Gold in Economy

Thorndike Barnhart’s Advanced Dictionary defines economy as “the science of production, distribution and goods and service consumption.” A foundation of economy is that in order to survive any group or individual must produce some kind of good or service, which can be traded for others at a higher cost than that of its production. The key word is trade. In nowadays free world, and in that of the future trade is necessary.

Money by itself, in paper, has no real value. All the value a bill can have is that that is given under mutual consent by the group of people that use it, as well as the backup the government that prints it supplies.

Originally, the purpose of paper money was that of substituting the use of gold and silver. Gold is heavy to carry everywhere, especially in large quantities. It also takes time to weigh it each time a trade takes place, and one will never be completely certain about its purity before it being tested by a competent professional. A branch of the government probably had the idea of using paper money to substitute the use of gold. This was a good idea as long as paper money would be backed up by the mineral itself. That is why a pinch of gold was worth a dollar.

People traded part of their gold to buy this paper money because it was lighter and easy to deal with. This was okay as long as they could exchange it whenever they wanted to for the gold it represented. There were no worries about the value of exchange because it had always been safe; thus, there was no need to worry about the exchange value of paper money as long as it were backed up by gold and silver, and that one could be able to exchange it for the same amount anytime.

Throughout the years for some reason “the habit of having an X amount of dollars that would represent the same amount in gold, which was kept safe by the government” was not used anymore, and the new system in which paper money was printed without any backup than that of the government to keep its value steady was introduced.

Under the new system a loaf of bread was exchanged for a dollar, but why? Dollars had no real value. The answer is that a dollar can be exchanged for a loaf of bread because the authority that prints the paper money decides that it can be done. So there has to be not only trust in the government under this system because one is using a means of exchange that has no intrinsic value, and that has no current or real value to back it up.