Why did humans use gold as money for so long when fiat currency is objectively better?

Written by AndyChalkley

Andy Chalkley

Gold is very good at kickstarting a failed money system. This is partly to do with its limited supply, partly to do with its shiny appearance, and mainly to do with its history of use as money. Fiat systems require a ‘trust’ in the issuing authority which may be lacking after a monetary collapse. Besides trust, a level of ‘force’ must be used to impose the money unit. Silver is also good but got ‘pushed aside’ in the last century, but would still be my choice as kick-starter after our next failed money system. Where gold and silver fail as a money system is that they tend to get hoarded, and so the volume of coin actually circulating tends to fall creating a permanent recession. The money supply needs to increase slowly to compensate for increase in available production, increased population, and to compensate for the volume hoarded. Low velocity is an indication of excessive hoarding. Our current common velocity of one indicates a horrendous hoarding. Excessive hoarding is like the snow on a mountain side ready to avalanche into hyperinflation if it all gets spent rapidly.

Often when gold is used, usurers issue certificates to the value of a unit of gold and so we get a fiat system masquerading as a gold system. These certificates have become virtual and just recorded as entries in a register.

It is possibly not a bad idea to let gold act as an equivalent to virtual and paper money, but it does tend to allow the usurers to commandeer the gold into their possession. Even so, it is not the gold that backs money, it is the GDP. If you can buy stuff, money has value. If you cannot buy ‘stuff’, the money has no value. It is not the money that has value but the items that we can purchase with it. The GDP is the backing for the money. That is how the government enforces the money. The money is ‘legal tender’, in other words, you can buy stuff with it.

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