwarz and AIER.