Chapter 41 - Silver and Gold

Throughout the history of civilization, copper, silver, and gold have been regularly used as money. It is the potential use of gold as money that gives gold its value. In the modern era, silver has fallen in value as it is considered to be an unlikely candidate for use as money. Silver was always a good form of money for the working people and should be considered as a candidate for money as it will make an excellent alternative currency and will maintain value when the next collapse of the bank credit system occurs. Silver is less easy than gold for the affluent to hoard and manipulate which gives it an important role in protecting the citizens in the event of a collapse of the bank credit system. In the event of a bank collapse, bank credit will cease to be useful, whilst paper money will continue. However, nothing will be as popular and reliable as a few one-ounce silver coins.

Humans became civilized in the last 1% of human existence. In our experimental stage of human civilization, governments have often printed too much currency causing rapid increases in the Money Supply. This causes unpleasant falls in the purchasing power of the currency. To combat this, money was often tied to a precious metal. This could be in a variety of forms:

  1. Stamped onto the difficult-to-expand mediums of gold, silver or copper, forming ‘fully backed’ ‘commodity money’.
  2. Certificates tied to the value of gold or silver, in the form of ‘fully backed’ ‘commodity money’. This never lasts long until someone prints more certificates than there is gold. It then becomes item 3.
  3. Certificates tied to the value of gold or silver, in the form of ‘unbacked’ ‘commodity money’. This has two types:

Not every region of the world considered gold and silver to be money. In many regions it was simply a high quality construction material. In nations that used gold or silver, the metals became coveted and obtained a mythical god-like status. In reality, gold was never an essential to operate a money system. It still is not essential.

Under this bizarre status given to gold, the backing of money with silver or gold gave greater confidence to the currency, particularly if the currency could be exchanged for the backing metal. Confidence is an important component of a money system. There is absolutely no need to have money tied to a metal, however it can make it easier to reinstate a money system after a period of financial turmoil. This is not because the backing is necessary, but because it is an easy way to fool the people that the money has stability.

1 Silver and Gold Coins as a National Currency

In days gone by, when silver and gold coins were used as money, the Money Supply failed to expand with the expansion of business and population. An almost permanent depression would take hold in the nation because the Money Supply failed to increase with demand. Multiplying the misery, the gold and silver becomes hoarded so that less and less is available in the real trading economy. The hoarding of money reduces the volume of Circulating Money even though the Money Supply remains virtually constant. The hoarding could even be cyclical. Hoarding in hard times would exaggerate the hardship. Silver (and copper) tends to get used by the poor persons and gold by the wealthy for large transactions. The poor would not get to touch a gold coin in their entire lives. A bimetallic system was common where gold and silver were both used as money. An exchange rate between the two became problematic. It was common to allow citizens to turn gold nuggets into money at a ‘mint’ for a very small fee. This allowed the expansion of the Money Supply. With a gold coin and silver coin money system, the Money Supply can only expand if: persons melt down their jewelry, metal is mined, metal is plundered, gold is exchanged for goods in overseas transactions. There is little ability to expand the money supply to match increase in business production and consumer demand. Hoarding was difficult to stop or counter.

Sometimes the metal was stored and a certificate issued and used in its place, whence the money became ‘Fully-backed Commodity Money’ rather than Coin.

2 Fully Backed Commodity Money

Gold and silver are kept in a vault and a certificate of ownership is issued for the gold. The certificate is transferred rather than the physical gold. This has the advantage of not having to carry expensive gold. The paper certificate is more convenient.

One might as well say that Fully Backed Commodity Money does not exist. Sooner or later someone issues certificates for the gold that does not exist, whence it becomes unbacked commodity money. It is difficult to expand the Money Supply when money is fully backed commodity money. Inevitably, someone hoards the money creating a lack of money that actually circulates. This is a bad money system and it tends to create a permanent depression unless adequate base metal is mined to increase the supply. Invariably some enterprising soul creates certificates that they deem are equal in value to the official commodity money. The Fully Backed Commodity Money never lasts long before it becomes Unbacked Commodity Money.

A testing question is: “Does the money get its value from the metal or does the metal get its value from the money?“ I argue that the money gets its value from its ability to buy goods. No average citizen is in the least interested in obtaining gold. The gold is irrelevant and unnecessary after the introduction date. Only rich people are going to hold gold and they will use it to the disadvantage of the poor.

Unbacked Commodity Money

Someone issues certificates for gold that does not exist. These certificates are unbacked. Although we can say that all certificates are partially backed. Conversion back to specie would be resisted at best and only some certificates could be converted. It is more likely that conversion to specie would be refused. The system is collapse prone because there is an element of fraud where citizens are led to believe that their money is convertible to gold. In dire economic conditions, the notes are not convertible. The unbacked certificates allow an expansion of the Money Supply. Although this money seems worse than a fully backed system, it is far better because the Money Supply can expand with increase in production.

Sometimes there is rigid ratio of certificates to metal and sometimes a variable ratio. Unbacked certificates allow the Money Supply to expand within certain limits. If there is a fixed ratio of certificates to metal specie, then the Money Supply will expand but will always be limited by the volume of specie backing. The Money Supply will then only expand if the volume of gold increases.

Although it is scary that private organizations should issue certificates with no backing, it makes up for the failure of government to provide sufficient credit for business expansion. Unfortunately, the bank credit starts to dominate the Money Supply and the banks use this to influence politics. The money is never going to be converted back into gold of silver. Unbacked Commodity Money is arguably a Fiat money system. However, history gives some advantages to Commodity Money.

Prices with precious metal backing tend to vary mildly but in general are very stable. This stability encouraged and enhanced international trade. Prices were possibly more stable on a worldwide basis than in the current era. The stability of prices in international markets is of great help to import and export trade businesses. The stability of the international gold money system allowed a tremendous increase in international trade.

Unbacked Commodity Money with a Fixed Reserve Ratio

Where a fixed reserve ratio is set, we again have a problem with an inflexible Money Supply. If banks are permitted to issue fake money certificates (credit) in the ratio of nine to one, then the Money Supply will rise to a fixed ceiling. If mining supplies an extra 5% per annum, the Money Supply will also swell by 5%. If 10% of the nation’s gold is lost to international trade, the Money Supply will fall by 10%. Rigid fixed reserve ratios are unhelpful. They do not allow the Money Supply to rise with increased production capacity. The gold backing is somewhat superfluous.

