The History Of Money- Gold Price Elasticity Of Supply
Gold has retained its monetary function throughout human history because of its low supply rate, a position it continues to occupy today as central banks keep considerable gold reserves to defend their paper currencies.
Approximately one-sixth of the world's total above-ground gold reserves are held in the form of official central bank reserves, which amount over 33,000 tons. With its high stock to flow ratio, gold has the lowest price elasticity of supply, which is calculated as the percentage increase in quantity provided over price rise.
Ancient civilizations of China, India, and Egypt started to utilize copper, and subsequently silver, as money, since these two metals were rather difficult to produce at the time and provided for strong marketability over time and distance. Gold was highly treasured in ancient societies, but since it was so scarce, it could only be used for a restricted number of transactions. King Croesus of Greece, the origin of modern civilization, was the first monarch to produce gold coins for commerce. As a result of gold's universal appeal, the currency was widely distributed, igniting worldwide commerce.
Roman silver coins were denarii, which weighed 3.9 grams and were in use under the Roman Republic. Gold coins were becoming increasingly commonplace being the most precious currency in the world at the time. With the introduction of the 8-gram gold aureus currency, which was widely acknowledged across the Mediterranean region during Julius Caesar's dictatorship, the breadth of commerce and specialization expanded throughout the ancient world.
Emperor Diocletian's reign was marked by economic and monetary mismanagement, and the Empire as a whole was brought to its knees during his reign. However, Constantine the Great assumed control of the empire a year after he abdicated and turned the empire's fortunes by embracing economic policies and reforms. Condemned to preserving the solidus at its current weight of 4.45 kilos of gold without cutting or debasing it, Constantine (the first Christian emperor) began minting vast amounts in 312 AD.
The Eastern Roman Empire, which adopted the solidus as its currency, was born when he transferred his capital from Rome to Constantinople, on the confluence of Asia and Europe. Byzantium's solidus was the world's longest-lasting sound currency for 1,123 years while Rome's economic, social, and cultural decline persisted until its eventual collapse in 476 AD.
Feudalism arose as the dominant style of social organization after the Roman Empire's economic and military demise. Sound money was crucial in transforming Roman people into serfs at the will of their local feudal lords after the fall of the Roman Empire.
Since industrial production of these metals made inflation easier, copper and bronze coins were poor stores of value. Silver coins were even worse because they were frequently debased, cheated for, or otherwise not standardized across Europe, which made them even worse stores of value for the European peasantry during this time period.
Franco-Prussian War ended in 1871, and Europe's main nations began adopting a monetary standard based on gold, leading to an era of wealth and thriving that continues to look more astounding in hindsight. It is possible to argue that the second half of the 19th century was the greatest time of human happiness and creativity that the world had ever seen, and the role of gold in monetary transactions was critical.
Global capital accumulation and commerce were facilitated by the widespread adoption of a gold monetary standard, while silver and other forms of currency were gradually demonetized..
During the time of the gold standard, most sophisticated civilizations were able to increase their savings rates and hence fund industrialization, urbanization, and the technical advancements that have formed our contemporary lives. This represented the soundness of money across the globe.