Why was gold so popular and valuable back when it did not have many real world uses?

Question

I'm talking about back when it was first starting to get discovered, like 2000 B.C. (roughly). Gold was being used for coins, jewellery and more. It was a very well known commodity and accepted generally everywhere. Gold by itself had no real world uses back then; so why did gold become so popular and valuable?

Answer 1

The question is commonly asked (Google the question and you get 446,000,000 answers).

1. BBC News has an excellent answer that mirrors my answer below, but in far more depth and with much less withering sarcasm. The summary is the last two sentences, " . . . to paraphrase Churchill, out of all the elements, gold makes the worst possible currency. Apart from all the others."

2. Yahoo provides several answers that I think qualify as marginally profound. The answer chosen as "best" seems to rely on some assumptions that I don't think are explicit in the question or answer.

3. Investopedia provides another answer that includes much of the BBC answer with an investment perspective. "It is abundant enough to create coins, but rare enough that not everyone can make them."

4. Personal finance stack exchange provides another answer which mirror's OP's question "The answer is that other than a small number of applications (the approx. 10% of gold production that goes to 'industrial uses') gold does not have intrinsic value beyond being pretty and rare (and useful for making jewelry.)"

5. Money stack exchange has another answer "Gold's value starts with the fact that its supply is steady and by nature its durable. " I'm not sure I agree that the facts support the conclusion, but I don't disagree. Second Aside: The question was edited while I was composing this answer. This is a poor answer and probably not worth revising to fit the new question; I think much of my answer is as relevant to the new as it was to the old

Gold is valuable because people want it. "Value" means wanted by people. To quote the early economic theorist William Shakespeare, ". . . there is nothing either good or bad, but thinking makes it so." Gold has no intrinsic value, but neither does anything else. All value is subjective; interesting value is collective (shared among a society) Different cultures have held different things to be valuable at different points in history. Shells, large stones, women named Helen with noses of a particular length, etc. I would infer that there is a social need for a shared notion of value, and that if there is nothing that fills that role, then we are compelled to invent it.

Since OP excluded modern industrial uses, gold has no rational value. The various articles I cite above point to some properties of gold that make it useful, but several of them also point to the fact that gold is beautiful. Beauty is subjective, but gold is pervasively perceived as beautiful. I cannot imagine any way to separate the portion of gold's value that derives from raw beauty from the portion that derives from cultural reasons

Gold is also the subject of a neurotic fixation for those with an irrational fear of fiat money. One of the diagnostic symptoms of this neurosis is that those suffering from the disease cannot be persuaded through the use of facts (indeed, they seem to detach further from reality in proportion to the persuasive value of evidence to which they are exposed.) Note: There was a time when the gold standard made more sense than the alternatives; there was also a time when it made perfect sense to calculate with Roman numerals. You can still do those things, but society recognizes that doing so is aberrant behavior.

• Why is gold used as a currency? Convention. Even trivial research will reveal the necessary properties of currency, and gold fills the bill for most of history.

• Why is gold used as a store of value? Gold has two crucial properties. The first is that it is relatively rare - common enough that most cultures understand it, but rare enough that the demand almost always exceeds supply. The second is that gold does not rust. Gold is incorruptible. These two things make it a useful, durable, persistent store of value. It will almost always be accepted, and it will not diminish under normal circumstances. As a bonus, it is easy to divide (an anti-pattern for Spartan money)

Aside: Obviously I'm having a cranky day, and my tongue is planted in my cheek. My intent is humor; let me know if I've crossed the line back into my characteristic "withering sarcasm".

Answer 2

From a practicality perspective; Gold shared the same an early advantages that Copper did for developing societies. It can be worked by being beaten and by being cast, so the technology requirements to begin working with gold is lower than even bronze. In it's natural state gold is malleable and shiny, making it an obvious candidate for cultures and artists that are in early stages of developing trade-able goods.

Even crude experiments in metallurgy would reveal gold's resistance to tarnish and the ease with which it can be reworked.

It wouldn't have been until smelting and mining developed that gold would have been known to be scarce. (At one time gold would have been FAR more available than Iron). So scarcity is a secondary characteristic in terms of ancient value.

In terms of extended value throughout history we can argue that the Cultural and Industrial values are extensions that emerge naturally from it's workability and the ease of reaching high degrees of purity.

Answer 3

To add to @Mark's answer, we may venture that in early times, gold was both rare and amenable to be crafted into jewels that thus displayed the wealth of their owner. As such, gold is a key to an elevated social status, making it highly desirable everywhere. Gold was not the first metal to serve in that role; e.g. some late neolithic tombs have yielded copper axes that were too small and soft to have been used for any purpose other than decorative.

A similar pattern was found among Aztecs, who valued Quetzal feathers a lot, especially since they could be obtained only from the most western areas of the Aztec influence zone; these provinces had to pay a yearly tribute of Quetzal feathers. Besides being somewhat pretty, the only use for Quetzal feathers in Tenochtitlan was to show that you could afford Quetzal feathers.

Quetzals live only in central America; gold can be found in many places, but always in small quantities and requiring a lot of work to extract. Marx remarked that gold is very appropriate for use as a currency, especially for hoarding, since it is very durable, compact, easy to store, amenable to essentially lossless division and reassembly, unlikely to lose its value over long period of times (since the influx from mining is small), and otherwise completely useless(*). Not many materials have all these properties, and gold has them everywhere it can be found. Furthermore, though hard to obtain, gold can still be mined and handled with rudimentary technology. This may go a long way towards explaining the universality of the value of gold.

This leads us to an historical theory of gold's value: when a society becomes technologically advanced enough to mine gold and use it to craft jewelry, gold quasi-automatically becomes a powerful marker of the owner's place in the society, thanks to its intrinsic qualities: durable (you can use it for continuous display for many years), compact (you can wear your wealth, contrary to, say, a herd of camels), recognizable (it is hard to make convincing fake gold),... only the richest can own gold jewels, and you want gold jewels because it makes you look rich(**). At a later time, when the notion of currency is invented, gold is then a likely candidate, strengthening its position as a repository of value.

(Marx, being himself, would not have accepted a theory of gold's value as a social status marker; in Marx's view, everything is a question of labour, so gold's value comes from the amount of labour that goes in its extraction and purification. But even this marxist theory brings us back to universality: everywhere on Earth, mining gold-rich ore and extracting the shiny metal from it requires a lot of efforts.)

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(*) This is not entirely true. Nowadays, gold has some industrial uses, especially in electronics. Even in ancient times, gold was used for dentistry, as in this example found in an Egyptian mummy from around 2000 BC:

(found on this page)

Nevertheless, these non-decorative uses of gold have always been a small minority, when considering the amount of involved metal.

(**) The underlying idea in all this is that people who want gold do not, actually, want the metal for itself, but for what it can bring to them. Prescott explains it vividly in The Conquest of Peru: when Pizarro and his companions ransom Atahualpa, their main motivation for such a craving of gold is to be able to come back to Spain as grandees, to gain access to the highest planes of the highly hierarchical Spanish society.

Answer 4

I am going to suggest that its extreme heaviness was a major feature contributing to its value. If you sell something by weight then the heavier it is the easier a given weight is to carry especially if you want to conceal it. Of course, its rarity and physical qualities are major contributors also.