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
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
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