Unbacked Commodity Money with a Flexible Reserve Ratio

This gives a fully flexible Money Supply that can expand to match productive capacity. It is very close to a Fiat Money System. The backing by gold gives some rigidity to the exchange rates to Commodity Money Systems of other nations. Before long, there are vast quantities of certificates for ‘gold that does not exist’. The backing diminishes to the extent that it is a pointless embarrassment. The money is effectively a Fiat money system. It is a Fiat system because the government says that it is money. It might just as well be a Fiat money system.

Fiat Money System

Fiat money is money because the government says that it is money. The government says that it must be accepted for payment of debt. Thus, its backing is the goods (and services) for which it can be exchanged. Which is actually the same as gold backed money. If the certificate would only buy gold but would not buy food, you wouldn’t want the certificate. Fiat money is commonly defined or described as follows:

Fiat money originated in 11th century China. [5]

The government creates Fiat money as printed notes with images of dead presidents on them. The government decrees them to be money. If there is common acceptance by the people, then the dead president notes are money. However, before very long someone offers an alternative. A clever institution called a bank offers to store them for you. You deposit your $100 note at the teller and the teller adds 100 your savings account. However, the $100 bill walked straight out of the door with the next bank client. Your account does not contain $100 bills. Your account contains a number that informs you that the bank owes you a $100 paper note at some time in the future. Cheques were an alternative. You write $1000 on a check to the mechanic. The bank adjusts one account upward by $1000 and adjusts the other account down by 1000. The bank will also lend you money but you don’t get to see it in $100 bills. The bank has created an alternative money. It is these alternative money form that give Fiat money a bad name. The alternative is prone to collapse whilst the government Fiat money continues. The alternative is credit for money that does not exist. The credit has some advantages. It allows the money supply to expand with demand. Want money? Ask for Credit. Get credit. Money supply expands with demand due to the flexible nature of credit creation. Business needs money before it can make money. The availability of credit is essential for business.

So we have different Fiat money systems:

Fiat money with a Fixed Reserve Ratio

There was a time when banks in Australia issued credit dependent on the Cash Currency held in their vaults. This gives a rigid Money Supply that can only expand with the volume of cash notes in their vaults. If the Cash Currency increases by 5%, then the Money Supply rises by 5%. It also depends on what Cash Currency the citizenry wish to keep in their wallets. We have an inflexible Money Supply.

The Australian, D. J. Amos in a pamphlet from 1943 “Between the years 1914 and 1920, the Commonwealth Government increased the note issue from, in round figures, £9½ million to £59½ million, but all these notes did not go into permanent circulation. Sooner or later they fell into the hands of the associated banks, who imprisoned in their vaults all of the notes that were not absolutely necessary for the nation‘s “small change.” Upon this imprisoned national currency, they based an enormous increase in bank credits ― a currency which comes into existence as a debt due to the banks ― for the use of which they charged a heavy rate of interest. By 1920 the banks held nearly £32 million in Australian notes, and the following table shows clearly what had happened:” [4]

D. J. Amos 1943: “They keep them to meet any demands for cash made upon the banks, and give credit for from nine to twelve times the amount of these cash deposits.” [4]

In this case, the reserve ratio was self imposed by the banks. But the effect was that the Money Supply could only grow at the same rate at which Cash Currency notes became available. The Money Supply expands at a rate similar to the rate at which Cash Currency is created. Money Supply growth is controlled by Cash Currency. The ratio of Bank Credit to Cash Currency was of the order of ten.

Fiat money with no Reserve Ratio

The next stage is when any quantity of credit can be created. If a bank wishes to make a loan, it makes the loan. The loan is a zero sum procedure where equal positive and negatives are created. Debt and credit is created at the same time. Any quantity of Credit can be created. Under the current situation, Cash Currency is fed to the public through ATMs and tellers in the quantity desired by the public. The government does not spend Cash Currency. There is unrestrained lending. This allows for a Money Supply to freely expand with demand. As most transactions are done using Bank Credit, Reserves of bank credit can be borrowed. Reserves of Cash Currency are only a phone call away or they say the ATM is malfunctioning. It is strange to be in a country where you have to ask people which ATM is likely to have some money in it.

This brings a different problem. Money can expand without control. Money can be lent for any purpose including speculation. This leads to booms and busts. For a healthy economy, it is necessary for business to have access to credit. However, unrestrained lending for speculation causes bubbles and crashes. Restraint is needed to minimize lending for speculation. Control is needed to ensure the Money Supply does not fluctuate. We now have fluctuating Money Supply.

No Money System is Ideal

A Fiat Money system appears to come out as the best system. It is not the Fiat money that gives the bad name to Fiat money but the synthetic virtual credit that multiplies the available money then crashes that gives the Fiat money a bad name. However, government issued Fiat is not enough. It is not flexible in that the government does not lend unless it operates a public bank. Private banks are needed to provide credit for a vibrant business sector. The problem lies with the control of the Private banks.

This ‘unbacked’ money, created on a printing press or a computer enables the creator to appropriate vast quantities of unearned wealth as they obtain possession of the real assets of the nation. Although they finish up with the wealth, the citizens are encouraged to work extremely hard to pay off the debt. Nations with a high level of personal debt tend to have a lot of development.

Businesses need money before they can make money. Mohamed was a trader and he understood this and included quite complex instructions in the Quran. Mohamed wrote rules that enabled businesses to expand and trade. The availability of credit allows businesses to start and flourish. When a government creates the money and spends it into society, there is little chance for business to obtain money other than by labor. Bank creation of credit gets the money to the business without delay for a fairly minor interest charge. However, it is not without problem. A clever technique is pushed into place so that expanding business runs to banks for credit. It is called depreciation. Another clever technique occurs where expanding companies need to sell ownership, in the form of shares, to obtain the money to expand. Harsh tax arrangements and the depreciation technique enforces this procedure. The lending class then obtains ownership of companies without taking part in the stress of actually running the companies. The solution is to lower or make depreciation rates flexible. Income Tax would then be Income Tax rather than ‘profit tax’.

Do not forget that precious metals obtain most of their value because they have the potential to be used as money. If the metal became plentiful by a huge find, we would use gold for making fishing weights. If someone cast a spell on gold decreeing that gold was an “agent of evil”, we would use it to repair roofs. Paper with pictures of dead presidents is just as valuable, provided it is not in oversupply. Paper money is infinitely more flexible and does not need persons to spend their daylight hours in dark holes in the ground. The value of the paper notes derives from its potential use in your next transaction. If you can buy things with it, it has value. It is a total myth that money needs backing to have a value. The backing for money is the output of the nation. For as long as money can be changed for goods, money has value.

