One of the most common questions asked when it comes to the monetary role of gold and silver is, “Why aren’t gold and silver still in circulation?”
It’s an important question. If gold and silver really are the world’s money because of the unavoidable impact of monetary economics, then why aren’t we using gold and silver at the grocery store?
The answer leads us to some pretty powerful realizations about the government, inflation by design, and one of the laws of monetary economics.
Inflation is a “Problem” by Design
Throughout history, kings and politicians have repeatedly realized that manipulating the money supply is a key way to increase one’s power over one’s subjects. Through the power of inflation, one can shift wealth away from others towards oneself without going through the hassle of raising tax rates.
Once we understand that inflation is a weapon used by politicians against others, only then are we able to understand inflation and monetary reality at all.
The great economist Ludwig von Mises wrote:
“The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.”
Inflation is an intentional policy. It’s a strategy by the political class to acquire more wealth and power. Inflation almost always requires government intervention in the monetary markets.
Now that we see this, we’re better equipped to look at our government’s policy towards money in order to see what their agenda just might be.
The Dollar’s “Value” is the Force of Law
Dollars are not redeemable for gold, silver, or anything else. Their value simply comes from the law.
Legal tender laws are essentially the part of the law where a nation’s currency is made “legal tender”. This means that the currency can be used to pay off any debts, taxes, or dues — no questions asked, and no exceptions.
If someone is in debt, then this means that they can pay off the debt with dollars. It’s illegal to ignore this law. It would be illegal for a credit card company to reject dollars and ask for gold, for example.
This is the simplest reason gold and silver aren’t used as currency right now. One of the most important uses of money (being used as the final extinguisher of debt) is completely illegal.
The Foundation for Economic Education published an important blog post on this topic. Here’s a choice quote:
“Legal tender imposes on traders the requirement to accept the note at its face value. Therein lies the rub. If the government had to pay off a million-dollar debt but could not stomach a rise in taxation, its central bank could print the necessary legal tender bill, and the newly printed note could discharge the government’s debt. Such an action costs the government nothing but the paper and ink the note is printed on, and traders cannot discount the bill except through increasing their prices.”
Legal tender laws give government the power to print pieces of paper that can’t be turned down for paying off debts. The paper isn’t backed by gold or silver — it’s backed by power.
This changes everything, as we’ll discuss below.
The Dollar Drops as Metals Rise
Still, gold and silver can be paid for services. There’s nothing stopping someone from accepting gold for a car or trading silver for gold. Both are perfectly legal and yet fairly rare. Why?
The short answer is that gold and silver go up in value over time and the dollar goes down in value over time, so most people would prefer to hold on to gold and silver and trade away the dollar. They know this will make them money over time.
Saving gold and silver is profitable and the market realizes this. That’s why people rarely save dollars and instead spend them or invest them in other assets. It just makes financial sense.
This is why gold and silver aren’t circulating right now like paper dollars. Both businessmen and consumers know that the paper money isn’t worth as much, so they’d much rather spend their paper currency and save their metallic money.
This teaches us an important lesson: the entire market still greatly values gold and silver, and if it wasn’t for the law, the dollar would dramatically fall.
Politicians are playing, once again, a dangerous game of trying to cheat the laws of economics. This is a game they can’t play for long, as we’ve discussed before.
What This Means for Us
Those of us who understand what’s happening are using this knowledge to build wealth: we’re saving our gold and silver and spending our dollars.
We’re saving precious metals because we understand that they’re the “good” money in a world flooded by artificial credit and “bad” money.
The long-term result of this strategy has always been the same. Steady, stable profits over time. No law can change this. No politician can stop economics from having its final revenge.
Like always, the final lesson of monetary economics is that we should be saving gold and silver, the world’s only real money.
gresham’s law, monetary economics