Nick Szabo describes the astronomical origins of precious metals and then explains how they became money and treasure:
Billions of years later, naked apes evolved with hypertrophied brains and clever hands, living on a planet in this gold-dusted solar system. They dug out the gold and silver they could find and separated it from the more common earth. Other more common metals were more useful for concretely usable tools; instead they fashioned the precious metals into what looks to our eyes like jewelry. They formed these precious metals into shapes both repetitive and unique, bragged about them, displayed them, stored them as “treasure”, “wealth”, and “money”. They fashioned gold and silver into wearable objects, transferred them to each other or stole them, even injuring or killing each other in pursuit of them. They used the gold and silver to pay each other compensation for those and many other injuries. People transferred gold and silver to each other in order to satisfy important obligations as well as to obtain items of more direct and obvious use. Since the most important such obligations happened at many of the most fitness-critical junctures of life — marriage, death, injury, war — gold and silver, as treasure and as money, came to be greatly desired.
Some metal collectibles came in a wide variety of artistically skilled forms. Others came in the form of coins: labeled, mass-produced pieces of metal stamped by the blow of a hammer or cast in molds, whereby a mostly-trusted brand named their alleged value. Still others came in forms that look odd to us, resembling neither coins nor fancy jewelry, but rather utilitarian-looking pieces that manage to make precious metals ugly, and that might have been worn but that look, long before the era of factories, like they were mass produced. People around the world wore gold jewelry proudly, and globe-straddling monetary systems, on which economies were said to be based, were defined around gold and silver objects and debts denominated in weights of those metals.
We can think of collectibles as coming at us at two levels, like railroads and trains, or like pipelines and the oil they carry. At the most basic or “inner layer” is the metal itself that constitutes the substance of the collectible: occasionally iron, more typically copper or bronze for the less valuable collectibles, and the precious metals, especially gold and silver, for the more valuable money and treasure.
So important is the “lower layer” of the traditional cultural understanding of gold and silver, the natural substance itself, evaluated by its weight rather than by any value added via the craftsmanship or its form, that Europeans of earlier generations evolved a word for it: bullion. Bullion is the metal itself, considered and valued only for its substance. Jewelry, coins, and other ways of shaping precious metals are just various forms of the underlying bullion.
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In 1959 Paul Bohannan coined the phrase “spheres of exchange” to refer to moral or legal distinctions made between different types of exchange. Often one set of collectibles was expected to be used in one kind of exchange, and another distinct set in another. Since there are several important kinds of wealth transfer besides exchange, we can generalize Bohannan’s idea to the concept of spheres of transfer. In Western cultures (and many other modern cultures under their influence), for example, we make a strong distinction between money, meant for the rapid turnover of earning and spending, and heirlooms that are expected to stay in the family for generations, with feelings of guilt or shame occurring if we have to sell a family heirloom. But it’s fine to use an heirloom ring for a marriage. Similarly, we make a strong distinction between stocks and bonds on the one hand and decorative wealth objects such as jewelry and artwork on the other. So strong is our taboo that if a Western archaeologist finds a wearable (as in forager days they mostly were) collectible, it is automatically and dogmatically labeled “ornamental” or “symbolic”, with wealth-related uses seldom considered. (It also doesn’t help that shells, often scarce and precious treasures in indigenous environments, look like cheap tourist knick-knacks to modern eyes).
Legal or moral sanctions discourage transfer of objects from one sphere to another. In feudal European societies it was shameful and often even illegal to sell or mortgage land: a lord’s duty was to preserve his land and devise it intact to his eldest son. In modern Western society, weddings are one sphere of transfer (where a gift of a finger-ring is expected, as well as some household items from the guests and a feast or party thrown by the parents), whereas commerce and legal remedy in civil law is another (where payment of money is expected). Some aspects of our bodies (such as ownership of humans or payment for sex or body organs) are off limits to monetary compensation — one is expected to donate an organ, not to sell it — while many others are not (most health care, for example). All of these spheres can involve transfers of objects of substantial value, but it is disgraceful and/or illegal if they are the too obviously the wrong ones for the given sphere.
In the modern West, we consider the realm of jewelry and the realm of money to be very separate spheres of transfer. It is considered either a shameful betrayal or a grim necessity if the winner of an Olympic or Nobel Prize medal or a Super Bowl ring sells it to raise money. The finger-ring is a central feature of modern weddings, but few things would offend a typical modern bride more than being paid a bride price, she or her kin being indemnified by money as if she, as we would see it, were a prostitute on long-term contract. Meanwhile, our economists obsess over money while touching on the subject of jewelry hardly at all, and certainly not as any sort of form or variant of money. We moderns can hardly imagine confusing such seemingly very different things, and indeed the very idea offends our sensibilities. But in many non-Western and earlier Western cultures this was far from the case. For them the fundamental protocol layer, the substance itself, is cherished for its own sake, and forms the great majority of the value of the item, while its protocol layer two, the “outer layer”, the particular form it has been fashioned into, while often of considerable interest, is usually quite secondary in determining its value for purposes of the display and transfer of wealth.
This modern Western restriction involves the more culturally local aspect of gold and silver, namely the particular form it takes (jewelry vs. coin), even though these objects are made out of the same underlying substance, and traditionally were mainly prized for the content by weight of that substance. Even in our own culture we have businesses that serve to transfer gold and silver from one sphere to another. Nevertheless, economists and other academicians often act as if money and jewelry are scientifically and objectively very distinct objects, when in fact this is a cultural convention that is largely confined to the modern West.
Globe-trotting gold dealer Roy Sebag has described the differences between Asian and Western views of jewelry. As he describes it, over $2 trillion worth of jewelry is owned by about 2 billion people in India and China alone, constituting a much larger fraction of their wealth on average than in the West. The metal content of the gold jewelry constitutes the vast majority of its sales price and its assessed value as collateral, as it also does in Brazil, Russia, and most other countries outside of Western Europe, the British Commonwealth, and the United States. In the latter countries, precious metal content constitutes only a small fraction of the sales price or pawning value of jewelry. “Jewelry is money” is how Sebag summarizes his observations of the modern Asian jewelry market.
This last point that jewelry is money also comes up in Barton Biggs’ Wealth, War and Wisdom, which discusses preserving wealth through bad times, with examples of what worked or didn’t work during World War 2.