Gold backed currency is, in effect, a fiat currency with the face of a dead president printed on gold rather than a face on paper. A dead president on paper has the same value as a dead president on gold. Do not be deluded into thinking that gold has magical powers. Dead presidents on gold or paper are are money systems because a government decreed them to be so. Dead presidents on stamped on gold is not so easy to replicate so it tends to result in a short supply of money. Dead presidents on paper is easier to replicate so it can expand, as needed, for an expanding economy and an increasing population. Poorly managed paper is prone to oversupply and poorly managed gold is prone to hoarding causing undersupply. Well managed dead presidents on paper is potentially the better money system because it is far more flexible. It does require restraint by the managing authority. However, both dead president gold and dead president paper are always supplemented with credit created by money lenders that is always unbacked. The unbacked credit is popular with business because business needs money before business can make money. Unbacked credit is a ready source of money for business. As we must remember, money systems were invented by humans to overcome trading issues and by their nature, are a nightmare to manage. There is no way any money system can be perfect. They were a fickle failure prone invention from the first day. The unbacked credit tends to grow to exceed the genuine money by a large factor irrespective of whether the money system is gold backed or government-issued paper or bank-issued paper. The ratio of credit to genuine money was about twenty to one at the time of the collapse of the Roman Empire. (Best estimate from my researches.) Credit to money in Australia and UK is about thirty to one. In the USA it is about fifteen to one. (or thirty to one, if one only counts the paper dollars not overseas)

With a gold system in place, a government would generally restrict the volume of credit that may be created for each unit of gold. This enables the Money Supply to expand, but only up to the set limit, whence further increase in the Money Supply becomes problematic. Further expansion of the Money Supply would be useful for business. This government restriction on the issuance of credit prevents further expansion in the Money Supply. As hoarding increases, the effective component of the Money Supply, the Circulating Money, is curtailed, reducing the GDP at the same time. So linking money to gold is basically doomed to failure. Although the money manipulators, masquerading as financial wizards, might consider it to be a success until they get chased out of the country by hatchet-wielding citizenry.

If I were adrift on a boat, the first thing to go overboard would be the gold bars. When the money system collapses, I would not exchange my last sandwich for a block of gold. When money becomes worthless, nothing would be worth more than food. The food and the gun would be mightier than the gold.

A perceived advantage of gold-based money is that it has value even on the collapse of a government or bank. The UK pound still has: “Promise to pay the bearer the sum of one Pound” written on it. However, they would laugh if they were presented with a note. You will not get your gold. At best, there is only limited supplies of gold to back the money. Any attempt to convert paper certificates to gold would bankrupt and collapse the system. As with a government backed paper system, the gold system also relies on trust and stability of the government. On the collapse of a government or the collapse of a banking system, both would be rendered out of action. Both rely on the stability of the government. Whether the system is gold or paper, or whether the system is operated by private corporations or government departments, they all have the potential to collapse with the same results: gunfights in the streets over the last remaining sandwich.

Money needs to be plentiful and gold is not plentiful. Here is the major problem with the use of the precious metal as money. Its supply is limited and inflexible. Steady mining will cause a minor increase in the Money Supply whilst significant silver and gold discoveries will cause the devaluation of silver and gold and inflation of consumer prices. Gold rushes and large silver discoveries affect the economics and prosperity of citizens and nations. When Christopher Columbus discovered the New World, large quantities of gold and silver were brought back to Spain. There was a massive increase in the Money Supply in Spain which actually did Spain no good in the long run. Spain experienced rampant inflation and other problems. The gentle infusion of new money into the rest of Europe, via Spain, made a big influence to the economics of Europe that is still affecting the planet today. Spain suffered. Europe gained. The slow infusion of Spanish gold into Europe created a slowly increasing Money Supply which is ideal for national development. The gold discovery in California in 1848 made a big economic impact. The increase in the silver and gold supply created inflation due to a drop in the value of gold. An increase in the supply is not generally the problem unless it is rapid. The more typical problem is a lack of increase.

Although the textbooks try to relate the inflation to the increase in the Money Supply, scant regard is paid to the effect of hoarding. A major part of the problem with Commodity Money is the hoarding of the precious metals, or the money derived from the metal. The Money Supply may appear to be constant, or mildly increasing through mining, but increasing quantities become hoarded. Less and less of the gold circulates. Hoarded Gold increases and Circulating Gold decreases. Then, as now, hoarding of money causes large problems as it reduces the money available for wealth creating transactions. Money only does useful things when it changes hands. Hoarding is the enemy of a healthy money system. It is when money changes hands that goods and services are rendered. If money does not change hands, no wealth generation occurs. Money is not wealth, it is a freely created commodity. The movement of money generates wealth.

Money is not wealth. Money is a freely created commodity. The movement of money generates wealth.

The generation of wealth by human effort is severely hampered when people hoard money. In the limit, if all money became hoarded, circulation would cease and trade would come to a standstill. The effective Money Supply becomes zero. Hoarding is a serious curse to the efficient operation of society. This is an area of economics that needs more attention. Money Supply and Velocity of Money are very rough ways to determine how money is enabling the transactions that sustain civilization.

New Messiah says: Hoarding is a serious curse to the efficient operation of society.“Hoarding is a serious curse to the efficient operation of society.”

As I travel on this Mercedes Coach to Jakarta Airport, this 10000 rupiah note allows the building of these skyscrapers. The note is worth about one dollar and is difficult to exchange overseas. This worthless paper is not worth keeping but its movement builds, houses, and feeds a city. It really matters little whether it has value, provided it keeps moving. At the base of the picture, you can see hovels. In the poor area, the money is not moving well enough to create the facilities for a better life for the citizens. It is not a rupiah note that will lift them from poverty but the movement of the rupiah notes.

A random tall building in Jakarta. Creative Commons Attribute - Andy Chalkley.

This note is worth about one dollar. Its movement creates buildings.

10000 Rupiah

One interesting aspect is that the hoarding of gold does not create the avalanche hyperinflation potential. When gold is hoarded, it tends not to be spent in a hurry like a fiat money because it retains perceived value. Hoarding of gold damages the economy but does not create an avalanche hyperinflation effect because, in times of stress, people want more of it rather than less. In this situation, the gold is perceived as an alternative currency. Any other currency would fill the role, even foreign currency.

