The first modern international monetary system was the gold standard. After WW1, the gold standard was replaced by the gold bullion standard. Nations no longer minted gold coins but backed their currencies with gold bullion and agreed to buy and sell the bullion at a fixed price. The bullion standard was hit hard by the Great Depression and WW2 and was eventually replaced by…
Hyper-inflation and the Fog of War
Crucially, any time there is a large cultural or population movement, there will be risk of hyper-inflation that taxes a single commodity based monetary system. For example, refugees and returning soldiers from the Vietnam war brought gold with them. Refugees brought gold because the currency was useless. Soldiers used their pay to buy Baht gold and melt it into a pile of dirt. They could not bring bars home without consequence but a “nugget” found in a river was OK.
Looking into this, we can see that official monetary standards are grossly affected by international conflicts. Simply, the gross movement of wealth and resources under the fog of war ignores standards and reverts to a free market; i.e., anything goes! Economists and politicians argue for a monetary system based on a basket of commodities. In other words, a group of commonly traded goods which fairly represents a population’s needs. Pointedly, the question gets asked: “Who gets to choose what is in the basket?”
And therein lies the rub…
Somehow, the free market solution always prevails. No matter who picks the basket. Especially, right now when the whole world is engaged and involved in a mosh of markets; each closely watching the other. Transparency and volume rule the roost. Ultimately, what it all comes down to: How much gold buys a head of lettuce?
