History of US Money by Michael Browning
I read that article. "History of US Money by Michael Browning", and I would like to briefly say that he is missing many points.
A gold-back currency can cause more problems than a currency based on other things.
The gold has not been historically or universally the foundation of the world’s currencies.
People’s obession of gold
and their value assigned to this precious metal comes from perception, and that’s it for the most part.
It is this
obession of gold lead the rise and fall of nations, rulers, and civilizations. The erratic supply of gold makes it a poor
choice for backing a currency, especially in modern society where billions of trade happens each day. It is the logistical
and financial limitation of gold that propelled people in Europe to invent bill of exchange, cheques, etc.
A currency backed by gold in trade may just as well be backed by salt. To quote Page 74 from Peter Bernstein’s "The Power of Gold: The history of an obession", "Salt was so precious to the gold digger (in Africa) that many of them would trade their gold only in return for salt. In many transactions, an ounce of gold exchanged for an ounce of salt. Bonvill asserts that “Salt was so infinitely the more important [compared to gold], that it is no overstatement to say that gold was valued by the Sudanese almost entirely for its purchasing power in salt… It was the basis of their domestic, as it was their foreign, trade, neither of which can be comprehended without an understanding of how starved they were of this essential to the well-being of man.”
I highly recommend this book.
On the positive side, while housing price, health care and energy have experienced inflation in the last decade, many things have experienced deflation such as technology products, basic consumer goods, telecommunication, etc. The average phone call is much cheaper than what it used to be. Nowadays you can call Germany free from the US using many providers, or as low as 1 or 2 cents a minute. In 1994 it cost $2 a minute. A 15" LCD monitor cost under $100 today, where as it cost $1000 ten years ago. Computers with the power of workstation that cost $200000 ten years ago now can be purchased for under $800. The same applies to just about every information technology products.
"Salt was so
precious to the gold digger (in Africa) that many of them would trade their gold only in
return for salt. In many transactions, an ounce of gold exchanged for an ounce
Over many gold rushes, generally
it was not the gold miners that make the good money, it was the people
who supplied them.
I have seen the modern
equivalent, a fried who was a small time miner with gold fever going backwards while his
suppliers made profits.
These gold price distortions
are local and temporary.
I can’t tell whether tsneds is asserting his opinion or Browning’s opinions. Whatever, they show little understanding for man’s obssession for gold. Rather, it is an obsession for debt backed paper money that now wrecking international trade.
Generally, anything can be used as money as long as it is commonly acceptable as a medium of exchange. Native cultures were known to use cocoa beans. Under emergency circumstances, a pack of cigarettes, a can of tuna fish and yes, even salt, can serve as money. But the aforementioned items have serious shortcomings for long term stability: food is perishable and salt is plentiful. Metals like gold and silver don’t have those shortcomings. They don’t corrode, so their weight is stable. They are hard to mine, so the supply is stable. They are soft, so they are easy to coin. Gold and silver have a long history as universally accepted money for reason of trust. Fiat paper money has the fatal weakness of its supply being subject to the whims of its sponsor. No government yet has been able to resist the temptation of making too much of it.
The Babylonians of biblical days were the first to institute metallic money, the shekel. The shekel was unit of weight measured on a balance scale. Gold, silver and copper were the metals of choice then and up the modern age. The invention of coinage is attributed to King Gyges of Lydia in Asia Minor, about 700 BCE. The coins had a premeasured weight, making them an instant favorite. The kings of Lydia became very wealthy until the Persians under Cyrus and Darius swallowed them up. The Romans used copper, silver and gold coins over the centuries, but they could not resist the temptation of shrinking the coins. Emperor Constantine of Christian fame introduced the solidus when he founded the Byzantine Empire. It was never altered for 800 years, making it commercial favorite everywhere. With a stable currency and an excellent geographical location, Constantinople had a prosperous economy for over a thousand years until 1453 when it was conquered by the Ottoman Turks.
In a modern world economy, money doesn’t have to be based exclusively on gold and silver. But the other metals that complement gold and silver must be reasonably rare, inert and hard to mine. Platinum, palladium, rhodium, tantalum and chromium are potential candidates. A viable monatery standard must be based on a unit of weight of the metal it represents. Without a metal standard, any monetary standard will be doomed to fail again. The temptation to make money out of paper is just too great.