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Thursday, 15 October 2009

Money has no intrinsic value

Our money today has no intrinsic value in itself. It is fiat money that is created by government fiat or decree. The government declares fiat money to be legal tender. In the past monetary coins were made of, for example, silver or gold which were valuable in themselves. The actual metal of which the coin was made had a real or intrinsic value supposedly equivalent to the nominal value inscribed on the coin. Today fiat money is a government decreed and legally recognized medium of exchange, a unit of account and a store of value in our economy.

Our money today has no intrinsic value, as it is the natural product of the development of the monetary unit through time. In the beginning stages it was a full value metal coin. Later it was not a full value metal coin but it was the next best thing as far as economic agents were concerned: it was 100 per cent backed by gold. Today it has no intrinsic value and it is not backed by gold but is “backed” by the combined macroeconomic real value of all the underlying value systems in our economies. This includes, but is not limited to, the economic system, the manufacturing system, the industrial system, the monetary system, the political system, the social system, the educational system, the defence system, the health system, the security system, the legal system, the accounting system, and so on, to name but a few.

Money´s lack of intrinsic value is one of the reasons why gold is the best long-term hedge against economic and political meltdown.

Kindest regards,

Nicolaas Smith