You wrote something like if money were at least partially made of precious metals, then people would "own real value instead of worthless paper"
Whatever value money made of precious metals is worth, or not worth, I guarantee you that paper money is even more valuable.
I am going to offer you a highly unrealistic, contrived, hypothetical scenario.
Despite being an unrealistic thought experiment, there is a powerful lesson that you can learn from it. I think you will like it the thought experiment, if you are willing to give it a try.
I want you to imagine yourself as the ruler of an ancient people. Maybe, your society looks something like Ancient Egypt. In your little world, your citizens do many different things:
- your citizens grow food: perhaps chickpeas, lentils, lettuce, onions, garlic, sesame seeds, corn, barley, flax, etc…
- some of your citizens – not necessarily everyone -- makes pots out of clay.
- some your citizens make woven grass baskets. The baskets are so well made, that they are often water tight
- your citizens build homes (e.g. Mesa Verde cliff dwellings)
- some people make clothing.
Not only are you supreme dictator of your little world of villagers, but you are somewhat removed from “the system.” I want you to pretend (or maybe not pretend) that you have no desire to sit on a thrown of gold. You have no desire to wear fancy clothes, and eat food all day. In this hypothetical scenario, imagine for a moment: “what if the well-being of other people is my only concern?”
Assume for the moment that the government you run controls the only mint. Assume that you are in charge of making money. Regardless of whether it is silver coins, or paper bills, you make it.
For a long time, the United States government did not issue currency, or was not the only entity to issue currency. However, I view it like this: We are eating at a restaurant many food options. Our goal at the moment is to decide which of menu item#1 or menu item#2, we would prefer relatively speaking. The menu items are ounces of silver by government decree or pure fiat paper backed by nothing. Maybe you really want menu item #5, but for the moment, I want you to decide which you like better (relatively speaking) between (1) government issued (paper money NOT redeemable for silver) or (2) coins made of precious metal.
As supreme dictator, you must make the decision:
- Make paper bills completely unassociated with precious metals.
- Make money from silver/gold coins. If not that, issue paper certificates redeemable for silver or gold.
Okay. That was some of the ground-work.
Next, I want you to consider. next year, your citizens will spend their time doing something. Suppose we had a nice pie-chart.
For example, maybe 20% of the citizens spend 8 hours a day, 5 days per week, growing chickpeas. That is not a particularly realistic percentage, but the exact numbers are beside the point.
Back in the present-day (not ancient Egypt) next week, next month, and next year, the citizens of United States will all spend their time doing something. Maybe next year, somebody named “Joe” will spend an average of 1 hour and 58 minutes per day watching internet-streamed videos on computer. Not only is this true for the United States, but people South Africa, Pakistan, India, China, Brazil, Germany, etc… all spend their time doing something, even if that it laying in bed "doing nothing."
A single working age people who manages to stay alive for a whole year (more than 50%), we have 8,760 hours to work with. That includes sleep, and I recommend that you spend at least 2,920 hours per year sleeping to maintain your own sanity.
If you are supreme dictator of a imaginary country of 1,000 citizens then you have 8,760,000 hours at your disposal for the next year. Will you have people spend 5,000 hours growing lentils? or 10,000 hours? As supreme dictator, that will be up to you to decide.
So we have a pie chart:
- x% of people’s waking hours are spent watching TV.
- y% of citizen’s waking hours are spent planting, tending, and harvesting corn. The great plains of the United States are said to be one of the two great "bread baskets" of the world. There are no other regions of arable land quite so large.
- z% of citizens of society’s hours go to making clay pots
- A% is allocated to making money (making silver coins or paper bills)
Here's a shocking idea: if making your citizens happy is one of your chief goals, then maybe try to reduce the amount of labor required to make stuff.
- There are different ways to grow chickpeas.
- There are different ways to make money (you can make paper bills instead of silver coins).
- There are different ways to make most things.
What if somebody came up with a better way to make books? In fake-world-otopia whenever we wanted a copy of a book, we find some poor slub, and gave them some blank papyrus and ink. The shlub then spent many days handwriting each and every letter of "Shakespeare's Collected Works." (Ancient Egypt pre-dates Shakespeare, but that's fine). Today, one of your man peasants has invented something they call “the printing press.” the infernal contraption takes time time and effort to build than an ink-pot and quill. However, in the long-run it seems to take the peasants fewer hours per book, to make books?
As supreme dictator of made-up Unicorn and rainbow land, you can decide:
- you can pay some dude, or dudette, to spend all year handwriting 100 paper and ink copies of Douglas Adams “The hitchhiker’s guide to the galaxy”
- use a printing press
Likewise, as supreme dictator of made-up Unicorn and rainbow land, you can decide:
- copper and silver coins
- paper money.