To minimize the chance of hyperinflation, there may be some use in legislating that gold and silver may be used as money at the official exchange rate. The Australian Silver coins from my collection that I show on this page have ‘One Dollar’ minted onto them. They are legal tender with a face value of one dollar, although the metal in them is worth around $30A. In a hyperinflationary collapse, my silver coin would still buy me $30 worth of potatoes.

Commodity Money

Commodity Money is money that is made of a commodity that has intrinsic value. Intrinsic value means that the commodity has value even when not used as money. The value of Commodity Money is derived from the commodity from which it is made. Commodity Money has been used many times during the history of civilization. The precious metals, silver, and gold are very commonly used but other items, such as copper, large stones, salt, shells, cigarettes, livestock and food items have been used. If gold had been created by god or nature in abundance, it would never have been used as money. It would have made a good roofing material. Gold, in South America existed in great quantity, yet it was not used as money. It was a high quality building material. Gold or silver have never been essential to the survival of humans. Gold and silver were never essential to the development of civilization. Civilization would have progressed quite successfully without the existence of gold. I could argue that gold is not a commodity because it has no use, but that would create too much argument. Its main use is as an alternative to paper for money! Its advantage over paper is that it cannot easily be multiplied. It is also more durable.

The bright might argue that this definition of Commodity Money is flawed. Gold has value almost exclusively because it has a history of being used as money. Thus we have a circular argument. I shall leave that one to send you insane. Gold has value because it can be used as money, thus, if it is not used as money, it has no value, as in South America.

It can be reasoned that when the value of money is linked to a commodity, it is the commodity that obtains its value from the money. Money has value because it can purchase things. Persons need not convert the money back to the base commodity to realize its value. If it can purchase goods, it has value. Its value is derived from and backed by the goods it can purchase. Following this logic, the base commodity gets its value from the money and not the other way around. So money is not backed by gold but gold is backed by money.

The Prevention of Hoarding

Money only does its job when it is performing transactions. A hoarding tax, in the form of a Demurrage Tax, will help reduce the damage done by hoarding. A typical Demurrage Tax would be a monthly 1% tax on all money holdings. Although this seems evil, it would enable a significant reduction of the ugly Income Tax. With a Demurrage Tax, money would move faster and far more wealth creating transactions would occur. People would be better off. They would have far more goods and services passing through their hands whilst the government would collect the same taxation. We would have more holidays, more services and a better lifestyle. Some of the hoarding of metallic money is done for personal saving for a rainy day. This takes the money out of wealth creating circulation. A far worse situation occurs when the gold is hoarded specifically for the purposes of manipulation of the money system. This is a common occurrence when gold is used as money. Similar happened at the time of Jesus when the temple authorities supported the payment of taxes using the silver shekel. The money changers manipulated the supply creating an extortion system where peasants from distant parts had to change their distant coins for the artificially inflated silver shekel. The money changers (Pharisees) had ‘cornered the market’ for silver shekels just as bankers have ‘cornered the market’ for gold. The bankers are following the rules of Moses whilst the citizens follow the rules of Jesus.

The hoarding of gold. Coins Financial School.

[The hoarding of gold. Coins Financial School.]

In reality, gold is not essential for the survival of the human race. We can live quite satisfactorily without it. It has a minimal commercial use. We have more gold than we have a use for. It is kept idle in vaults beneath the ground. It has been dug up just to sit in vaults beneath the ground for years on end. Historically, its limited supply has enabled the affluent to plunder the wealth of the citizens. Like sheep, we believe it to be precious. Its value is so easily manipulated allowing the well off to appropriate the real wealth and assets of the people. The citizens have never benefited from the use of gold as a money system. It is its scarcity that makes it easy to monopolize and manipulate. If for example, you and I own all the gold in the world. And you and I lend the gold out at interest. How can the borrowers pay back gold plus 10%? They cannot pay back in gold as there is no extra gold. They can, however, release their land and assets to you and I. You and I finish up owning all the assets and the poor punters still have to borrow gold from us to trade to survive. You and I have them where we want them - totally reliant on our money for their sustenance. You and I profit from our false value of gold whilst the citizens toil to live. They trade using credit borrowed from us. They could use silver or paper to trade, at no annual cost, but we do not allow that. You and I rely on their hard work to provide for our extravagances. All because we pump-up the value of an effectively useless shiny metal.

Witness the fall from grace of silver from the use as money. As soon as silver was legislated out of use, its value fell. Whilst it was used for trade at local, national, and international level, it had a high value. Gold simply is not plentiful enough to ever act as a money.

The Manipulation of Gold

This is most likely to occur when the least abundant metal is given prominence. Gold deserves the reputation for being the most easily manipulated money system. Here is Thomas Edison (1847 - 1931) writing on the subject of gold manipulation: “It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges, at the hands of men, who control the fictitious value of gold. Interest is the invention of Satan.” And here is Thomas Edison, again, with a similar rant in the New York Times in 1921: “All of the wealth in the world, according to our present standards, may be rendered worthless, by the discovery that gold can be made synthetically.” ... “That is one way to do it - make it so plentiful that it drowns its fictitious value and drowns the superstition of the people along with it.” In reality, we have more gold than we can practically use. We have so few uses for gold that it sits in vaults under the ground with no practical use. Once in a while, we get fooled into thinking that it can be used as money or backing for money. This makes an assumption that it is the gold that gives value to the money. This is not correct. Money has value because it buys things. It is the goods available for purchase that gives money its value. Money only has value whilst goods or services can be bought with it. Now I give you a fascinating piece of logic. If gold gets used as money, it is the goods that gives gold its value. If money is created that is ‘backed by gold’, the money gets its value from the goods that it will purchase and the gold gets its value from the money. It is the goods available for purchase that give both the money and the gold their value. It is not the other way round as is commonly believed. Look at the history of silver. When silver could be exchanged for goods, silver had a good value. When silver was no longer exchangeable for goods, silver lost its value.

All the gold in the world. Coins Financial School.

