Paper Money & Gold Currency

Paper money not supported by some value has nothing to keep it steady as currency. Such currencies can suffer from inflation (loss of value) due to endless reasons, and the main one would be that people start to distrust the government that is backing it up. This is why paper money, as a means of exchange, becomes more trustworthy, and represents less value as an exchange good.

If a person owns all his assets in paper money, such as in a bank, or in bonds, and the government that backs such currency has stumbles or falls or starts to fluctuate for some reason, that persons assets can considerably decrease and totally disappear inclusive.

Another way in which currency generates inflation, which means a decrease in its exchange value, is that the government can exceed in printing bills and put in circulation without demanding in exchange its real exchange value. In this case, and on the one side, there is a government that prints money arguing that it is acceptable for exchange purposes, but on the other side, the same government distributes it demanding nothing in exchange. This kind of activity takes away the currency’s value of exchange, and it is the reason why the currency of any populist government tends to generate inflation.

One of the ways to observe the rate of inflation of currency throughout an extent period is that of focusing in the exchange market to see what the value of gold in these markets is.

In the United States troy ounce of gold was sometimes sold at $17. Nowadays, it is sold 20 times that price ($335), which would mean gold has increased its value in 20 times since the 1800s. Currently, this is not the case. While nowadays gold could be somewhat more valuable than before due to great demand as a solid investment in these volatile economic periods. The truth of this all is that dollars have devaluated its value of exchange, up to the point that it takes twenty times of the same to equal the amount of exchange that it once had. To demonstrate it in a more detailed manner, there was a time in the United States, in which one could buy a loaf of bread for only 5 cents. Today a good loaf of bread at an average shop costs around $1.30. Does bread cost 20 times more than what it used to? No! Bread is bread, and in whatever the case, it should cost less to buy a loaf because there is no kind of scarcity.

Right now, a gold miner could change an ounce of gold and go out shopping for the same amount in goods and provisions that a miner in the old times could buy in a city of the 1800s. Let´s remember that a person could have a haircut for 5 cents and have a meal based on steaks for only 25 cents of those times.

If that old-time miner would have used his dollar in today’s markets, he would need 20 times more to buy the same goods, and this only after 120 years. That is a lot of inflation! However, if that same miner would have used his gold in present days, he could buy the same and even more than in the 1800s.

Then, why the lecture in economy? Only to show you that gold is very stable to be used as a means of exchange, and it should be so for many years to come, and likewise to show you how inflation of paper money has negatively influenced the gold mining industry, until recently