(I stapled a 1964 & a 1965 dime in a tiny ziploc...

Forward: I didn’t recognize them as such at the time, but two seemingly insignificant events in my childhood prompted my interest in the subject matter at hand. I was 8 or 9 years old when I started collecting coins. For some reason I found them fascinating. On one occasion, I accidently dropped a newly purchased Mercury dime from 1945 on a tile floor. My first instinct was to chase after it as it rolled around the floor, but the sound stopped me. The “ding” I heard when the coin hit the floor was foreign to me. This was no “normal” dime. A few years had gone by when I found myself in an eighth grade music class. My teacher had a tuning fork. When I heard an almost identical ring to that of the dime I had dropped years before, I had to know more. My teacher explained that different metals sound different. This confused me. Why would my dime from 1945 sound different than any other dime? The second event was equally intriguing. At maybe 10 or 11, I took a tour of the U.S. Mint in Washington D.C. This place was awesome - they had giant machines that just spit out sheets of hundred dollar bills. I desperately, desperately wanted one of these magic money machines. I once had a dream where I had one in my living room. It was a great dream.

                                         **As Good As Gold**

In 1975, US Economist John Kenneth Galbraith said it best in Money: Whence It Came; Where it went, “The study of money, above all other fields... is one in which complexity is used to disguise truth or to evade truth, not to reveal it… The process by which banks create money is so simple that the mind is repelled". Most people see money through a proverbial looking glass; their narrow focus being only on the greenish pieces of paper in their wallet or purse. This was not always the case. This veil of deception is about to be removed. Continuing to read this is equivalent to Neo from The Matrix “taking the red pill”. In order to fully comprehend the concepts and ideas put forth in this essay, one must first discard any and all pre-conceived notions they may have of “what money is”. The intent of this piece is to explain, or at least shed some light on, an incredibly complex topic in the most expeditious and easily understandable fashion possible. To be more specific, we will be discussing what “the gold standard” is, how and why it came to be, and what happens when governments abandon it and force paper, or “fiat” money on their people. Inflation causes higher prices. Popular belief holds that inflation and higher prices are the same thing. Inflation is the artificial expansion of the money supply. The result is higher prices. So, how does the money supply “inflate”, and how does that translate into higher prices. To answer these questions, we have to go back to basics. What is money? The answer eludes most people. The greenish pieces of paper that are so desired by the masses are not money – not “natural money” anyway. Nor is the loose change beneath your driver’s seat.

If you look it up in a dictionary, the word ‘money’ means “any medium generally accepted for trade” (or something equivalent). Keep this definition in mind while reading this paper. The preceding statements probably sound contradictory, but keep reading – this gets better. Here is a hypothetical scenario that may sound silly, but is simply meant to be thought provoking. We need to go back several millennia for this. There are three cavemen. For the purposes of this example their names are Caveman A, B, and C. Caveman A makes arrow heads. Caveman B happens to be the best caveman in town at tanning animal hides. Caveman B’s hides are so perfect they have gained a reputation of being the best hides in the land. Everybody wants Caveman B’s hides. Now we have Caveman C. He’s a tomato farmer, and his only means of barter is trading his tomatoes. Imagine now that Caveman A needs some tomatoes. A firefly suddenly lights up in Caveman A’s head (they didn’t have light bulbs) – “Me get hide, then me get tomatoes”, he thinks. Caveman A then trades whatever agreed upon number of arrow heads for a nice new hide from Caveman B. They shake hands, or whack clubs, or whatever cavemen do, and go their separate ways. Caveman A now has a new hide, or a “medium generally accepted for trade”. Caveman A then takes his newly acquired “money” over to Caveman C to purchase his tomatoes. In this scenario the hides from Caveman B are indeed money. They were a medium generally accepted for trade. The best moneys have a few unique traits that “lesser moneys” do not. The first of which is divisibility. Imagine your only money happens to be cattle. Now, for

arguments sake, let’s say you want to purchase a loaf of bread. You’re now in a bit of a pickle because your cow is worth hundreds of loaves of bread. What do you do? The second trait of the best moneys is the fact they are not easily counterfeited. If you walked up to your local bread peddler towing a horse with a cow mask on, they’d laugh at you. That would be ridiculous. The third property of the best moneys is portability - in other words the higher the value to weight ratio, the better the money. Cows are not easy to carry around. Lastly, we have durability. Cows eventually die, and bread will grow mold, becoming inedible - useless. This is bad money. Gold possesses all 4 key qualities defining the best moneys. This is why this alluring yellowish metal became the standard over millennia of trade. So evolved the classical gold standard. It existed outside of government control. As gold’s reputation as the most desirable means of trade became more prevalent, the need for goldsmiths arose. These goldsmiths needed to keep their gold secure. This called for some kind of safe or strongbox, not a readily accessible item for most people. So here is what happened: People gave their gold to the town goldsmith to store. In exchange, they received a gold receipt - made of paper. These receipts, at least at first, were as good as gold. People began to trade these pieces of paper as if they were actually gold. This was the first paper money. Somewhere along the way, the goldsmiths figured out they could simply make more gold receipts, with no actual gold to back them up. They could then use these receipts to buy real goods. This is how the first paper currency inflation happened.