The "other" reason why Gold (and Silver) is money

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What makes Gold & Silver suitable as money?
Lets start with the standard reasons:

1. Durable – Gold & Silver are “Noble metals” they do not corrode, or change over time.

2. Portable – Gold & Silver have a high amount of 'worth' relative to their weight and size (This is why for example oil is not very practical as money)

3. Divisible – Gold & Silver can be separated or recombined without affecting intrinsic value. (This is why Diamonds for example are not practical as money)

4. Fungible – In layman terms this means one piece of pure Gold / Silver is like another, it is interchangeable and replaceable. (Unlike for example Diamonds that could easily be valued differently by weight, where as Gold is Gold.

5. Intrinsic Value – Gold & Silver are limited in supply unlike paper money, they are rare “Precious metals” that took time and effort to dig out of the ground and refine, they are also useful in many applications, so unlike paper money that is a promise to pay, Gold & Silver are payment (The “Bill” part of “dollar bill” is not there by accident)

The above five reasons were the bases of Gold & Silver as money for thousands of years and these points were reasoned out by the likes of Aristotle (384-322 BC) teacher of Alexander the Great. Gold is actually mentioned well before Aristotle in the first Book of the Bible here is one example: Genesis 24:35.
The Hebrew word for money is derived from Silver, see strongs 3701: From kacaph; silver (from its pale color); by implication, money -- money, price, silver(-ling).
Also in Italian, Spanish and French the words for 'money' and 'silver' can be interchanged, apparently this is true for some fifty languages.

It is only in the last 50 or so years that Gold has been abandoned as money (It is proving to be a failed short term experiment)

Now for the “other” less known reason why both Gold & Silver are money:

6. Gold & Silver pay no interest – To many people his might sound counterintuitive until an understanding is gained of why paper (Fiat) money pays interest. The reality is paper money pays interest because intrinsically it is worthless! Why would you store something that is worthless if it did not pay interest? While Gold & Silver don’t pay interest because they have intrinsic value, they require effort to produce and are limited in supply, they are useful in their own right.

Put another way - If you receive interest payments on money you hold, you receive those payments because it is actually someone’s debt or obligation being held by you! While Gold & Silver are real money rather than debt, they are payment rather than a promise to pay.

This is a very important point to understand, and can even explain why all paper fiat currencies fail eventually. See my article “fiat debt money how it drives countries and lives” for my reasoning here.

Because paper money pays interest it is mathematically set-up for failure due to its inherent compounding usury payments. Gold & Silver are honest weights & measures, while paper fiat is a dishonest scale and measurement with a rubber-band!

Lets face it, man cannot be trusted with a printing press, it’s just too tempting to print more money. There is always a “good” reason like giving the masses what they ask for without increasing taxes, (leading to high inflation) or going to war when there is no money to do so. While on the other hand Gold & Silver increase through mining by an average of 2% per year, this matches population growth quite well over time. Using Gold & Silver as money is one of the best ways to keep governments honest and their power in check.

Note to subscribers, this article will end up in a new section called “getting started - precious metals” on goldmeasures.com

Yours truly,

Andrew



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