Which society would you rather live in (relatively speaking)?
| Society A | Society B |
| work 8 hour days | work 6 hour days |
| eat 5 units of corn per day | eat 5 units of corn per day |
As supreme dictator, if you can make the same number of ears of corn for less labor, THEN DO IT. Your citizens will be happier.
As supreme dictator, if you can make the same number books for less labor (printing press versus handwriting), THEN DO IT. Your citizens will be happier.
As supreme dictator, if you can make money for less labor (pure-paper & ink money versus silver bullion), THEN DO IT. Your citizens will be happier.
Silver and gold supported currency requires a lot of labour. There are silver mines. After mining the silver, somebody drives a giant truck full of ore to an ore "mill." At the mill, the rocks are thrown into giant metal barrels. Some steel ball bearings are throw in inside as well. The barrels rotate round and round for several days. The steel ball bearing grind the gold ore into fine powder. The powdered rock then goes into chemical baths. Special chemicals stick to the gold, and that stuff float to the top. Paddle-wheels then skim the gold-rick ore off the top of the liquid vat of nastiness. And the process goes on, and on, and on...
Linen, ultra-violet ink, infra-red ink, paper, etc... all take time to make. However, it requires fewer hours, relatively speaking, than finding and mining gold.
What is the purpose of a fork and knife? To cut food. If your kitchen cutlery is made of stainless steel instead of silver, guess what? It accomplishes the same purpose for fewer labour hours. Soceity gets to consume the same number of forks for fewer labour hours. Alternatively, for the same number of labour hours, you get more forks.
Remember the pie chart of hours? Suppose the printing press is invented and 20% of hours making books becomes 10% of hours making books. Well, the extra 10% is great. People can either spend more time in leisure (watching youtube videos) or they can work, but make something else. Basically, all the villagers get to eat the same amount of corn that they used to, but now they have more other goodies.
What is the purpose of money?
Well, unfortunately (or fortunately) money has many purposes. Money is like a Swiss army knife.
Imagine you are a tribal chieftain again. Most of your citizens want to eat food, but a few of them do not want to grow corn. Specifically, there is one asshole named “Bob,” who is worse than anybody else.
- Bob never helps plant the corn (or chickpeas... depending on whether your kingdom is in Egypt or meso-America)
- Bob never goes down to the river to fetch water
- Bob never goes hunting with bow and arrow
Bob mostly sits walks around talking to his friends all day. Despite the fact that Bob likes not starving to death, Bob does not contribute very much to the tribe.
what is the purpose of money?
Although there are many different solutions to the "Bob-problem," consider this one: Everyday that your people work in the field tending the corn, or every-time some finishes making woven grass basket, you give them some “tokens” (money) Your citizens give you all of the dried corn, woven baskets, etc… and you put all of the goodies inside a cave which you control the entrance to.
Inside of the cave, is a giant pile of stuff.
People put stuff onto society's pile (they put dried corn, or maybe a clay pot, on the pile)
People also take stuff off the table (they take a nice leather jacket off of the pile to wear in winter)
Bob wants to take from societies pile, but not contribute.
Anytime one of your citizens wants eat corn, you require that they give you tokens before taking food out of the cave. Thus, most citizens put stuff on the pile (corn, pottery, etc…). Your citizens receive tokens for contributing to society. Then, when they later want to take something off the pile, they use their tokens to buy things.
If we fast-forward thousands of years, maybe the blacksmith puts lots of horseshoes on top of the big pile of stuff. Later, the baker takes a horseshoes and and blacksmith takes a loaf of bread.
People all give-to and take-from society's massive pile of stuff. This hypothetical scenario ignores a lot of reality, but please bear with me.
For example, most of the stuff on the pile are actually services, not physical items. You can imagine little slips of paper on the pile which say things like “On Wednesday May 27th, Sarah contributed 6.5 hours of washing hotel bed-sheets and scrubbing toilets.” Sarah would rather be at home watching movies. Instead she spent 6.5 hours of her time doing something she did not enjoy, in order to receive tokens for buying spiral-bound notebooks and glue-sticks for her school child.
Imagine what if Bob was a free-loader, and continued to not work, and then received no tokens from the tribal chief. When Bob comes to take food from the pile in the cave, Bob won’t be able to buy food from the tribe. The really hard workers will receive many tokens, and they will be able to buy many leather jackets, clay pots, and other stuff from you and your cave.
Basically, I have described a unrealistic meritocratic society, where if you sit on your bum all day, you’re not allowed to eat corn. If you work a lot, you are paid wages, and you can buy lots of corn, and cool stuff to put inside your yurt.