The reality is that any currency based on gold will not remain a currency backed by gold. Within a short period, someone will issue some form of credit equal in value to gold. They will charge interest for the use of this credit whether it is backed by gold or not. The interest is to be paid in gold. Where is the extra gold supposed to come from? There is not an extra 10% of gold available each year. Only people owning physical gold will hold debt-free money. The remaining gold will be held by those that create vast quantities of credit based on some gold holdings stored in a vault. The volume of credit for non-existent gold will soon vastly exceed the volume of gold and the volume of gold based debt will soon vastly exceed the volume of gold based credit. This graph shows 1000 gold coins used as a base (orange) from which gold certificates are issued for gold that does not exist. (green) Gold certificates are lent into society creating an equal quantity of debt. (red) The debt magnifies with interest to become unpayable. The debt allows the lenders to asset strip the gullible citizens and any gullible government. Once the asset stripping reaches an extreme where more cannot be extracted, the system collapses impoverishing the poor whilst the lenders retain all real assets of the nation. In reality, no one uses gold as money, it is just held by the money men to create credit certificates which promise to pay in gold but never do so.

In this next graph, I show you 1000 units of genuine gold (orange) acting as a reserve base for 2500 units of paper certificates (green) representing gold. At the start of the issue, there is a jump from 1000 units of money to 2500 units of money. This is a rapid and large expansion of the Money Supply. One would expect inflation and perhaps an era of speculation on the inflated assets. Besides the stupidity of allowing such a rapid expansion of the Money Supply, money in the form of credit was suddenly available and brought with it debt equal in value to the credit created. The debt magnifies with interest whilst the credit does not. This led to the ‘roaring twenties’. Businesses that need money before they can make money could start and expand. The limit of 40% reserve backing put a ceiling on the available credit. The credit expansion would eventually come to an end. For various reasons, the wheels fell off in 1929 as dealt with in a chapter on the Great Depression. Part of the cause was that trade imbalances caused outflows of gold which reduced the Money Supply of a nation. An increase in hoarding was also an influence. The rigid adherence to a gold based mentality made it difficult to increase the Circulating Money to escape the depression.

1000 gold coins units become the base for gold unit credit which creates debt repayable in gold. Creative Commons Attribute - Andy Chalkley.

The following graph shows a gold base where the credit is allowed to grow annually. The benefit is the constantly expanding Money Supply. The negative is the exponentially expanding debt.

1000 gold coins units become the base for gold unit credit which creates debt repayable in gold. Creative Commons Attribute - Andy Chalkley.

And some words from a favorite pastor, Sheldon Emry

“Many who recognize the evil of usury (interest) still assume that money should be composed of valuable metal and redeemable by some such precious material as gold and silver. As we have seen, however, it is the stability of the Government and the correct volume of currency available which gives value to money, not some arbitrary amount of metal.”

“The control of the gold supply of the world, by the Bankers, has been used by them to fluctuate and to control the currencies of all the world’s governments, not for the good of the People, but for the enrichment of the Bankers.”

“Yet, men are still deceived by the artificial price placed on gold and silver by the Bankers.”

“America did have an early experience with gold. A small quantity was found at Jamestown, shortly after the colony began, and Captain John Smith wrote later that the men neglected their work to search for gold, and the colony almost perished of famine the next winter. God seems to have blessed America with a LACK of gold, and its scarcity has had little effect on our production of food and real wealth. Christian teachings and God’s blessings have provided American prosperity, not gold. Russia and India have large per capita supplies of gold, again providing nothing toward national prosperity.”

This artificial price is the exchange rate of silver for goods. The exchange rate can be altered and great wealth accumulated.

Commodity Money systems are often helpful after the collapse of a poorly managed and abused fiat money system. It is not that the issue of fiat money was at fault but the vast quantities of substitute money that was issued as an alternative to the government authorized fiat money. It is the substitute credit that gives the Fiat money a bad name. A silver system or a silver and gold system is far less prone to manipulation than a gold system. We had a silver and gold system for many years. This was commonly called Bimetallism. Bimetallism is more successful than Monometallism. Monometallism is usually gold based. Bimetallism has its problems but it is less prone to abuse by those capable of monopolizing the supply of precious metal. Because Bimetallism is more difficult to manipulate, it is promoted as being unworkable.

During the 1800s, silver was the predominant money form. It was the money of the people. It was significantly more plentiful than gold. Gold tended to be owned by the affluent and the elite. Mining of silver brought a steady supply into circulation. Poor people tend not to hoard. Silver was in the possession of the people, rather than bankers and the affluent. Poor people often never get to touch gold coins. Both silver and gold were used worldwide as currency. They were commonly inter-convertible. Gold could be converted to silver or dollars or otherwise. This was called Bimetallism.


Bimetallism is a money system where the value of the monetary unit is defined as being equal to a fixed amount of silver and/or gold and the ratio of silver to gold is also fixed. Key characteristics of the system include:

Interestingly, the gold or the silver is not legal tender until it is minted into coins with the appropriate stamping. Gold and silver tend only to have steady value when used as Commodity Money. Much of the perceived value of gold or silver is due to the possibility that it might be used as money and its history as money.

When bimetallism is operating, problems occur when different countries have slightly different ratios between silver and gold. Typically the ratio between silver and gold was sixteen to one, meaning that one ounce of gold is deemed to be exactly equivalent to sixteen ounces of silver. The ratio between silver and gold at present is about fifty to one. Silver is estimated to exist in the earth’s crust at a ratio of about nineteen to one of gold. (by weight) [1]

Long Term Gold Silver Ratio 1300-2016 Creative Commons Attribute - Andy Chalkley.


PeriodVariationChangePeriod in years
3200BC - 1860BC2.5 to 20.818.35060
1860AD to 2015AD12 to 10088.0155

Source: Foundation for the Study of Cycles, SLG - World Gold Charts

The above graph and table show the remarkably stable ratio between gold and silver over most of recorded history until the manipulations of the last century and a half. The ratio of silver to gold was particularly stable during the periods where Bimetallism was operating. The ratio even remained stable during the massive gold discoveries of the 1850s. A mechanism, called arbitrage, encouraged a balance between the two. If silver became more valuable than gold, then silver coins would get melted down and sold or exchanged for alternative money in gold. This arbitrage made the ratio self-correcting. There is no reason why there should not be a multi-metallic standard bringing other metals, such as platinum, into the system. Those that gain from the hoarding of gold, argue strongly against Bimetallism with claims that Bimetallism is unstable. Be careful that the instability is not purposely created to win their argument. Banks are in a position to scuttle the economy of any government that doesn’t play ball.

