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Good as Gold
We're all supposed to hate gold now, but what if we're wrong?
The gold standard has been blamed for the Great Depression because there were more poor than rich people, and poor people didn’t have gold. If you’re happy with that, you can stop there. If you want to know what happened, keep reading.
When I was four, my grandmother, Nanny, always told people, “Ilene is good as gold.” In fifth or sixth grade, it was a shock to learn that gold was “fine” for jewelry but evil when used as money. I felt cheated. My personal symbol of goodness was “trashed,” as people might say today. Over the years, I kept digging — not as a quest, but just a nagging question. Here’s what I found:
Thiers' law states that “good money will drive out bad money.”
At the beginning of the American Revolutionary War, the US issued paper money that could not be redeemed in gold. Quickly, the paper money became worthless because merchants would not accept it. Merchants would only accept gold because they owed other people gold.
People of that time knew the monetary value of gold. Later, the US passed legal tender laws. No one could trade in gold and silver. Today, almost nobody knows about Theirs’ law. They know the opposite law about gold.
Gresham's law states that "bad money drives out good money."
When governments issue legal tender laws, “bad money drives out good” because the legal tender standard makes paper the preferred trading item. Any fool could see that a paper dollar you could exchange for real silver or gold will be worth more than a paper dollar you could only exchange for another paper dollar. People hoarded gold and traded paper.
When real money was outlawed, and fiat money was money-by-law, trade was mandated to use fiat money. Eventually, gold and silver disappeared from the world’s circulation. The world moved to 100% fiat (non-redeemable) paper.
So both “laws” about gold are partly correct and partly wrong. Gresham’s law is “bad money drives out good.” Their’s law is “good money drives out bad.”
The Great Depression was blamed on the gold standard and greedy gold hoarders who would not surrender their gold to the government. What is the truth we're not supposed to know?
The law of cause and effect: “Bad laws drive out good money.”
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