Honest Money: A Simple Solution
Copyright © January 3, 2011 by Robert Wayne Atkins, P.E.
All Rights Reserved.
A society or nation needs something that will serve the following two purposes:
The item that is chosen should have the following characteristics:
- It should be acceptable to merchants in exchange for goods and services.
- It should be capable of saving or storing wealth so that it can be enjoyed at some future time.
Both gold and silver meet all the above criteria. Gold and silver can be assayed and their purity and weight can be scientifically determined. And both gold and silver have an extremely wide variety of other practical real world uses whereas most other precious metals do not. Therefore gold and silver are the most practical choices for use as honest money.
- It should be something that is universally accepted as being of value.
- It should be something that cannot be easily duplicated (or counterfeited).
- It should be easy to convert into smaller or larger quantities.
- It should be reasonably durable and it should not be subject to rot, rust, or decay.
- It should have an extremely wide variety of other practical uses in addition to serving as a medium of exchange and as a store of wealth.
Precious jewels would not meet the above criteria because they cannot be refined into a pure state. The value of a precious jewel is determined by the quality of the jewel, the size of the jewel, the color of the jewel, the number of inclusions inside the jewel, and a variety of other factors. This means it would not be possible to establish a consistent rate of exchange using precious jewels, such as one new house = fifty emeralds (or fifty rubies). The value of each emerald (or ruby) would be different because it would be either smaller or bigger than the other emeralds and each emerald would be of a different quality. Therefore, even though precious jewels do have real value, precious jewels could not be used as the basis for honest money.
The major problems that nations have had in the past with gold and silver are as follows:
- The nation was poor and it did not have enough of these metals to meet the needs of its citizens.
- With the passage of time the market value of gold and silver changed in relationship to each other. This made it impossible to maintain a fixed exchange rate between the gold and silver coins minted by the same nation.
- The total weight of gold and silver necessary to pay for an expensive item can be huge.
- It is not convenient or safe to carry large amounts of silver or gold around with you because you could be easily robbed. (Note: You could also be easily robbed if you were carrying cash paper money.)
- Gold and silver cannot be instantly created by a government or a bank and therefore governments and banks despise gold and silver because they can't just create it whenever they want some more of it. Gold and silver forces a government and a bank to adhere to reasonable spending budgets just like a merchant or a common person.
One Simple Practical Worldwide Solution for Honest Money
- All nations worldwide that wish to engage in international trade should issue gold and silver coins. The government of each nation should be held accountable for the purity of the gold and silver coins that it mints.
- If a nation does not wish to issue gold and silver coins then it does not have to. However, that nation will not be allowed to buy goods and services from other nations using money that its government simply prints. Instead that nation and all of its merchants and all of its citizens will need to pay for the goods and services they wish to buy from other nations with items of true value, such as wheat, or rice, or oil, or the gold coins minted by another nation.
- All silver and gold coins worldwide should contain a fixed amount of silver or gold plus some additional metals to increase the hardness of the coins to make them last longer in normal circulation. If the coins are made of pure silver or pure gold then the coins will begin to quickly wear out and this will be noticed as the images on the surfaces of the coins become fainter and fainter which will make it much more difficult to recognize which nation originally issued the coin.
- Even though the gold or silver coins will contain additional metals and therefore the coins will not be 100% or 99.9% pure coins, each coin should still contain a specified amount of a precious metal, such as the following:
- 1 troy ounce of precious metal
- 1/2 troy ounce of precious metal
- 1/4 troy ounce of precious metal
- 1/10 troy ounce of precious metal
- 1/20 troy ounce of precious metal
The above would be the weights of the precious metal contained in the coins. Since the coins would also need to contain some other metals to increase the hardness of the coins in order to make them more durable, the coins themselves would weigh more than the above. But the actual net weight of gold or silver in each coin should be equal to the above. This means the true value of each coin would be the same worldwide. It would not make any difference if a coin was minted in Asia, or Europe, or Canada because the coin itself would have an agreed upon amount of either gold or silver in the coin. This would completely eliminate the problems with exchange rates worldwide and merchants could engage in international trade without having to worry about which nation's money was being used to negotiate these transactions.
