The Case for Bimetallism and Commodity Currencies

There is an old classical story about a king named Midas who made a wish with the gods that everything he touched would turn into gold. At first, things seemed to be excellent. He had gold blankets, a gold table, a gold castle. But after awhile, things did not seem so good. Every time he tried to eat or drink, his food and water turned to gold, and he became violently hungry and thirsty. The worst part was when he hugged his daughter, and she turned into a lifeless golden statue. King Midas came to the realization there were indeed things more valuable than gold.

Gold isn’t the most important thing in the world, as Midas learned, but for those who understand the problems with the Federal Reserve, it is obvious why gold and silver standards are a necessary backer for currency.

For those unsure about it, the short version is that money would be completely worthless paper unless it is backed up by something. The only thing that gives the US dollar any value is the fact that the US is still viewed as the most powerful global military and global economy, with military bases around the world. If China surpasses the US economically, the US dollar will become lose significant value — even more value than it has already lost:

The best historical example of this is when Germany emerged from WWI as the losers, causing their paper currency, Deutschmarks, to become completely worthless. Had the US and UK lost the war, it would have been the other way around.

Because paper currency with no gold or silver backing, known as fiat money, has to be propped up by a tireless international military regime, which like Rome and all others before it, it is inevitably unsustainable. Hard money currencies do not have similar dangers. This is because, for some reason, in all cultures throughout all history, gold and silver have been associated with wealth and glamour. Of course, there are exceptions to this rule, based on supply and demand economics — such as the Aztecs, who had a surplus of gold as a natural resource in their nation. But for both the rich and the poor in the first world today, gold and silver still represent wealth.

The Aztecs of Mexico were conquered by Spain in the 1500s, and their tons and tons of gold were shipped back to Spain. With their control over the Mexican colony, there was no shortage of gold in Spain. However, during the reign of King Phillip III, Spain had an economic calamity in the 1590s. Due to widespread famines and plagues, ten percent of the Spanish population died. Despite the gold in his reserves, King Phillip could not turn the economy around. How could such a thing happen with the perfect gold standard, one might ask? Well, you cannot eat or drink gold.

Although it is a classic, and solid the vast majority of the time, gold and silver standard should not be the end-all-be-all of currency backing. With any currency there will always be some element of risk. There was a time when silver was not even considered acceptable, and what’s known as “bimetallism” (or using two metals instead of just gold) had to be argued for by populist William Jennings Bryan (a harsh opponent of the Federal Reserve). The remainder of this essay will discuss potential backings or “standards” to subsidize currency, often known as commodities.

It is no accident that oil is called “black gold.” Although there is no official country on “oil standard,” in some respects, both Saudi Arabia and Venezuela operate off of this. When Hugo Chavez nationalized Citgo Oil, he was able to distribute wealth by using the Venezuelan natural resource without having to tax anyone, and he caused the poverty rate to go down by twenty-five percent. Despite the aggressive statism in Saudi Arabia that typically leads to poverty, the oil wealth from the opulently rich sheikhs trickles down making the standard of living comfortable for the average citizen.

There are certainly other commodities that could be valuable in a market, depending on supply-and-demand. They could include obvious precious metals or jewels, or tactical and necessary commodities, such as fertile soil, freshwater, copper, lumber, graphene, fibers, and meat (which apparently will be a delicacy by 2025). This is what free trade is truly all about: giving others what you have and they don’t to get what they have and you don’t. To make it clear, this is not an endorsement of direct barter, but that each society should measure its currency on the reserves of its most plentiful natural resource to be exported.

As a result, there are two potential currency standards should be seriously discussed. One of those is protein, measured by the gram, and the other is energy, measured by the joule.

As discussed in the paragraph above, the planet is estimated to be so overcrowded by 2025 that animal protein (including all milk and eggs) will be considered a luxury. Due to the lack of efficient protein in a vegetarian diet, a farmer with successful livestock practically has a gold mine. The scary and encroaching frontier of the need for renewable energy is also a real issue, and has the events like bizarre climate patterns and violent wars over oil to prove it. Each joule of energy used by each person is going to accumulate more and more value if these things continue to problems.

Though there are certainly critiques to be made of gold-, silver-, joule-, and protein-backed currencies, each ultimately has one major advantage over our current fiat system: They produce money which derives worth from a market commodity, not the ever more doubtful “good faith and credit of the US government.”

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