Gold has been used as money throughout history for many reasons. Some of these reasons are gold’s ability to preserve, store, combine, and divide wealth. As I have stated in my previous post wealth is desired work. In order for money to serve its intended purpose it must be the best if not one of the best mediums of storing, preserving, combining, and dividing desired work i.e. wealth. This medium must also take desired work to obtain it in the first place. The reason why gold is money, is because gold possesses all five of these criteria. This is where fiat currency fails.

Since it doesn’t take desired work to create more fiat currency there is no limit on the amount that can be created at any given time. This is why no fiat currency ever lasted for more than one hundred years. Gold on the other hand has a natural built in process to regulate it if there is too much or too little gold in circulation. If there is too little gold in circulation the purchasing power of gold will go up and mining will be more profitable. This will in turn cause more gold to be mined. If there is too much gold in circulation the purchasing power will go down and mining will be less profitable; causing less gold to be mined. If there is a population boom there will be more people to do desired work, which in turn means the purchasing power of gold will go up and mining will be more profitable. If there is a population bust the opposite will occur.

This natural regulation causes the gold supply to in real time correct itself and seek an ever changing and unknowable equilibrium. This is what makes gold more sophisticated and more resilient than fiat currency and central banking. No matter what information a central bank may have it will never be able to mimic the natural regulation of the gold supply, it is just too sophisticated. These are some of the reasons why gold is, and barring an act of God will always be money.