Gold

Identifiable. 3 out of 5. A lot of people know more or less what gold looks like and how hard it is (hence the old trick of biting it to test its hardness). However, many people would not be willing to accept a payment in gold without an expert on hand to verify its authenticity.

Transferable. 3 out of 5. Gold is compact and can be carried, though the amount of value that can be conveyed this way is limited. It cannot be sent electronically, and it cannot be sent securely over long distances without great expense for shipping and security.

Durable. 5 out of 5. Gold is inert and can survive physical and chemical abuse far better than most materials.

Divisible. 2 out of 5. It’s not easy to carve up a block of gold, and it’s especially tough to divide it into pieces of value small enough that they are useful for everyday purchases. Even gold coins aren’t usually small-enough in denomination to be useful for buying a sandwich.

Dense. 4 out of 5. A 400-ounce gold bar is worth over half a million dollars assuming $1,300 per ounce of gold. At 25 pounds apiece, two bars can store a million dollars in 50 pounds of weight in a space that is smaller than a suitcase full of hundred-dollar bills but also heavier.

Scarce. 4 out of 5. There is ongoing gold mining, but that adds less than 2% to world supply annually.

Fungible. 3 out of 5. Chemically, pure gold is fully fungible. Unfortunately, it’s difficult to tell on the spot how pure it is, which makes it difficult to substitute gold in different physical forms.

Short-Term Stable Value. 3 out of 5. Gold’s price is somewhat volatile in the short term and frequently sees weekly movements in its purchasing power of several percentage points.

Long-Term Stable Value. 5 out of 5. Gold seems to have kept its purchasing power over centuries and even millennia. One popular metric is that an ounce of gold (today around $1,300) has purchased a man’s suit over the ages, whether at Brooks Brothers in New York today or at a toga retailer in Rome two thousand years ago.⁷⁵

Unseizable. 2 out of 5. Gold can be hidden, but protecting it reliably from seizure requires taking significant security measures. Good luck getting it past the border guard if you have to flee the country.

Censorship-Resistant. 3 out of 5. If someone wants to transact in gold, it’s hard to stop them, but they have to do it physically and in person.

Private. 3 out of 5. As with dollars, gold transactions via intermediaries, such as a gold fund or a gold vault provider, are not private, since the government can easily monitor such payments. Like dollar bills, gold coins can be traded privately unless they are surveilled, tracked, or marked. However, unmarked gold bullion traded physically is harder to track.

Required for Some Important Purpose. 3 out of 5. People the world over demand it, though such demand varies by country and often other substances (diamonds, silver) can substitute. Governments hold significant reserves, but only a fraction of the value of the total supply.

Backed by a Powerful Agent. 3 out of 5. Central banks buy/own/support gold in significant amounts, albeit less than when there was an official monetary gold standard.

Gold Total Score: 46 points out of a possible 70. Not as good as dollars, but better in certain categories and overall not bad.

The foregoing analysis is undoubtedly flawed and simplistic, not least because of the following limitations:

(A) The 0–5 scale has only six possible levels and therefore lacks precision.

(B) Reasonable people can disagree on the right score for each factor.

(C) Each factor is given equal weight, but some factors are likely more important than others, although this may depend on the user’s preferences (more on that later).

Nevertheless, this analysis highlights the important characteristics of good money, and it illustrates that some forms of money score better on certain characteristics than others. Moreover, since different people have different preferences, different forms of money can appeal to different people.

Just over a decade ago, a new form of money that is based on open-source software and native to the Internet was introduced to the world. In the next chapter we will see how it compares to the dollar and gold with respect to the 14 Characteristics of Good Money. But first we will augment our monetary toolset with a few more useful frameworks for analysis.