The evolution of money: the rules of money state that for money to have worth, it must be relatively scarce, which explains why today's dollar is so unstable.(ECONOMY)(Cover Story)

If correcting the problem of the nearly free-falling dollar is to be accomplished, there has to be a basic understanding of what money both is, and is not. There also has to be a realization that creating gobs of new money-unbacked by a valuable commodity such as gold--will destroy its value.

Understanding Money

Barter is direct exchange. For indirect exchange, civilizations throughout history have used money. Whatever medium was chosen to transact business was up to the buyer and the seller. As history has shown, cattle, tobacco, shells, even salt have filled the need at different times during mankind's time on Earth. It's clear, however, that whatever had been chosen to act as money bad to be a commodity possessing a tangible value recognized by all.

In order for a commodity to retain value and usefulness as money, it should possess several inherent characteristics. Experience showed that it should be divisible (out went cattle), transportable (out went fragile shells), durable (out went tobacco), and relatively scarce (out went most other commodities including small pieces of paper). After millennia of experimentation, the accumulated wisdom of mankind turned to gold as the best commodity to employ as a medium for exchange. It was divisible (coins, bars, dust), transportable (not large and cumbersome), durable (won't die, rust, or crumble), and relatively scarce (hard to find, hard to extract, etc.). Silver and platinum could also fill this role, but not as well as gold.

America's Founders knew all of this. The government they established wasn't given power to issue fiat (unbacked) money, only the authority to set uniform standards for the size, purity, and weight of coinage. It was also granted power to "coin money," which meant only that it could establish a mint where a fixed size, purity, and weight of coinage could be manufactured. There was to be no national bank and no political meddling in money matters.

During the period when competition in the banking industry prevailed, the government's involvement in money matters stayed ...