Money, by its very nature, is something that is of limited use in itself, but that all other people consider so valuable that, when you give it to them, they will give you real stuff in return. Â You can’t eat money or drink money, but people will work hard to get it and sometimes will even kill for it. And it is obvious that modern life cannot exist without it. Â If there were no money our only recourse would be barter.
And what a primitive world this would be if, in order to get a quart of milk, I needed to find someone who (a) has milk and (b) wants something that I have. Â If I make shoes and he doesn’t need shoes then I get no milk. Â Money is to the economic world as oxygen is to the biological world. Â So how does something become money? Â The answer is simple — when people are willing to treat it as money. Â It can be seashells or copper plates or Euros, but the fundamental issue is always the same: Â when I offer it to the guy with the milk will he give me the milk? Â The answer will be yes when he is certain that whatever money I give to him can be offerred to others in exchange for whatever he wants.
So how did pieces of green paper with Presidents’ pictures on them become money?  Because the government said so and people were willing and remain willing to treat it as such.  The government helps their cause by making the money “legal tender.”  Therefore,  if I owe someone a debt they are legally REQUIRED to accept payment in the government’s money.  So is gold money?  You would superficially think not.  No government in the world recognizes it as money and, in fact, under the rules of the International Monetary Fund no currency can be tied to gold as the measure of its value.
Up until 1971 there existed vestiges of an official link between currencies and gold, but that year President Nixon officially severed any tie between the U.S. Dollar and gold. Â It was said that he “demonetized” gold and economists at the time predicted that the price of gold would drop into the teens because it was now only good for making jewelry and filling teeth.
A funny thing happened, though. Â The price of gold went up and has never looked back. Â A simple and powerful truth was thus revealed — you can no more demonetize gold than unring a bell. Â Gold, with the rarest exceptions, has always been money and is money right now. Â Why? Â Because people continue to think so Go anywhere in the world with a bar of gold and you will be able to get what you want. Â Now, as always, it is perfectly suited to be money. Â It is rare. Â It is immutable. Â It is divisible into convenient units. Â In fact, it is deeply embedded in the human psyche.
Even though Nixon tried to “demonetized” gold, the winner still gets the gold medal, there is no standard higher than the gold standard and, when something is really good, Â it is as good as gold. Â And gold has one characteristic that puts it head and shoulders above dollars, euros, yen and rubles: Â you can’t print it. Â It is often said that you can’t eat gold or drink gold and that is true. Â But the value of gold does not rest on its being all that good. Â It is only a metal after all. Â Its value rests on the fact that printed currencies are that bad. Â Every paper currency eventually reverts to its inherent value — zero. Â Gold never has and never will lose its value because it is first, last and always money. Â True money.Â