As the world moved from the barter economy, we needed an intermediate item to function as money. Gold and silver fulfilled that role for a variety of reasons to do with physics, chemistry and scarcity.
The fact that these metals also have industrial uses complicates the matter further but I shall be focusing only on the monetary aspect in this note.
Gold and silver coins were money. The fact that the king's visage was printed on the coin did not make it any more valuable. It was the gold content and the silver content in the coins that gave them value.
When gold and silver are currencies, there can be no inflation by definition. Things cost what they do and the prices keep varying depending on availability, but the currency itself ought to remain stable.
But right from ancient times, kings had voracious appetites that needed to be fed. They had vast armies and armies needed to be equipped and kept happy, and various interest groups depending on their proximity to the throne needed doles and freebies. How does a king get money for all that?
Going back in history, every king finally fell to the temptation of adulterating his coinage with base metals. Slowly, the proportion of gold and silver in the coin would decline. Obviously, prices of goods and services measured in terms of the currency would go up.
It was never the prices that were rising, it was the currency getting debased.
And then paper was invented. Someone said let's keep gold in a locker and issue promissory notes payable to bearer against the gold kept in the vaults. "I promise to pay the bearer x amount of gold", said every currency note.
In theory, you could walk into the offices of the issuer of the note, give your note, and get gold in return.
Post World War 2, in 1944, the Bretton Woods Conference agreed that the US Dollar would be pegged to gold, and all other currencies would be pegged to the dollar, effectively creating an international gold backed monetary system.
No government kept its promise - they printed currencies with abandon. In addition, the US saw its gold reserves drain away as other nations took gold in exchange for currency.
Richard Nixon realised that it would be foolish to continue on this path and unilaterally abrogated the US promise, the promise to pay gold.
Thus from 1971 onwards, every currency in the world is a fiat currency, backed only by faith in the government, and a common understanding to subscribe to the illusion that that piece of paper is worth something. Take out your currency note and see right now, what does it say? "I promise to pay the bearer rupees so and so", not gold, not silver, but the same rupees that you hold in your hand! Realise that what you hold in your hand is a worthless piece of paper!
And we thought only children played imaginary games. In reality, the whole world runs on illusion and nothing else.
Meanwhile, every government in the world continues to print money with abandon. This printing can take various forms, including that other fosterer of illusions called fractional reserve banking.
If you thought that only faith in God is a matter of pure belief, without any proof that God exists, you have obviously never thought about our faith in money. God is a better and more useful illusion!
All fiat currencies till date, every single one, has eventually reached the value of zero.
Well, thanks for the good news, now what in f*#* name am I supposed to do, you are thinking.
Doing is for later. First, learn to see.
Our cognitive maps, meaning our view of the world, is fostered on the illusion that money is something real. The governments and powers that be do everything in their power to ensure that this illusion is maintained.
You have to step outside that reality and see the truth about money first.
Once you see it, you cannot unsee it.
Ok, I see it, you are saying, now what should I do?
That we shall discuss in the subsequent parts.
To be continued...
