Paper Money Collapse

Flexible Money

People take for granted that the pieces of paper in their wallets or the digits they see online in their bank accounts represent their actual money and that the money has value. Yet paper or electronic money without the backing of a material like gold or silver has no intrinsic worth except that which governments and societies assign to it. As a result, governments can adjust an economy’s supply of paper money to suit their own needs; in this sense, money is “elastic.” But gold-backed currency – that is, “commodity money” – retains its value independent of people’s trust or beliefs, and the state cannot manipulate its supply; a nation either has gold or does not.

In modern economies where money and information fly around the world at lightning speeds, the idea of gold-backed currencies seems anachronistic and even impossible. Yet credit cards, paper currency and electronic funds transfers are simply “methods of payment technology” that easily could exist in a commodity-backed money system, just as trade IOUs and banknotes did back when gold anchored most currencies. The fixed, relatively limited supply of gold is adequate to support growing economies...