Money and Counterfeiting

By Gary North
Those few economists who defend the use of gold and silver coins as the basis of the monetary system are dismissed as gold bugs. The reason why they are dismissed is that their opponents believe that the government should be sovereign over money, and that politicians and bureaucrats are the proper sources of economic policy. These critics of gold do not trust the free-market social order. They do not trust individual decision-making. They especially do not trust individual decision-making with respect to how much money an individual should possess. They have a fundamental hostility to individual responsibility, and this is manifested most obviously in their hostility to gold and silver coinage as the foundation of the monetary order.
They dismiss what they call the theology of gold. They dismiss it because they are great believers in the theology of state sovereignty. As high priests of civil government, they are contemptuous of defenders of individual responsibility regarding the quantity, quality, and physical form of the monetary unit. So, it is never a question of the theology of gold. It is always a question of whose theology of gold: pro-gold or anti-gold.
In the 20th century, the theologians of fiat money have predominated over the theologians of gold and silver coinage. This is another way of saying that the theology of state sovereignty has predominated over the theology of the free market.
There are certain features of the original commodities that have become money historically. These features gave the original money metals an advantage over all of the other commodities that might have served as money, and in some cases historically have served as money.
There are five of these characteristics: recognizability, divisibility, portability, high value in relation to weight and volume, and continuity of value over time. Any physical commodity that possesses these five characteristics is a candidate to become the monetary commodity of a particular social order.
Historically, gold and silver have possessed these five characteristics to a greater degree than any other commodity. There have been rivals. Salt has been a rival. Animals have served as money in history. Even women have served as money in certain societies. (The problem with women as money is the problem of divisibility. Half a woman is not much use as a monetary unit.)
A gold coin standard or silver coin standard provides continuity that fiat money systems do not provide. Such a standard makes life difficult for counterfeiters. This is why governments do whatever it takes to substitute a fiat currency unit for a precious metals coinage. The government wants to benefit as the nation's monopolistic counterfeiter. It will share this only with commercial banks and the central bank. It does this only because the central bank promises to be the lender of last resort to the national Treasury.
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