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What would happen to an economy if physical precious metals were legal tender currency?

Imagine money that had intrinsic value. How would this affect banking, government spending, saving, and consumer spending?

Better or worse than fiat money?

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    Mar 15 2013: Everything of value is currency. Capitalism is not restricted to arbitrary pieces of paper. A goat is money. A pencil is money.
    • Mar 15 2013: Unless you are speaking of a bartering economy It's just a lot easier to use precious metals.
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        Mar 17 2013: that may well be so but shifting for the U.S., the UK and all other nations on fractional reserve would create a major shift in the balance of power globally towards those countries that both posses critical global resources ( like gold & oil) and who have sufficient gold reserves to have a strong and viable gold backed currency. ( see my earlier Ted discussion on this)
        • Mar 18 2013: Power will accrue to those who have the most intellectual / creative muscle, diplomatic skills or physical military resources, I'm not sure where balance comes into it - its one of those phrases like the balance of nature which on closer inspection turns out to be a virtually chaotic system .

          Money is not Gold or oil Butterflies or butter. It is a fungible concept of value and as a concept it can be very simply changed by thinking differently. The irrational fluctuating value of Gold will not go away if it is adopted as a standard unit of currency. It will still rise and fall as the need for the metal changes with fashion and technology.

          If countries have no food producing capacity but they do have Oil then we have to sell them food NOT because we need the Oil (We don't, because we did the sums and worked out how to organise ourselves around the problem) but because we have an obligation toward our fellow man. If they have both food and oil , what's the problem?

          Power is not found down a back alley squabbling to the death over the last barrel of Oil - it is found in the minds of the intelligent and civilised - those with the capacity to organise communities to feed, house, clothe, police and educate themselves within sustainable system boundaries.

          Addiction to Oil or Gold is not power. It is weakness, and when you talk about the strength of a currency, you must also ask what value it has, what can it buy.

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