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Paper World vs. Gold World

This is a work of fiction with a few similarities to the reality we all know and trust, or the reality that we think we know.

City A in a Paper World
A financial genius had a plan! He and his offspring implemented the plan over several hundred years.

  1. Charter a bank.
  2. The government authorizes this bank to create and print paper money, backed by gold or silver. (It took surprisingly little in bribes to convince the government leaders that this Bank was a wonderful idea.)
  3. The Bank accepts gold, silver and other valuables as deposits into its vaults, and then lends paper money, backed by those gold and silver deposits, to governments, businesses, politicians, and individuals.
  4. The debtors borrow paper money but are required to repay in gold.
  5. The Bank owners pay themselves huge salaries, become trusted confidents of government leaders, and pillars of the society. Wealth is transferred to the banker class.
  6. The Bank owners also “encourage” politicians to create wars and other costly programs, and to borrow from the Bank to pay for their adventures and excess spending. (Surprisingly little money is required in payoffs from the Bank to the politicians.)
  7. Debts increase, governments buy votes with promises, and the Bank becomes increasingly important in global affairs.
  8. The Bank also agrees to store gold from many other countries for “safe keeping.” The gold is never audited. A few people wonder why it is never audited.
  9. So many debts are incurred by governments, businesses, and individuals that the money is transformed into paper, not gold, nor is it redeemable in gold. Of course, it is still “as good as gold.”
  10. More promises, more wars, more debts! The money is no longer backed by gold. Prices and total debt rise even more rapidly. The money is reissued as paper currency with no intrinsic value.

City B in a Gold World

  1. Money is either gold or silver. Currency units are backed by gold and anyone is welcome to exchange digital or paper currency units for    physical gold. Few bother to do so.
  2. The gold reserves that back all the currency in circulation are stored in massive vaults, and are audited each year.
  3. Governments do not go into debt for longer than three months. All government debts are paid at the end of the fiscal year. Honest accounting is used and financial information is reported to the media. If government overspends revenues in a year, politicians lose all retirement benefits.
  4. Without the economic resistance from high taxes, inflation, and a huge government, the economy and most residents prosper.
  5. If politicians want a war, they explain how the war will be financed, the supposed benefits of the war, where the money will come from, and the legislature votes. Victory and defeat are defined and measurable. If the country is defeated in the war, the politicians who instigated the war are executed by a military firing squad while all other politicians who voted for the war are cast out of office with no pensions.
  6. Most politicians and citizens admit the system is deeply flawed but history has shown that other choices are often worse.
  7. Some people lived “happily ever after.”

Source GoldSilverWorlds

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