One of the key functions of money is that it serves as a store of value, and the harder the money is, the better it is at providing for our future.
The harder the money, the less we estimate the future.
What Is “Hard Money”?
Hard money refers to a currency that is made up of or directly backed by a valuable commodity such as gold or silver and therefore has a limited supply.
This type of money is thought to maintain a stable value relative to goods and services and a strong exchange rate with softer monies.
Hard money has historically been highly prized for its relatively greater usefulness as money to mediate the exchange of goods, store value, and conduct profit-and-loss accounting.
Today, most countries issue fiat or “soft” currency, which is not backed by any tangible commodity.
The term hard money also has several other uses, some of which relate to the reliability or confidence that people place on the thing that they are referring to.
So if I tell you that I will give you something today and not in 10 years, you would rather take it now because then you can enjoy it in the next 10 years. That’s why we always prefer the present to the future, there is always a discount on the future and this discount is called time preference.
The process of civilization is the process of lowering our time preference where we start caring more about the future. We begin to give less and less priority to the present so that we can no longer consume and store everything we have.
The Gold Standard
We like to consume and store, and money is essential for that, and under the gold standard, everyone in the world had the ability to provide for their future by simply using the same money they use.
You work a day and you get paid in a gold coin and you could take that gold coin and keep it safe for 10 years and know that at the end of those 10 years you can buy something more with that gold coin than the day you earned it.
This way everybody can provide for their future and everybody can have the certainty that what they save will always be there when they need it in the future. The money supply only increased by only one and a half percent, while the production of goods and services increases at a higher rate in most cases.
We have increased the money supply 10 times a year and 14 is the weighted average. So if you take a simple numerical average for all fiat currencies, you get about 30 percent, i.e. the average fiat currency increases by 30.
However, you don’t give the same weight to the Venezuelan bolivar, which rises 500 percent per year, and the dollar rises eight percent per year.
The effect is that it is now much harder for anyone to provide for their future anywhere in the world.
So how do I get the equivalent of the old gold coin that I can just put under my mattress and expect it to still be there in 10 years?
You can’t really beat the increase in value of the things you actually want to buy, like the price of good food, the price of good real estate, etc. And you know most investment professionals fail at that, so what hope does a doctor or an engineer or a scientist or an athlete have?
The Fiat Standard
Investing is hard and saving should be easy, because saving is essential to us as a civilization, and the fiat system took that away from us.
It then forced everyone to become an investor or rather a gambler.
Money itself is broken because it’s constantly changing.
You have to do all these things to save and earn and keep the money you have already earned.
We want to make sure we can still have it in 10 years, and the only way to do that is to balance your job, your free time, and your knowledge of monetary policy.
But nowadays everything is so complex that you have to learn about the Japanese central bank and commodity markets and what will happen with copper, oil, wars and foreign policies.
Under the gold standard, you didn’t care about all this, your gold coin worked independently of all these things.
Unfortunately trading gold is not manageable because of this complexity.
The world has become too fast to transfer gold, therefore bitcoin is the future according to economist Saifedean Ammous.
What you do with this information and theory is up to you.
I just wanted to shine some light on the sheer insanity of governments thinking they can solve everything by simply printing more money.
There are of course thousands of levers to pull and metrics to adjust and it’s never easy to do that with one system, but the current system doesn’t work either.
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