Although Bimetallism functioned satisfactorily through the 1800s, the banks in the US, London, and elsewhere lobbied for silver to be removed as a form of money. This would change the money system to monometallism with gold as the sole base. Delegates at an 1867 Paris international monetary conference voted for the gold standard. The move to gold-based monometallism caused a problem for those who had borrowed from banks. They were now required to pay in gold whilst their savings were in silver. The gold price rose and the silver price fell. The bankers did remarkably well whilst the citizens suffered. In the USA, the Civil War caused all metal to disappear from circulation and the country was on an irredeemable paper system from 1861 to 1879. Paper systems are generally better in times of war because the Money Supply can be dramatically increased and the cost offset by inflation. The elite get their war finance and the citizens lose in every direction including lives, assets, and money. In 1873, new coinage laws dropped the silver dollar. This was commonly referred to as the “Crime of ’73”. The gold dollar became the monetary unit. It is represented in this image from a popular book of the time, Coin’s Financial School 1894 by William Hope Harvey:

Bimetallism and Monometallism. Creative Commons Attribute - Andy Chalkley.

The “Crime of ’73” was a tactical move by the banks which drastically reduced the Money Supply and led to the ‘Panic of 1893’, a serious depression. Prices of goods fell and farmers and small business owners felt a lot of pain. There was uproar at the action of the banks and their influence over the politics. Banks made a great profit from the move to a money system based on gold that they had monopolized. Jesus had a similar problem with the moneychangers that had profited from a monopolization of the silver shekel. He got nailed to a cross of wood. Some described the “Crime of ’73.” as being “nailed to a cross of gold”. The history of these monetary machinations is fascinating and would take another book or two. The books would have a flavor that depended on whether they were written by bankers or those who had suffered. Although there is no reason to go back to a gold standard, there is also no reason why silver should be erased from the mix. In times of economic turmoil, it would be extremely useful that silver coins should be legal tender. Their value would be the current value of the ounce of silver.

Silver coins from my collection. Creative Commons Attribute - Andy Chalkley.

In times of economic turmoil, such as severe economic depressions or hyperinflation, people first turn away from Bank Credit (Substitute Money), converting their Bank Credit into cash (government real money called “Fiat Money”). Then they sometimes turn to Commodity Money or foreign currency instead of the money authorized by their governments. You may wish to consider this yourself. Whichever way you wish to argue, there is always some chance that the banking system will collapse. Even if you believe there is only one in a billion chance that it will happen, you should consider investing in some small-denomination silver and gold coins, and a few other items to be used for barter. Silver one-ounce coins might be the best. These coins look pretty and are a joy to own. They might feed your family in the event of a currency collapse. Bicycles and canned food would also be wise. With the level of debt to money commonly exceeding 2:1 and credit to government paper exceeding 20:1, a collapse is not beyond the imagination. Some people think that even something minor, such as the failure of the electricity grid, could spark riots within three days. A banking collapse, or even a banking run, would deny you access your bank accounts. You would have to survive on whatever cash is left in your wallet. If your employer does not pay in cash, you could be destitute within a week. Your employer may not even be able to pay you, because your employer is not getting paid by clients. You will make me feel a little better, if you keep a little cash handy, rather than giving all your money to a bank. Never keep all your money in the bank. The cash may get you through the first stage of a collapse, and the silver coins and the cans of beans may get you through the next stage. --- After that, you have to pray or own a gun.

Australia’s Gold

For some strange reason, Australia’s gold is stored in the vaults of the Bank of England. I was born in England, and my advice is: “Don’t trust them. Bring it back to Australia.”.

Gold Price. Creative Commons Attribute - Andy Chalkley.
The Gold Standard

There are elements calling for a return to a gold standard. The usual logic is that our Fiat Money system is failing. The Fiat money is the paper money created by the treasury or the central bank. This is a perfectly viable system. It is not the Fiat money that gives the Fiat money a bad name. It is the vast quantities of credit created by banks that gives Fiat money a bad name. When a money system collapses, it is not the Fiat component that collapses, it is the bank credit system that collapses. The Fiat money system continues as people and government trade in Cash Currency (Fiat money). The Fiat money is trusted. It is the bank system that breeds credit that collapses. If one then moves to a gold backed system with bank credit issued against gold, the bank credit will eventually collapse giving the gold backed system a bad name. It is the bank credit that is the flaw in the system, not the gold, silver or paper. The problem is not the lack of backing by precious metal but the dramatic way the Money Supply is increased by a banking system creating vast quantities of a substitute money. The banking system has created between twenty to thirty times as much bank-credit as there is government Cash Currency. This ‘Credit’ is not backed by anything. We could live with this privately created credit, if it was not for the vast quantities of magnifying debt that it creates. The solution is not a gold backed Commodity Money, the solution involves repairing the damage done to the Fiat money system by the issuance of unbacked bank-credit. This unbacked bank-credit is lent into circulation into asset inflating areas rather than into vital circulation. This ‘repair’ is commonly called ‘Return to Sovereign Money’. The ‘Positive Money’ organization runs the argument that: “All money should be issued by the government”. All of these groups with names like: ‘Sovereign Money’ and ‘Positive Money’ need your support.

Proponents for a gold system are arguing for ‘unbacked commodity money’ with large quantities of credit issued for gold that does not exist. The fiat money system in use has vast quantities of credit issued for government paper that was never created. At least with the fiat system, the gradual inflation will bring previous debts into insignificance. Whatever base is used, vast quantities of credit will be issued for a base that does not exist. At least with the fiat system, the Money Supply can slowly increase even if the value of money slowly erodes. The slow erosion is important.

Gold Mining

Another problem with metal standards is that much human effort is used to dig gold and silver to simply store it in vaults. This is a waste of human effort as it does not lead to improved living conditions. Thousands of persons dig gold out of a hole so that it can be shipped to the other side of the world to be buried in another hole. It is an inefficient use of resources to mine gold and put it in vaults. Even the holding of gold in a vault incurs storage charges. In a mining area, the digging of gold becomes more important than growing food. Food production declines. Many gold mines use nasty chemicals that poison the local land permanently.


In 1913, in a sneaky move, the US Government effectively authorized the Federal Reserve Bank as a central bank. This enabled the government to borrow on demand. With this authority, the Federal Reserve banking system could manufacture money or what became a substitute for money, by the stroke of a pen. Until this time, money had been 100% backed by gold. From 1913, the credit was 40% backed by gold. This dramatically increased the Money Supply and caused significant inflation. It was partly responsible for the period of speculative frenzy which led to the 1929 stock market crash.

