In whatever form it is used, money in its original and still important function is to pay for human labor and to trade for goods. It also has to be in small enough denominations to cover at least the smallest hourly wage (or tips).
Sadly, gold and silver coins are no longer being considered as substitute for paper money or to serve as backing for paper money.
Billionaires may have lost their appetite for gold since now they have cybercurrency to gamble with. However, rest assured, our government will never allow Bitcoin to become legal tender.
Money creation and distribution is and will always be the exclusive privilege of the state, for no other reason than to manipulate its value for international commerce needs. The tempting ability of the state to create too much credit is widely practiced, except too much credit debases the value of paper money as one finds out when going to the grocery store.
The intrinsic value of currency in the Middle Ages held up quite well since it was based on gold or silver coins whose supply was controlled by private bankers such as the Medicis in Italy and the Fuggers in Germany. During this period, there were only two major periods of inflation.
One, after the Black Death created severe labor shortages and, secondly when Emperor Charles V flooded the country with silver coins from a newly discovered silver mine in Bohemia.
This system finally collapsed once the state invented paper money and then printed and distributed it starting in the 17th century.
You might think that paper money was invented in Europe; not true, it was in invented in China during the Tang Dynasty (618-927) AD.
The temptation to create too much paper money led to the fall of Louis XVI in France.
The British in the early 19th century invented bonds to finance their overseas expansions. They issued bonds (called Gilders because they were backed by gold) and were sold to investors due to the promise of interest.
This example prodded other countries to follow suit by printing their own bonds so that they could finance their many wars. The problem arises when states collapse.
There are still people holding Russian bonds dating from before 1914 in hope for redemption. Prior to the 20th century, most industrial nations too had their currency backed by gold.
This lasted until 1930 with the worldwide economic collapse. There was not sufficient industrial productivity to sustain the value of currencies, leading to an abandonment of the gold standard.
In the U.S., the government went so far as to confiscate people's private gold in order to maintain the gold standard which, after the Vietnam War was finally abandoned by President Richard Nixon.
Where does it leave us now with many trillions of dollars in unpaid credit? Let’s hope people will buy sufficient new government bonds in order to pay the mounting interest.
Redemption of all those bonds is everybody’s guess. It really does not happen, since the government simply pays the redemption of an old bond by issuing a new bond. All this is handled by major banks.
Issuing bonds by governments in itself isn’t bad since a portion of the proceeds increases production, as long as there is sufficient growth in national wealth (GDP) in order to pay the going interests. If such expected growth in wealth does not materialize (such as in a depression), then one has inflation which automatically writes off a portion of government’s debt.
The good news is, the Fed has deceased the money supply, hence inflation is down to 5.4% in August.
Dr. Hans Baumann, a former Corporate Vice President and founder of his company, is a well known inventor, economist, and author having published books on scientific, economic, and historical subjects. Read Dr. Hans Baumann's Reports — More Here.
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