The Problems With Precious Metals as Money
Executive Summary
- History has shown there to be many problems with using precious metals as money.
- The reality is that precious metals are only in very rare circumstances actually money.
Introduction
Precious metals are often lauded for their historical use as money. However, there are normally large gaps in the explanation of the historical use of precious metals which leads to large oversimplification.
Gold as Money
In the case of gold, even when gold was used as money, paper slips or receipts were still used to represent the gold instead of directly trading the gold. This is nothing more than gold-backed paper money, which is not using gold as money.
When the US Stopped Internal Convertibility of the Dollar into Gold
Up until FDR stopped the practice the US dollar was redeemable for gold, so this is essentially a similar system. Even in countries with very high inflation, gold is still very rarely used as the direct medium of exchange.
This is further elaborated in the following quotation.
“To be workable and efficient, the monetary system needs to be supplemented with checkbook money and electronic money. But that means exposing it to the same tampering and manipulation to which the current Fiat system is subject. There was also the problem discussed earlier of keeping gold coins in circulation. If the coins are stamped with a value that is the actual market value of the metal of the time that coin is produced. They are liable to get smelted for their metal as soon as the market value goes up. Coins are therefore usually issued with a face value or nominal value that is far in excess of their intrinsic worth. But that destroys a very thing the coins are supposed to be good for preserving value. The more serious downside of using gold as a medium of exchange is that productivity becomes tied to the availability of the metal. When gold flooded the market after a major gold discovery in the 19th century, there was plenty of money to hire workers so production and employment went up. When gold was scarce as when the bankers raise interest rates and called in loans. There was insufficient money to hire workers so production and employment went down. But what did the availability of gold have to do with the ability of farmers to farm, of miners to mine, and builders to build? Not much.”
Instead countries begin to use the currencies from other countries that are stable. The logistics problems with gold are explained in the following quotation.
“There are major practical problems involved in using gold as a medium of exchange. If only gold is used pennies, nickels and dimes will be so small, they’ll get lost in your wallet, while large purchases such as houses will have to be transacted and gold bars too heavy to carry in a suitcase.”
Source: The Web of Debt
https://www.amazon.com/Web-Debt-Shocking-Truth-System/dp/0983330859
Why Private Banking Has Not Focused on Silver as Money
As for silver, due to its far greater abundance, silver is less controllable by private banking interests, which is why it has been the populist metal versus gold, its lower value per ounce means that its weight must be much higher. For private banking interests, a good money is one they can buy up, monopolize and control, and the scarcity of gold makes this metal the preferred metal for private bankers.