USA Money Supply around 1913. Creative Commons by Andy Chalkley

The wheels fell off when people tried to exchange their paper money for gold in 1933. To curb the demand and cover for the truth about the lack of gold to back the private organization’s gold backed money, the US government turned the crime on the citizens by making it a criminal offence for private citizens to own gold and demanding that the gold be turned over to a private corporation, known as the Federal Reserve Bank. A gold buy-back occurred where the private corporation known as the Federal Reserve Bank purchased the gold owned by private citizens at $20.67. As one might expect, the privately owned corporation soon pegged the price at $35 which was effectively a devaluation of the paper dollar notes and somewhat disrespectful to those private citizens who had their gold compulsorily purchased at $20.67 by the private corporation.

At Bretton Woods in 1944, the US agreed that central banks could redeem their holdings of Federal Reserve dollars for gold at the rate one ounce of gold to $35US. The old trick of banking is to avoid doing so as there is never enough gold to do so. There was not enough gold to back the dollars returning from overseas. To cover the situation, in 1971, the USA stopped the impossible offer of convertibility by stating that, the US was ‘closing the gold window’.

Thomas Edison

“It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one fattens the usurers and the other helps the people. If the currency issued by the Government was no good, then the bonds would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold.”

The International Money System

Gold has always played an important role in the international money system. Under a classical gold standard approach to money, a nation’s money was tied to gold or gold and silver. It was fairly easy to transpose this to an international level. International settlements were made in gold. When a country had a trade deficit, their gold holding would fall which would decrease the issue of money in the nation. The ensuing fall in the Money Supply would depress prices. The country’s exports would be easier to export and imports would be more expensive. In theory, the system was self-correcting. This is an ugly way of controlling output and inputs for businesses within a nation. Besides the unpleasant nature of the Money Supply contractions, the prices of inputs to production and output prices varied in a volatile manner. Under this classic gold standard, exchange rates between nations are fixed as they are tied to gold. By the late 19th Century, many of the world’s currencies were fixed to gold under this ‘Gold Standard’. The classical ‘Gold Standard’ existed from the 1870s to the outbreak of the First World War in 1914. Central banks managed the adjustment process to cover for a balance of payments imbalance, although they often failed to comply with requirements. There were various tricks the central banks could employ to game the system. In general, the central banks cooperated to ensure that the system worked. By 1900, almost all countries were on a gold standard. This collapsed at the beginning of World War One in 1914. After World War One, attempts were made to reinstate the gold standard but these attempts ended with the Great Depression.

The complete nature is that money is what the government deems it to be. Whatever form it takes, it needs to be protected from abuse, oversupply, and undersupply. Money systems are prone to disaster when they are poorly managed. All money systems are prone to abuse including gold based systems. All systems are open to a multiplication of debt by interest into an impossible situation where the debt exceeds the volume of money to cover the debts. The common abuse is to issue real or virtual certificates, that are substitutes for the official Money Supply, and are not backed by official money, gold or silver. These certificates are issued for money that does not exist. Money is simply whatever the government deems to be legal money. Gold will never make a money system because there will never be sufficient gold. Nor is it capable of expansion to suit the ongoing needs of trade. Where gold is used as a money system, shortly, the system cheats by issuing unbacked certificates. Terms are developed to cover for the arrangement such as ‘fractional reserve’ and a whole outfit of intelligentsia to cover for the cheat arrangement calling themselves economists.

If you are going to implement a gold backed currency system. Do not expect it to remain a gold backed system. The volume of genuine gold backed money will be augmented by certificates that claim to be equal to a unit of gold backed money. This will escalate until the myth becomes too obvious. The gold backing will be removed and the system will become a Fiat system with a constantly increasing volume of substitute certificates acting as money. The volume of debt will rise until interest becomes unpayable, whence the system collapses.

The history of gold is that about two-thirds of it was stored in ingot form in vaults of banks. This gold did not circulate. It was used as a reserve for the currency of the nation. Central banks were required to keep a fixed ratio of gold as a reserve for the credit that they issued. The reserve arrangements varied from in each country. In the USA, the requirement was to have a 40% reserve in gold. [3] This sound fine but it has drawbacks. The big drawback is that the Money Supply of the nation is rigidly tied to the volume of gold. The central banks were allowed to create credit out of thin air provided it did not exceed a rigid ceiling. Governments had to limit their spending. In times of stress, they could not manipulate the value of the currency. Nor could they expand the Money Supply. A Money Supply needs to expand is sympathy with the increase in trade and the size of the population. There is no strict rule. With the rigid adherence to gold, it was not possible to increase the Money Supply. Inflation was not an issue. The currency was stable. Many countries had their currency bound to the value of gold. If a country had gold moved to another country due to trade, its gold supply would fall with a magnified effect on the Money Supply. Rigid adherence to a gold standard limits the ability to increase the Money Supply. Although it may be possible to maintain the magnitude of the Money Supply it may not be possible to control what portion of the Money Supply actually circulates. When hoarding occurs, the circulating component falls even if the Money Supply remains constant.

The gold standard is exceedingly good at preventing inflation by limiting the expansion of the Money Supply but it is shockingly bad at maintaining the volume of the circulating component of the Money Supply. Hoarding simply destroys the volume of Circulating Money and the GDP with it.

Gold is not a vital ingredient for human existence nor is it necessary for an operational civilized society. Society is quite capable of everyday operations without the shiny yellow metal. Gold has very practical uses. It has a set of interesting characteristics. It is yellow. It is soft and malleable. It does not corrode. It retains a shine. It is not a plentiful material. It has a high density. Throughout written history, it has been a highly desired commodity. It has been a symbol of wealth and has regularly been used as an official or unofficial form of money. Beyond its financial desirability, it has also been bestowed with the mystical and mythological powers. In many ways, gold is a relic of the past. It serves no essential purpose in the modern world. It is not an essential component of any financial arrangement.

Its most common use has almost always as a medium to enrich those who hoard it and manipulate its value. It is given a pretend ‘value’ so that real wealth can be removed from those that do productive work. Even in out modern world, there are great numbers of persons who still drool over gold. It only has value because someone else also wants this soft yellow metal of little practical use. Citizens still perceive gold to have a value as if it had some essential irreplaceable use to humans. In reality, we can live quite happily into the future even if all gold disappeared into space overnight.

