Why do governments hate gold as money?

To answer the question, we need to first start with how gold becomes money.

All trade between humans starts out as barter trade. Trading for goods and services. A dozen eggs for a bucket of milk. Two bags of corn for a bag of wheat. It’s impossible to keep this barter trade up even in a small village without the use of something as money.

The next step in the establishment of money is to find goods which can serve as money. Eggs or milk won’t do as these goods will spoil. So, it has to be a good which will not spoil even if stored for long periods of time.

The good to be used as money also needs to be durable. A fragile good will not survive the constant bartering. I use the word “good” on purpose as a good money will always be a good with an intrinsic value, but I get ahead of the process of establishing money.

It should be clear that the obvious choice will be a metal. It is a logical and rational process.

Characteristics which now become important are divisibility, the relationship between weight and value, and the scarcity of the good.

Divisibility is important for the money to function as a barter in smaller transactions. Weight is important as humans need to carry it around to trade. Scarcity is important to prevent an oversupply of “money”.

The logical and rational choices which humans made historically were to use abundant lower value metals such as copper units (eventually coins) for low value transactions, but copper clearly would not serve for higher value transactions due to its weight and relative abundance. Again, rational choices were to use silver for mid-value transactions and gold for high value transactions. A relative and movable (floating) exchange rate would be established through trade between copper, silver and gold. Prices of goods will be referenced to the price of money goods for trade. Importantly, all three monies are goods, each in their own right, each with an intrinsic value. Nobody could create money without actually producing a good of intrinsic value.

Divisibility remains a problem with metals unless standard units of measure are agreed, hence the need for coin. A “coin” is simply a standardized quantity of metal of standard weight and purity. Kings and Emperors always passed laws, reserving the right to establish coin, but always defrauded their populations over time on the purity of the coins. This process became well known as coin debasement.

The roman denarius coin (210BC) was established as 98% pure silver.

“It was nearly pure silver, 95–98%, and had a fixed weight and value in relationship to the rest of the Roman monetary system. Over the next 270 years, the silver content of the denarius declined gradually and then precipitously to about 2%.”  The decline and fall of the roman denarius, Alan W. Pense, Science Direct, Materials Characterization, Volume 29, Issue 2, September 1992, Pages 213-222

The debasement of silver coin, the mid value money, by generally adding increasing copper content was the most prevalent money fraud committed by monarchs. It was always done with the assistance and participation of the merchant class.

Gold being used as the highest value money did not need to be coined for general purpose. Some gold coins were made but these were mostly used only for very large transactions and for hoarding wealth. Recipients of gold as payment always had the means of establishing the weight and purity of the gold and never trusted the payee to deliver weight and purity unless verified. One king would never accept the coin of another king, knowing full well their own habits of defrauding on purity. King to King payments took place in gold by weight and purity.

Kings and Emperors had limited ability to defraud holders of gold but in time institutions called depositories developed where wealthy gold holders could deposit their gold for safe custody. Human history of money, more often than not, is wrapped in endless scams and schemes, fraud and theft. Depositories issued receipts for the gold and in time holders would swap gold by swapping depository receipts or instructions to transfer gold to another.

Depositories soon realized that nobody really knows how much gold they are holding and that the gold seldom leaves the depository. What an opportunity! Depositories started issuing fraudulent receipts in excess of the gold held, using it as “money” to enrich themselves. Holders of gold, in time, came to realize that the custodians had defrauded them and when they started withdrawing gold, they initiated the first “run” on a “gold bank”.

Governments punished these fraudsters harshly. They often paid with their lives.

Governments, however, took notice of this ability to create money by way of receipts, a promise to pay in gold rather than paying in actual gold. People then using the promises as money with an expectation to always have the ability to collect on the promise.

Governments replaced the depositories and hoarded gold in treasuries and eventually in central banks against which they issued promissory notes to be used as money. Holders of the notes could present the note at government or the central bank and receive physical gold.

By National Museum of American History - Image by Godot13, Public Domain, https://commons.wikimedia.org/w/index.php?curid=29391351

These promises obliged governments to hold gold reserves as they had to honor their promises. Governments pretended that they would honor their commitment to deliver gold but, as with the depositories, issued far more promises than they had gold to deliver, and exactly as the depositories, defrauded their populations using money not backed by gold, a good. Nobody to stop or punish them.

This brings us back to the development of money and the intrinsic value of the “good” used as money. The fraudulent promises not backed by gold had no “goods” standing and came from outside the economy to lay claim to goods as a barter of a nothing for goods. The nothing-money steals value from the goods economy to the extent that it is able to convince economic participants to part with goods in exchange for nothing-money. Money loses all its integrity if the money is not a barter of goods for goods. The link between intrinsic value of money as a good bartering for another good while serving as money is broken.

Governments hate this requirement. They prefer to have the power to create money without a link to any intrinsic value for the obvious reason that it gives them value for nothing.

All money used since 1971 is nothing money. None of it is backed by any goods of intrinsic value, called a pure fiat money system, a nothing-value money system. A system in which governments can create nothing-money from outside the value economy and defraud their own and even global populations in the process.

Let’s compare the goods money of people vs the nothing money of governments.

The essence of government money is that it is excellent for transaction purposes but is inherently valueless and very unsuitable to represent any form of value or store of value. Money of this nature must be “used” as soon as possible. Get rid of it. Swap it into something valuable. Try and have it represent as little as possible of your income or wealth.

What happens to everybody’s government money in case of a system virus or any electricity calamity? All gone… Not that it matters, it was worth nothing to begin with.

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