HomeEconomyBimetalism, Gresham's Law and Coinage

Bimetalism, Gresham’s Law and Coinage

A. Bimetalism

Governments impose price controls primarily to divert public attention from government inflation to the so-called evils of the free market. As we have seen, “Gresham’s Law”—artificially overvalued money tends to force artificially undervalued money out of circulation—is an example of a general consequence of price controls. In effect, the government sets a maximum price for one currency relative to another. Peak prices cause shortages (disappearing as hoarding or exports) of currencies that suffer from peak prices (artificially undervalued) and cause them to be replaced in circulation by overvalued currencies.

We’ve seen how this works with new coins vs. old coins, and this is one of the earliest examples of Gresham’s Law. To change the meaning of currency from weight to pure story, and to standardize foreheads for their own sake rather than for the public’s convenience, governments call new and old coins by the same name, even if they are of different weights. As a result, enough new coins are hoarded or exported, and circulated through worn coins, the government swears at “speculators,” foreigners, or the free market in general, conditions brought on by the government itself.

A particularly important example of Gresham’s Law is the long-standing problem of “standards”. We see that the free market establishes “parallel standards” for gold and silver, each of which fluctuates freely according to market supply and demand. But the government decided to help the market by stepping in to “simplify” the issue. They felt that if gold and silver were fixed in a certain ratio, say, 20 ounces of silver to 1 ounce of gold, things would be much clearer! The two currencies can then always circulate in fixed proportions—and, more importantly, governments can finally get rid of the burden of treating currencies by weight rather than by story. Let’s imagine a unit, the “ruhr,” which the Ruritans define as 1/20 of an ounce of gold. We’ve seen how important it is for the government to lead the public to see the “rur” as an abstract unit of its own rights, loosely tied to gold. What better way than to fix the gold/silver ratio? So, “rur” not only becomes 1/20 ounce of gold, but also An ounce of silver. The exact meaning of the word “rur” (the name for the weight of gold) has now been lost, and people have come to believe that “rur” is itself a tangible thing, somehow set by the government for good and valid purposes, equal to a certain weight of Gold and Silver.

Now we see the importance of giving up patriotic or national names for gold ounces or grains. Once such labels replace the accepted world unit of weight, it will be easier for governments to manipulate the monetary unit and give it apparent life.fixed rations of gold and silver, called bimetallicism, accomplishes this task very neatly. However, it does not accomplish another job of simplifying the national currency. Because Gresham’s Law is once again taken seriously. Governments typically initially set bimetallic rationing (eg, 20/1) at the prevailing exchange rate in the free market. However, market ratios, like all market prices, inevitably change over time as supply and demand conditions change. Fixed bimetal ratios inevitably become obsolete as changes occur. Changes make gold or silver overvalued. Then, when silver flows in from abroad and flows out of cash balances, becoming the only currency in circulation in Ruritania, gold disappears into cash balances, the black market, or exports. For centuries, all nations have struggled with the catastrophic effects of a sudden alternation of metallic currencies. First silver will flow in and gold will disappear; then, as the relative market ratio changes, gold will flow in and silver will disappear.

Finally, after tired of centuries of bimetallic destruction, the government chose one metal as the standard, usually gold. Silver was relegated to “token” status with smaller denominations but not full weight. (The minting of tokens is also monopolized by the government, and since it is not 100% backed by gold, it is a means of expanding the money supply.) The eradication of silver as money has undoubtedly hurt many who prefer to use silver for all kinds of transactions. Bimetallic The “crime against silver” does exist in the manufacturer’s war cry. But the crime is actually the original imposition of bimetal in place of the parallel standard. Bimetallicism creates an incredibly difficult situation that governments can respond to by restoring complete monetary freedom (parallel standards) or choosing one of two metals as money (gold or silver standard). After all, complete monetary freedom is considered absurd and impractical. Therefore, the gold standard was generally adopted.

B. Fiat currency

How can governments impose price controls on currency exchange rates?through a legal tender law. Currency is used to pay past debts, as well as current “cash” transactions. With the name of the country’s currency now prominently displayed in accounting, rather than its actual weight, contracts began promising to be paid in a certain amount of “currency”. legal tender law determines what that “money” might be. When only raw gold or silver is designated as “fiat money”, people think it’s harmless, but they should realize that government control of money has set a dangerous precedent. If the government insists on primitive money, its fiat currency laws are redundant and unnecessary. On the other hand, the government can declare low-quality currency alongside the original currency as legal tender. Therefore, the government can order that the old coins are as good as the new ones when paying the debt, and that silver and gold are equal to each other in fixed proportions. Then, fiat currency law brought Gresham’s Law.

They have another effect when fiat currency laws regulate overvalued currencies. They favor debtors at the expense of creditors. Because then debtors were allowed to pay their debts with much less than they borrowed, and creditors were defrauded of the money they took for granted. However, confiscation of the creditor’s property will only benefit the outstanding debtor; future Debtors will be burdened by the scarcity of credit created by the memory of the government’s destruction of creditors.

This article is selected from What does the government do with our money?

Source link


Most Popular

Recent Comments