Note that one of purposes of money is to serve as a record keeping tool. It records many things (Swiss army knife) one of which, is how hard people work. The various purposes of money are sometimes in conflict, and there are also other reasons why the hard-workers in this world are not the most financially wealthy. That is not actually how the world works, but it is certainly ONE theoretical society
Note that being made of gold is not necessary to record how many hours people spend making things for others.
A hammer made of steel and a hammer made of gold will both put in nails. Actually steel is better since gold is a fairly soft metal, but let's not go down that rabbit hole.
Paper fiat currency is still able to record how hard people work even if it is not made of gold.
The primary necessity for money to be potentially used as a tool to record how hard people work, it that it be difficult to counterfeit.
If tribal-tokens are easy to make, free-loader Bob will make fake money, and cash it in.
Gold coins can be counterfeit. IF you take two metals, one denser than gold, and one lighter, you can mix them in the right ratio to make a coin having the same density as gold. Also, you can electro-plate the outside. I once watched a TV news story about a man who drilled holes in gold bars he had purchased, to find them filled with lead inside.
As long as paper money is sufficiently difficult to counterfiet (difficult... not impossible), then paper money is useful.
Paper money has more value to society than silver or gold bullion, because it accomplishes the same purposes as gold-money for fewer labor hours. The extra hours saved can be spent making new stuff or in leisure. If some people had not spent the last 2,000 years finding ways to produce more in less time, you would be a farmer right now. Cellphones exists because the printing press enabled the people who used to copy books by hand, to go make something else instead.
Every hour spent making
X is an hour not spent making
Y. That is a special case of the idea of "opportunity cost"
I wanted to show that there exists a theoretical society in which money has a purpose un-related to being made of metal. It has value because you stopped Bob from being so much of a free-loader. Counterfeiting money is analogous to saying "oh yeah, I worked really hard in the corn fields last year. Look at all of the hours in my ledger." As long as more than 99% of people cannot change the number of zeros on their bank account balance with the stroke of a pen, lying about doing no work last year more is difficult, than if money were easy to fake.
Today, in the United States, United Kingdom, and elsewhere, paper money is difficult (not impossible, but difficult) to counterfeit.
Note that Planet Saturn does not think that gold coins have value. The laws of physics do not think that gold coins have value. There is no "inherent value" to gold. Gold coins are tool. Paper bills are a tool.
Paper money is a more useful tool than gold-money.
Hammers, chisels, screwdrivers are all man-made tools. Although maybe someday there will be screwdrivers on planet Saturn, there aren't any yet. Hammers are real, but man-made.
The definitions of words in the English language are not written on the fabric of the universe. It is not wrong to say, "I ate a chicken moderock for lunch" when you really ate a "roast beef sandwich." The laws of physics don't care. Other humans beings, no better than you nor I, made-up the words "roast," "beef," and "sandwich." The reason to use words the same way other people to has nothing to do with notions truth, or factual correctness. If you are goal is to communicate that you ate roast beef, then saying "chicken moderock" is less likely to accomplish your goal (relatively speaking) than saying "roast beef".
My point is that money is not the only useful tool around. Even English words are, in some sense, "fake." They are all useful tools. I encourage you to choose the tools you find most useful.
The “stop bob from being a free-loader” value of money is actually pretty pitiful. Money is a swiss army knife, it it does serve other roles.
Money is a useful tool optimization. Money has extreme value in it’s ability to quantify how much time and effort to make things. If there are two different ways to build a house, how do you know which is better? In a society without money, it's difficult. Money quantifies things. It allows mathematics to be brought to bear. Sum up the wages you paid to employees, all of the things you bought, etc... and you can see which of the following is cheaper:
- using one large size cardboard box for all shipments
- using three different size boxes
Maybe with three difference size boxes, employees have to spend more time picking out the right size box, and occasionally they choose a box which is too small, and end-up re-packing everything.
If there were no money, it would be very difficult to judge whether one way to make a car required fewer labor hours than another. Even if you buy steel, the price of steel partially (only partially, but still, partially) represents the cost of labor for making the steel. If no-one in the world ever spent an hour working pulling iron out of the ground, there would be no iron.
If not a single soul grew potatoes, grocery stores would have fewer potatoes than if people farm them.
The price of a potato is partially a record-keeping tool for tracking how much labor was used to grow a potato.
Money, like kitchen cutlery is a tool. If you can eat your soup at least as easily with a stainless steel spoon as a spoon made of sterling silver, go with the least expensive option ("expense" being quantified as "the number of labor hours required to make the damn spoon")
In summary, Money is more useful when made from paper, than made from gold.