The reason gold and silver are money is because they are amongst the few metals that exist on the periodic table that have all the properties of money. Throughout history, people have needed a form of money as a medium of exchange. The use of bartering trade systems dates back at least 100,000 years in human history, but as societies were evolved, every culture worldwide eventually developed the use of a commodity money. People would trade in standard weight of things like barley, salt, and peppercorns as a currency. The problem with these types of commodity money is they can be inconvenient to use as a medium of exchange due to concerns about transport, storage, and eventual rancidity or spoilage.
Precious metals have evolved as the optimal form of commodity money. Why have people chosen these metals as money? Why not copper, iron, or a non-metal element? Well, an element must meet some qualifications to stand out as a useful currency.
- First, it can’t be a gas – gasses simply are impractical as a medium of exchange. That immediately knocks out many elements on the periodic table from contention as money, like the noble gases on the right side column of the periodic chart.
- Secondly, it can’t be reactive or corrosive. Many metals are highly reactive when exposed to air or water – lithium or sodium for example. Pure iron will rust and corrode away. This knocks out 38 more elements from contention.
- Third, we can’t have radioactive money. Not only would the radiation be potentially lethal, but your money would eventually radiate away to nothing, or to something completely different. This eliminates another row of elements.
- Finally, they must be rare (but not too rare). Any of the 30 or so remaining elements might quality for a decently stable form of currency, but some are simply far too common or too incredibly rare to be practical as a store of wealth and medium of exchange. Copper, for example, has all the properties of money. However it is too common a metal to be used as the only metal currency because you would need tons of physical metal for even medium-large transactions.
So that leaves us with just 5 elements that qualify as money: gold, silver, palladium, platinum, and rhodium. Its not coincidence that today this group of metals is known collectively as the “precious metals”, and that government and privately minted investment bullion is produced in each of these metals. All of them could qualify as money, but rhodium, platinum and palladium have only been discovered within the last 200 years, so they have not been used as money historically. They have very high melting temperatures, and rhodium can be difficult to turn into coin.
That leaves us with gold and silver. Both metals are solid, non-reactive, malleable so they can be easily shaped and reshaped, and have all the other properties of money. Gold and silver are also found in mines all over the world. Most of the platinum and palladium in the world is mined in Russia, and these metals simply were not known by early human societies. With gold and silver being found on every continent populated by humans, they are the clear choice as monetary metals.