Tuesday, July 10, 2018

Rick Kelo considers Hard Money

For most of human history "money" did not mean "currency" as it does in today's vernacular.  Money referred to something of actual physical value used for exchange.  Historically mankind has favored two main kinds of money: gold and silver.  American currency was exchangeable for its value in gold and silver all throughout our nation's history.  It was not until FDR - by executive order in a reach of power never seen before in American history - forcibly outlawed the private ownership of all gold except jewelry and rounded up everyone's gold, that this changed.

Rick Kelo
Rick Kelo poses a wide range of economic questions, and most touch on areas of political philosophy and sometimes history.  One such topic is what happened in America - and other nations - when those countries used BOTH gold and silver for currency at the same time.

That is what economists call a "bi-metallic standard" as opposed to only a "gold standard" or "silver standard."  Since our nation's economy, and a great many other countries, used a bi-metallic standard for huge portions of our history how well did it function?

Rick Kelo notes that, "Bimetallic standards are inherently flawed because people tended to arbitrage the lower valued metal so the nation was always on either a de facto gold or a de facto silver standard.   If gold was actually worth a little bit more than silver, but the country's set exchange rate for trading in paper bills for either metal differed from the true value, then people noticed this.  They would redeem currency in the under-valued metal, then take it across borders and sell the metal at its higher market value."  Richard Kelo continues, "This has been evidenced in every country to ever adopt a bimetallic system and is known among economists as 'Gresham’s Law.'"