Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Why is Gold a Better Form of Money Then Paper?

  by    0   3

You’ve probably heard people say gold is real money, but what does that actually mean? Is there some fundamental difference between gold and the green pieces of paper stuffed in your wallet that we call money? As investment guru Doug Casey put it, “The dollar is, technically, a currency. A currency is a government substitute for money. But gold is money.” So, what is money? Simply put, it is a medium of exchange and a store of value.

Almost anything can be used as money, and, in fact, many things have served the purpose. Cattle, salt, cigarettes, and even seashells have been used as money throughout history. But as Casey points out, some things work better  others. You can’t just exchange things nobody wants; there are other practical considerations. Over the last millennium, precious metals – primarily gold and silver – have evolved into the best form of money in existence.

“These are the reasons why gold is the best money. It’s not a gold bug religion, nor a barbaric superstition. It’s simply common sense. Gold is particularly good for use as money, just as aluminum is particularly good for making aircraft, steel is good for the structures of buildings, uranium is good for fueling nuclear power plants, and paper is good for making books not money. If you try to make airplanes out of lead, or money out of paper, you’re in for a crash.”

Aristotle listed five properties that make something suitable for use as money. Casey outlines them in his article:

Durability

You don’t want your money to fall apart, or dissolve when it gets wet. It has to last over time.

Divisibility

You need to be able to split it into smaller increments without it losing value. That’s why a painting doesn’t make good money. Half a Van Gogh isn’t worth a whole lot!

Convenience

At one time cattle were used as money. But it’s not very convenient to haul cows with you everywhere. Good money packs high value into a small package and is easily portable.

Consistency

Money should be easily recognizable, with each piece identical to the next. This property is sometimes referred to as fungibility.

Intrinsically Valuable

Good money should be something a lot of people want or can use. In other words, it has a useful purpose and value based on something other than its role as money.

When you look over this list of Aristotle’s criteria, it becomes clear why gold and silver have taken on the role of money for hundreds of year. Both precious metals are durable, divisible, convenient, consistent, and posses intrinsic value.

It also becomes clear why paper really doesn’t make good money. It meets the first four criteria, but it fails utterly at number five. Paper has no intrinsic value. Gold can be made into beautiful jewelry, and it is increasingly being used in environmental, scientific and healthcare applications. Dollar bills aren’t good for anything  – unless you just happen to like pictures of dead presidents.

We can also add a sixth property to Aristotle’s list: scarcity. Money should be rare and hard to fine. You can’t use gravel for money because you can pick it up everywhere. Everybody could get as much as they want. Gravel money makes for a fun fantasy, but it certainly wouldn’t work in practice, despite the Federal Reserve’s attempts to make the dollar just as plentiful through money printing.

Herein lies one of the biggest problems with paper money. Yes, it’s scarce, but that scarcity is artificially created. The government can print more paper money on a whim, as much as it wants, whenever it wants. From the government’s perspective, paper money is just like gravel. But gold is real money.
 

Get Peter Schiff’s latest gold market analysis click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Silver Joins Gold at the Party

Silver has finally joined gold at the party. In the last week, the price of the white metal has moved up from $15.51 to $17.35. (as I type this on Tuesday morning May 19) That’s an 11.9% increase. With the jump in the price of silver, the silver-gold ratio has dropped from over 113-1 earlier […]

READ MORE →

QE Infinity: Money Supply Grew at Record Rate in April

The money supply growth rate surged to an all-time high in April as the Federal Reserve created cash at an unprecedented rate through quantitative easing and other money-creating monetary policies. According to Ryan McMaken at the Mises Institute, the only time the Fed has come close to this level of money creation was in the […]

READ MORE →

Staggering April Budget Deficit Just the Tip of the Iceberg

The April federal budget deficit came in at a staggering $738 billion as government coronavirus stimulus began flowing through the pipelines and revenue dipped due to the government lockdowns.

READ MORE →

ETF Gold Holdings Set Yet Another Record

Gold continued to flow into gold-backed ETFs, setting another all-time record in April. Globally, funds added another 170 tons of gold last month amounting to $3.9 billion, according to the latest data from the World Golf Council. It was the sixth straight month of net inflows.

READ MORE →

Household Debt Was $1.6 Trillion Higher Than ’08 Peak Before COVID-19

Total household debt was over $1.6 trillion higher than the previous peak in 2008 even before the full force of the coronavirus pandemic government shutdowns hit the economy. Household debt increased by $155 billion (1.1%) in Q1 to a total of $14.3 trillion, according to the latest data released by the New York Fed. The […]

READ MORE →

Comments are closed.

Call Now