Silver Supporter
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Economics 101 . Good readPrecious metals are not money, they are a thing like every other thing you can buy for "value". This is why we cannot go back to a "gold standard" or any other kind of standard. "Value" has become decoupled from physical objects and exists as nothing but a concept.
We can assign rough equivalences of value between objects, as in "this car is worth $3000 and that chair is worth $150", but even that only work in the aggregate. That car may not be worth $3000 to me because I simply do not need another car and I can use that $3000 elsewhere. But our valuation does mean I should be able to sell that car for $3000 to someone, and there are enough of those someones out there that I should be able to find one in a reasonable time frame. If there are not enough of those someones out there willing to pay $3000 for that car that we could find in a reasonable time frame then we all agree that that car is now worth less than $3000. It is worth whatever some large aggregate number of people would be willing to pay for it in a reasonable time period.
So how does gold play into this? Well gold abides by the same rules as cars. It fluctuates based on demand and availability. If more people demand it its perceived value goes up. This includes demand for its use as a currency. There simply is not enough gold (or silver, or copper) to cover the transactional needs of an entire economy. This means you will be able to find more people willing to exchange a higher "value" for the gold than is reasonable for mere everyday transactions. This is why fiat currency was invented. It decouples the concept of "value" from a limited resource and turns it into its own "resource" that can be expanded (or, with some difficulty, contracted) at will.
And if there is no medium of "value" that everyone agrees upon (e.g. if there is rampant inflation in the local fiat currency such that assigning a value to goods is a rapidly moving target) then we have lost the ability to assign comparative values to everything and have entered a barter economy. And barter economies suck, because you have to be able to pay in something the other party wants, and the price will be their perceived value of that object, not yours. In theory this is great, as every successful transaction will maximize value for each party. In practice it sucks because the inertia of all transactions has also hit a maximum and the productive flow of value through society will all but grind to a halt.