- There should be no permanent fixed exchange rate between silver and gold (or any other precious metal). The price of silver and gold should be allowed to fluctuate on the world market the same way all other prices fluctuate, such as the price of lumber, the price of rice, and the price of medicine. This means the value of silver and gold coins will be constantly changing in relation to one other. Therefore many prices would need to be quoted in terms of both types of coins, such as:
- February Prices:
- The cost of one-thousand standard pounds of wheat = 50.75 troy ounces of silver.
- The cost of one-thousand standard pounds of wheat = 1.10 troy ounces of gold.
- April Prices:
- The cost of one-thousand standard pounds of wheat = 51.25 troy ounces of silver.
- The cost of one-thousand standard pounds of wheat = 1.05 troy ounces of gold.
- Although the above prices are changing as a result of time, they are not changing as a result of inflation. They are changing as the supply and demand for specific commodities change. For example, if there is a worldwide surplus crop of wheat then the price of wheat worldwide will naturally decline. On the other hand, if there is a worldwide shortage of wheat then the price of wheat will naturally increase. This is not inflation. This is the natural result of changing market conditions and the natural adjustment of prices to those changing market conditions. These same forces will impact the relative price of gold and silver so the price of gold and silver will also be constantly changing in relationship to one another. But this also is not inflation. It is simply the result of changes in the supply and demand for silver and gold.
- Inflation occurs when a government or a bank simply creates and then spends money it doesnít have. This means there will be more money in circulation but there will still be the same number of goods and services. Therefore the price of those goods and services will increase. This means the money we ordinary citizens have will now be worth less than it was before. This is inflation and it should not be permitted. Inflation is possible whenever paper money is used instead of honest money.
What Needs to be Changed?
Governments and banks should not be allowed to issue money they donít have. In other words, a government should not be allowed to simply print more money, and a bank should not be allowed to loan the same money to more than one person. This is inflationary and it steals the value of money from the ordinary citizen.
The system of honest money that is used should be independent of the honesty and integrity of any group of men or women. It should not matter if a person is honest or not honest. The type of money used should work exactly the same whether or not a specific individual, or merchant, or bank manager, or government official is a good person or a bad person. The reason is because nobody lives forever and therefore we will be dealing with an entirely different group of people at some time in the future. Our system of money should work regardless of the personal integrity of one specific group of people. Our system of money should be something that our children, our grandchildren, and all our future descendants can depend on as being honest and true.
If a decision is made to use something besides honest money then a very small elite group of individuals will eventually take advantage of that system and 99.999% of the rest of the people in the world will be cheated by those individuals and there will be absolutely nothing that we will be able to do about it.
The first step in the destruction of a nationís honest money is the use of paper money that is theoretically backed by some percentage of silver or gold, such as 15% or 47% or 93%. The government claims that it has a certain amount of silver and gold in its secure vaults and then it prints paper money that is partially backed by that silver and gold. The currency of that nation now rests on the integrity of a few government leaders and as those government leaders change so do the ethics of each new government official. For example, if a nationís currency is originally 58% backed by precious metals then that government will eventually begin to print more money (even though it solemnly promised it would never do that) and the percentage of precious metal to paper money will be gradually reduced to 41% and then to 23% and then to 9% and then to 0.0035%. At that point the nationís citizens will have once again been robbed and their currency will now be worth the price of the raw paper on which their money is printed. And just like Germany after the First World War the common people will begin to actually burn their paper money as fuel in their fireplaces because that money is now worth nothing more than common ordinary paper and everybody in the entire world knows it.
Footnote: A Brief Explanation of Troy Weights and Standard Weights
A troy ounce is approximately 9.7% heavier than a standard ounce.
However, a troy pound is approximately 17.7% lighter than a standard pound.
The reason is because there are 12 troy ounces per troy pound but there are 16 standard ounces per standard pound.
This makes it more challenging for us average people to determine the true value of large weights of silver or gold.
Perhaps the following conversion table will help you determine the actual weight of silver or gold in grains, grams, standard ounces and pounds, and troy ounces and pounds.
|Grains||Grams||Standard Ounces||Troy Ounces||Troy Pounds||Standard Pounds|
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