Submitted by William Bonner, Chairman – Bonner & Partners
Good As Gold
Over the last 10,000 years, humans have tried two different kinds of “money.” They began with exchanges based on credit – “You give me a chicken… I’ll pay you back later, maybe by helping you build a new wigwam.” When society became too large and extensive, they switched to gold and silver.
The advantage of this was obvious: You didn’t have to remember who owed what to whom. You could settle up right away. “You give me a chicken. I give you a little piece of silver. Done deal.”
Image via aventar.eu / Author unknown
Periodically, governments were tempted to go back to credit systems. Essentially, they issued pieces of paper – IOUs – and declared them “money.” Usually, these hybrid systems began with some collateral backing up the paper. Issuers typically had gold in their vaults and agreed to exchange the paper for metal at a fixed rate. Holders of the paper money were told that it was as “good as gold.” Continue reading