Inflationomics

The Best Money Can Buy

In a world awash with fiat currencies, the question for long-term investors is, “Which money is ‘best’?” Let’s consider what money is “supposed” to do. Most people have learned (incorrectly) that money acts as a:

  1. medium of exchange;
  2. unit of measure; and a
  3. store of value,

and that if any one of these elements is missing, you supposedly don’t have viable money.

The “best” medium of exchange is one that is recognized by the greatest number of people as something of value; i.e., the most marketable economic good. Traditionally, and even to this day, gold and silver have performed this task admirably. For a while, the British Pound Sterling was fairly widely recognized and accepted as a medium of exchange. More recently, the U.S. dollar has held first place as the international choice for a medium of exchange. In fact, it is currently the world’s reserve currency.

The “best” unit of measure presumably is something that can be divided into bite-sized pieces and maintains a fairly constant unit size. Once again, gold and silver have done an admirable job over the years with standard units of a kilogram, troy ounce, half-ounce, etc. Fiat currencies have generally also done a reasonable job of providing bite-sized units; e.g., dollar, half-dollar, quarter-dollar, dime, nickel, penny; however, they often fail to maintain a constant unit size (relative to the goods they purchase). As they depreciate in value, their bite-sizes become smaller, making some units (like the penny) uneconomical to maintain and eventually obsolete.

While nothing can guarantee to be of value under all circumstances, the “best” store of value is something that maintains as high a value for the greatest number of people in as many instances as possible. Once again, gold and silver have done the best job on this front for the longest period of time.

When we consider fiat currencies, however, we do not find a single currency, including the U.S. dollar that has come close to maintaining its value over a fifty-year period. From a big picture perspective, gold and silver have been stores of value (to the extent that such a thing exists) for a longer time than any fiat currency.

In short, precious metals do a better job as money than do fiat currencies because:

  1. considerable effort and expense must be invested to mine precious metals; their supplies can not be as easily inflated as can paper;
  2. money monopolies (and their corresponding fiat currencies) are unnecessary when precious metals are used as a medium of exchange—the purity and weight of the metal are all that matters;
  3. precious metals are readily recognized and accepted world-wide for their value without legal tender laws;
  4. precious metals are inherently attractive and have other natural properties that lend themselves to ever increasing uses, keeping them relatively precious over time.

Clearly, precious metals are the best money for businesses and individuals—anyone who wants to save and invest for the future. Fiat currencies may be required by law for everyday life, but when it comes to the long run, there’s no substitute for the “best money.” Be ready for the future with the best money money can buy—silver and/or gold.

Robert Jackson Smith

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