Humans have been induced during our operation in civilization to believe that gold is a magical essential commodity. There is no logic behind this, just belief. Certain persons operating in the finance industry then convince governments and individuals that it has a high value due to its nature when in reality, its value is a connived fiction. These same individuals can then appropriate vast quantities of unearned wealth by manipulating its value.

It also allows very distant trade between nations on different money systems, providing they both believe in the mythical value gold. Gold is not very different from worthless paper and so-called "financial instruments" that pass as money in the Wall Street financial casino. Gold, paper, digital are make-believe items that have no intrinsic value, unlike real commodities such as, food, crops, iron, tin, coal, timber, oil, copper and other items that have a real practical use.

Gold only has value as a medium of exchange if it is forced into this role by law or agreement. Witness the fall in the value of silver when it was freed from its role as money. Money is only money if it is deemed to be money. Paper is money if it has official printing until it is deemed out of date or out of service or removed as legal tender. Gold or silver are only money whilst the are deemed to be so. At the end of Bimetallism (USA 1853), silver was deemed not to be money and lost its value. A stroke of a pen and it was no more.

The Pen is more powerful. Coins Financial School.

[The pen more powerful than the sword. Coins Financial School.]

The world should rid itself of its obsession with gold. Perhaps I shall buy it all and store it and refuse it to anyone. That would be the end of gold.

If gold is to be used as money, its exchange should be set by law or agreement and not left subject to manipulation in markets influenced by gamblers masquerading as a finance industry. Similar also happens in the Foreign Exchange Market. 80% of trade on the Forex has nothing to do with the exchange of goods between countries. This 80% is speculative persons gambling against the exchange rates of nations, not for the benefit of any nation but for personal gain in the sport of ‘making money from money’, the evil the next messiah will denounce.

New Messiah says: The making of ‘money from money’ is an evil practice.“The making of ‘money from money’ is an evil practice.”

Speculative trading should be banned entirely. Anyone engaging in the practice should be deemed as a financial terrorist and treated as such. Some persons will have so much money they can game the market in their favor. This should be a treasonable offense. No person should be allowed to hold this volume of money. Just like the sign in the airport about carrying more than say $10000 in Cash Currency. To take a hard line would be to state that: anyone holding more than say $1000 000 of a national currency in an account should be asked to explain why. If the money is not for the purpose of trade in goods, it should be frozen or confiscated.

Any issued money or commodity backed money is prone to fluctuate significantly if markets are manipulated, so any issued money is prone to instability if it is allowed to be traded openly on a market available to those that wish to ‘make money from money’. These persons are adept at ‘cornering the market’.

When the US Dollar was linked to gold, the interdependence of every currency was managed by the effective link to gold. When the link to gold through the US Dollar was broken the national currencies simply became linked to each other. Banks can create any quantity of credit without any backing but trust. The same credit can effectively be redeemed for US Gold. There was no way that the US was going to hold its gold.

Inflation has continued due to constant increases in the volume of bank credit in the world. There is no way gold can be used as a backing for national currencies when there are ever increasing volumes of bank credit issued around the world, all technically redeemable for US Gold. There is a comparatively fixed volume of gold in the world. The world Money Supply grows at a rate that exceeds the mining of fresh gold. Any reliance on gold will lead to heartache one way or another.

Graph of World Money Supply and Debt. Creative Commons Attribute - Andy Chalkley.
The Value of Gold

The value of gold is interesting. It is assumed that money can obtain value because of a backing by gold. But this ignores why money has value. When we hold a bucket of money, we are not concerned whether it can buy gold. The citizen could not care whether gold costs $1 per ounce or $1 000 000 per ounce. The citizen would not buy the gold either way. It is useless to him whether it is worth $1 or $1 000 000 or even $1000 000 000. It is useless because he can’t do anything with it and it won’t do anything for him. So the value of gold is not intrinsic. Gold obtains its value because it can be converted to money, not the other way round. I bought some gold one once coins for novelty, but I would not have bought them if I could not convert them back to money, at a time in the future. Money has value to the citizen because the citizen can buy stuff, not because it is convertible to gold. If money will not buy stuff, it has no value. So the backing for money is the GDP. Following the logic trail, gold gets its value from money and money gets its value from its ability to purchase a share of the products and services available.

Gold gets its value from money and money gets its value from its ability to purchase a share of the GDP.

Gold only has value if it is deemed to be convertible to money. Thus the value of gold has to be maintained in much the same way that the value of diamonds is maintained. Gold holding entities do not release vast volumes of gold for fear of gold losing value. Diamonds are released at a rate that maintains their price. Thus gold is an ideal medium for a networked group to maintain a gold price. They must ensure that gold is released and purchased to maintain the price. By judicious buying and selling, the price can be manipulated.

There was one enterprising group that set up a money system in the 1930s that was not backed by gold. It was backed by the goods and services of the nation. They recognized that the money had value if it could purchase goods. Here is a simple statement:

“We were not foolish enough to try to make a currency [backed by] gold of which we had none, but for every mark that was issued we required the equivalent of a mark’s worth of work done or goods produced ... we laugh at the time our national financiers held the view that the value of a currency is regulated by the gold and securities lying in the vaults of a state bank.” [2]

Read this again. They knew it was not necessary to back money with gold. The money was backed by the goods available for purchase. This group was following the methods of Abraham Lincoln, who financed the American Civil War with government-issued paper money, popularly known as “Greenbacks”. The writer was Adolf Hitler in 1937. It took a war to stop him. Such was the strength of this money system, that it took a coalition of many countries to flatten this nation.

Only those with hoards of gold are concerned that they can turn their gold into money. If all gold holders tried to turn their gold into money in a hurry, gold would rapidly lose value.If they only allow small amounts to be turned into money at a time, gold can maintain a value. This manipulation of the supply of gold available for purchase enables the manipulators to gain power and wealth. Even economists think that gold has value. It is goods and services that have value. Linking to some other item such as time, work, precious metal can be useful to get a money system up and running. After the initial start, the relationship to the starting medium is irrelevant. After this point, it is necessary to ensure that the supply of tokens matches the availability of goods and services. The money system falters if there are insufficient tokens. The money system fails as soon as tokens are incapable of purchasing appropriate quantities of goods and services. This would occur if excessive tokens were to be created or excessive hoarded tokens attempted to buy the goods and services available. Never forget that:

It is the ability of tokens to be exchanged for goods and services that gives value to tokens.