Red Diamond Here in OT over the past few years the subject of money has come up a number of times in a number of contexts. Usually bad ones. What is money? The simplest explanation is that it is a medium of exchange and a way of accounting for exchange in the economy. It isn't really more than that. It isn't really money that is the root of all evil. Money is just the unit of account that the real wealth is described by. There are different kinds of money. A few are: Specie: Essentially a physical object of agreed upon value that is directly used as a medium of exchange. Many thing in many societies have been specie. But in the modern sense most people think of gold and silver. Representative money: Is paper money backed by specie at a fixed rate. Fiat money: Money that has value only to the extent that it is accepted as a unit of exchange. The value is dictated by law, typically. Though is varies over time do to market realities. That really covers what is needed to understand the modern arguments. Why do we use money at all? Essentially because of the economic theory of Transactions costs. Every transaction in economics has not just the cost of what is being purchased, but also the cost of actually making the purchase. Now in order to get the best deal on the product you are purchasing, you're best off paying the least for the transaction itself. In effect, the transactions costs make the whole of the transaction, and the economy as a whole, less efficient when they are high. Every transaction has a cost. No matter how small some of them might be, they are always there. Money substantially reduces transactions costs. Without money, the accounting, the tracking of what who owes to who, becomes much more complex and difficult. How many cows do I pay for car? A bottle of orange juice? And how do I make change? As I understand it, some Marxists want a world without money. Though I think (not certain) that Marx himself saw money as just a way to keep track of the accounting of things (as I do, but he was accounting for the labor value of everything. And I don't agree with the Labor Theory of Value). I don't accept that any complex, and and even most non-complex, societies can function without money. So even those that oppose what money represents (wealth) should not oppose money itself. Money itself is just the keeping track of things. So, given that money itself is just the keeping track of things, what does that tell us about what money should be? Discussions with Integral in the past have shown me that the goal of the modern monetary theorist is to have money that has the least interference with the day to day operations of the economy as possible. Except when they really want to cause changes. That is, an elastic currency that does not interfere with the price level or output of the economy. In order to do this, the quantity of money has to change to meet the needs of the economy. And needs to do so pretty much constantly. So what does it take to have a money that does not interfere with the economy? Essentially, constant management of it. And to allow that management, the money can't be locked into a given quantity. Why constant management? The basic money equation is given as MV=PQ. That is, the Money supply * the Velocity of money equals the Price level * the Quantity of goods and services sold in the economy. Now this is an equation with four variables. And so you need to know what some of them are in order to figure out what the others are. The earlier generations of monetary economists, and those people who listened to and believed them, thought that V and Q were constants. That is to say, that changes to M or P had no impact on changing V and Q, and that they didn't change (in the short run) on their own. Except, of course, that we always knew that they did. So even that we always knew that V and Q changed, the theory said that it didn't. And the real problem is not that some economists got it wrong. The real problem is that most of the general public, including public officials, persist in believing the wrong part. They didn't get the memo. And because they didn't get the memo, they constantly argue for the wrong policy for the wrong reasons. This is very common among people who think they know the basics of money, but really don't. Now given that we have 4 variables, and that they are all constantly changing, how can we have a money supply that does not interfere with the real economy if that money is fixed in some way to some commodity? Particularly when the quantity of that commodity is itself subject to change over time? And that's why gold can't work. The modern economy is just too complicated for a money supply that government doesn't have full control over. So why do some people want gold as money so much? There are a few different reasons. One is that there are people who actually believe that gold is "God's money". That is, that gold was created by God to be money. Otherwise, why else would it so perfectly fit the role of money? It is uncommon. It is easily identified and distinguished from other substances. It was easy to acquire (in the small quantities that it was available it) from ancient times. It does not corrode, so is essentially eternal. It is easily workable, and so is fairly divisible. Before modern times, that really does sound like good money. Except for the drawbacks. And the drawbacks are that gold supplies just don't change with the economy's need for money. And so gold constantly interferes with the real economy. Those who push for gold in modern times that don't have those old motives, they have others. For many, it's just a failure to understand the situation. But others do. And they have other motives. Mainly the protection of wealth, particularly inherited wealth, against all threats. Including the threat of the creation of new wealth. It's very much a zero-sum-game view of the world. It seeks to prevent the creation of new wealth in order to prevent the erosion of old wealth. And this is why we have fiat money. Because it meets the real needs of the economy. It favors the creation of new wealth. And it is much less disruptive.