Why gold is money and why money matters

October 24 2019

Back in 1971, Nixon severed the last of the ties of gold to the after that fiat currencies. After the Nixon shock, the dollar stopped being as good as gold. And because all other currencies were backed by the dollar, it being the world reserve currency, that decision did not only create a fiat dollar but in effect made all currencies worthless. Worthless in the sense that where they used to represent value, they now represent the promise of value and therefore are debt!

What is money

Money is something really special. And although we tend to revere to currencies like dollars, euro’s, yen and yuan as money, they are far from what actually IS money. Money actually has characteristics that can be defined and it might be good to go through a couple of the characteristics of what we call money.

The characteristics of real money

  • Money must be durable. You can throw a bill into the ocean and it will quickly lose all value as it dissolves. Do the same to gold and even a thousand years later it will not change.

  • Money must be divisible. A 100 dollar bill is worth a 100 dollars only in when it is complete. You cannot tear a part of the bill and pay for something. Gold and silver however can be used in grams, ounces, pounds, kilograms, tons and it will never lose its value.

  • Money must be limited in quantity. One of the main reasons currencies fail is the ability to cheaply produce more of them. Currencies have been and are printed into existence and (mis)used by governments for thousands of years. Increasing the quantity of currency always creates inflation or the devaluation of the supply of currency already in existence. Gold and silver are very rare and have finite supplies. You can’t print gold!

  • Money must have a history and universal acceptance. Currencies work in countries, on continents during specific periods of time. A euro was unacceptable in 2001 and a Dutch gulden became unacceptable after the introduction of the euro in. You can not pay with a dollar in Europe and with a euro in the United States. All currencies are bound by geographic location and a specific point in time. The average currency lifespan is 27 years making them very risky. Gold and silver are universally accepted and known and have been used for thousands of years by all peoples and all countries on all continents.

  • Money must be consistent. Not only do currencies lose value overtime due to inflation. All currencies that have ever existed have eventually reverted to their intrinsic value of zero. Gold and silver however have been valuable for five thousand years and continue to do be.

  • Money must have intrinsic value. Currencies never cost more than the paper they are printed on or the metal they are formed from. And currencies represent a promise of future value or debt. Gold and silver represent intrinsic value due to the effort it takes to produce them and the applications they can be used for.

Why does real money matter?

Money is used as a means of exchanging value. That starts with payment for labour but applies to almost every transaction in life. Everybody who works does this for a form of payment. The reason we accept payment in currency is because we trust that when we exchange our currency for things or services that we need or want, we receive value equal to or in excess of the labour we put into earning that currency. As soon as trust in a currency or the return of investment if labour into value wains, we change our behaviour. When we distrust the means of exchange a complete failure of system is inevitable. That is why money matters and why gold and silver will always carry value.

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