This chapter focuses on the role of institutions in shaping economic efficiency and development throughout European history. It argues that institutional innovations have been central to Europe’s long-term economic progress, even though inefficient institutions have sometimes persisted due to vested interests. We first discuss what is considered a development-friendly institutional setup, and then analyse relevant historical institutions such as serfdom, open fields, guilds, cooperatives, the modern business firm and socialist central planning to understand their specific (in)efficiency contributions and distributional consequences.

This chapter analyses the relationship between population growth and resource constraints in European history, focusing on the Malthusian theory, which posits that population growth leads to stagnation due to finite resources. The chapter challenges this view by examining how technological innovations, agricultural improvements and changes in fertility strategies affected population dynamics. It explores how societies adapted to resource constraints and avoided the Malthusian trap through mechanisms such as the demographic transition. The chapter also uses case studies such as the decline of the Roman Empire to discuss the relevance of simple models for interpreting historical processes and presents nuanced insights into the complex interplay between population, resources and economic development.

INTRODUCTION

One of the largest manufacturers of gold jewellery in the world, India's jewellery manufacturing sector remains firmly rooted in the informal economy – also known as the unorganised sector. The gems and jewellery sector which contributes an estimated 7 per cent to India's gross domestic product (GDP) is dominated by small, ‘hole in the wall’ workshops, where artisans practise their craft without any formal contract. Meanwhile, the jewellery retailing industry is becoming increasingly organised – registered and state-regulated – in the post-liberalisation period, especially with the entry of corporate retailers. While there is no official estimate of the number of jewellery manufacturers in India, the industry estimates that the country is home to between 20,000 and 30,000 manufacturing units (WGC 2022). In 2022, the World Gold Council (WGC) notes that while in 2017, less than 10 per cent of units operated as organised, large-scale facilities, now around 15–20 per cent of units operate in this manner (WGC 2022). The WGC attributes this rapid transformation in status to three distinct factors: rapid capitalisation, an increase in exports and state-incentivising regulatory measures. However, contradictory processes appear to be operating here.

On 23 May 1944, Lord Keynes asked at the House of Lords, ‘Was it not I, when many of today's iconoclasts were still worshippers of the cult, who wrote that “Gold is a barbarous relic”?’ He was referring to his first book, Indian Currency and Finance, published before he joined the Royal Commission on Indian Currency and Finance, headed by Austen Chamberlain, where he wrote: ‘A preference for a tangible gold currency is no longer more than a relic of a time when Governments were less trustworthy….’ (Keynes 1913: 73).

Keynes's observation reminds us of an era when national currencies required the backing of gold to gain trust and legitimacy. Even after currencies ceased to be convertible to gold, the latter has remained a store of value to which one turned in times of financial distress. The centrality of gold to Indian social, cultural and religious life goes back centuries, as the quote from the ancient Rig Veda (1500–1200 BCE) shows. Similarly, Kautilya's description in Arthashastra (c. 321–296 BCE) of the types of theft and fraud to guard against while dealing with gold underlines its connection with crime as well as its importance to Indian economy and trade (Kangle 1969: Parts 2.12–2.14, pp. 105–121). Over a century after Keynes called it a barbarous relic, gold remains of great cultural significance – as this volume shows. The links of gold with crime, especially in money laundering, have also endured.

Hailed as a model state for its performance on the human development index, the state of Kerala somewhat paradoxically enjoys a robust reputation for its extreme affinity for gold jewellery. As an object of prestation and counterprestation from birth to death, gold is ubiquitous and indispensable in Malayali life. We focus on the role of gold as an object of gendered consumption among the Muslims of the Malabar region in Kerala. Gold is worn and displayed on the body as a form of adornment; it creates a distinct public presence, including status claims, notions of self and modes of identification. Moreover, gold has long been regarded as a safe form of investment, even safer than liquid cash and modern financial instruments. We show how, among the Muslims of Malabar, gold holds a special economic significance where religious censure confines their participation in modern banking and financial institutions.

In this context, gold jewellery binds together what are typically viewed as separate fields: the realms of investment and economic security, on the one hand, and aesthetics, family linkages, concepts of self and modes of belonging, on the other (Moors 1994).

In India, the gold and jewellery market, already valued at USD 44 billion in 2023, is expected to streak ahead at a faster pace than other sectors of the economy to reach USD 134 billion by 2030 (Maximise Market Research 2024). As this volume shows, the gold sector remains largely dominated by small and medium-sized businesses. This is as true of trade as it is of industrial production.

Although it is difficult to estimate the number of jewel and gold traders in India due to the sector's fragmented and unregistered nature, trade groups estimate there to be 500,000–600,000 units, of which, according to the Goods and Services Tax (GST) Council, 86,000 are registered for tax purposes (WGC 2022). But in many cases in the gold economy, production and trade are hard to distinguish in practice: gold traders may themselves be producers or directly in control of production, or they may commission production from others, and the gold sector remains dominated by small, independent shops and workshops. Many of the latter are ‘unorganised’ and not registered with the state, though they may be known to local business associations. In West Bengal alone, for instance, a knowledgeable member of the Swarna Shilpo Bachao Committee, a local trade association for goldsmiths and gold jewellery merchants, reported that the association had approximately 10,000 members. Gold ornament trading is going through rapid differentiation, however. A World Gold Council (WGC) study published in 2022 showed that while in 2017 fewer than 10 per cent of retail stores operated as registered, organised and large-scale facilities, by 2022 they had grown rapidly to 15–20 per cent (WGC 2022).

Over the millennia, gold has been an instrument of choice that has served as money or as an anchor for money. In the twentieth century, confidence placed in physical gold was gradually replaced by confidence in abstract constructs such as institutions (for example, central banks), rules (for example, IMF Articles of Agreement) and global regimes (for example, exchange rate regimes to maintain stability) as the idea of money transited from the real to the symbolic and the imaginary.

Contemporary money is essentially an abstract unit of account. It is typically issued as a central bank liability (Kumhof et al. 2020) and derives its value from government fiat (authoritative order). Today, money is once again being reimagined. Technology and private initiatives are contesting the idea of money as a central bank liability. Geopolitics is eroding the certainties of a rule-based order, impacting established institutions and regimes that govern international monetary relations. Furthermore, the overhang of excess liquidity arising from easy monetary policies initiated during the global financial crisis and pursued during the Covid pandemic portends inflationary pressures. In this context, gold is once again assuming a new significance.

In this chapter we seek to examine the Indian evidence for the increased attraction for gold from the perspective of the central bank and of individuals as an alternative to fiat money. To do so, we attempt a long view of gold in India's quest for monetary stability, delving into her monetary history. We try to locate the Indian experience in the global story of monetary gold and its evolving significance in a country that is home to the largest private holdings of gold in the world, estimated variously at about 23,000–25,000 tonnes (Government of India 2018: 84; WGC 2016b). We also focus on the use of gold as an anchor for money in India.