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Originally Posted by Beingist  Also, what is the other major weakness of metallic money? Limited growth potential? |
The limits on growth I think are related to the bank panics - basically they all result from the supply of money being chosen more or less arbitrarily (via mining). But I could see considering them separate issues - the bi-metalism period in the US is an example where at least public perception was that the money supply didn't fit the size of the economy.
But the downside I was thinking of what the tendency of metallic money to turn making money literally into making the stuff of money - mining gold or silver. Before fiat currency an amazing amount of capital and labor was directed towards mining gold and supporting miners - everything from the exploration and conquest of the new world to the various North American gold rushes were driven by the desire literally to make more currency. That's effort that isn't put into farming food, building, educating, etc. In the age of exploration that may even have made sense, but now metallic money would represent a downgrade in quality of life for everyone as those efforts would have to be re-started. I think this is the major reason fiat currency has won worldwide.