The world converged on precious metals as the best form of money over time because of the properties they held, specifically durability and scarcity. For something to be a good money you want it to store value over time. Gold is the most durable and the most scarce of these metals so naturally over time the world monies all backed themselves with some type of gold standard. If you backed your money with anything else you would lose value at a faster rate and you would have an inferior money to your counterparts.
There is a wide held belief that the industrial use of these metals give them intrinsic value which has aided in their use as money - this is false. Many skeptics argue that Bitcoin can’t be used as money because it lacks intrinsic value. I’d encourage you to read Bitcoin Has No Intrinsic Value - and That's Great by Conner Brown.
Copper
The properties of copper have given it many use cases in the modern world. These use cases give copper intrinsic value but it does not store value over time due to it’s easily increased supply. Copper is also not immune to corrosion from the elements meaning it can deteriorate and for that reason it makes a poor monetary choice. You may think we use copper for our pennies but they are actually over 99% zinc.
Silver and Gold
These two metals formed the basis for money as they were the most scarce and allowed for the best stores of value. The British Pound at one point was actually based purely on a pound of silver, hence the name. Our coins used to be made from silver but the percent of silver in the coins has decreased over time to zero.
Silver was inferior to gold because the rate at which it could be mined out of the earths crust, otherwise known as its rate of inflation. Golds inflation rate is about 2% which is relatively low (scarce) and why it has been such a good store of value. Ironically, this is where we get our current monetary inflation goals from. 2% inflation is the Federal Reserves target for our economy.
Hard Money
Gold is known as a hard money because despite our best efforts it is not easy to create more of it. A hard money stores value into the future and encourages savings. Risky investments are disincentivized. Civilizations throughout history that have had a hard money have benefited immensely and have been able to build long lasting beautiful architecture as a result. Think of things like the Taj Mahal, Machu Picchu, Christ The Redeemer, Eiffel Tower, and The Great Wall of China.
Since the supply is relative inelastic a hard money forces governments and people to be responsible because they cannot spend what they do not have. Borrowing and debt are reduced. Consumerism does not exist because you are going to plan for the long term rather than the here and now.
Fiat
Fiat money is government issued money that does not have a hard asset backing it. This is what every government across the globe currently operates on and will be the focus of our next newsletter. The US dollar removed its gold backing in 1971 under President Richard Nixon. Check out the website wtfhappenedin1971.com to see some of the ways the removal of the gold standard has effective our economy.