Money. We all want it. We spend our lives scrambling for it.
But what exactly is money?
In this episode of the Money Metals’ Midweek Memo podcast, host Mike Maharrey talks all things money. He explains exactly what money is, why we need it, and how it evolved. He also compares and contrasts sound money – gold and silver – with fiat money run by governments.
Mike kicks off the show by attempting to sing “Money” by Pink Floyd.
“You know, we talk about money a lot. Our lives revolve in large part around making money. But what exactly is money?
“I think for most people, money begins and ends with dollar bills. But there’s a lot more to it than that. Why do we use money? What makes good money? Why?
“So, today, I thought we would talk about money.”
Mike leads with the definition of money from the Austrian school of economics’ perspective.
“The simple definition of money is a commodity that has emerged spontaneously on the free market as the most universally accepted medium of exchange, valued not for its consumption or production uses, but for its liquidity and purchasing power. So, most fundamentally, money is an accepted medium of exchange. It stores value and allows me to transfer it to other people.”
Mike then explains how money developed to solve the problem of the “double coincidence of wants” problem inherent in barter systems.
“If I’m a fisherman who wants bread, and I know a baker who wants fish, then there is a double coincidence of wants. But how often does that happen? Almost never. I may want bread, but the baker wants apples. When a society is left to its own devices, people begin trading for a third good that is more widely accepted, even if they don’t want it for personal use. This could be anything. In wartime economies, cigarettes might become that third good. Over time, it becomes money, solving the double coincidence problem by acting as a universal medium of exchange.
“This is how gold and silver ultimately became recognized as money. Nobody declared it to be so. It evolved naturally in a free market. Economist Charles Menger emphasized that money evolves naturally in markets as individuals gravitate toward the most widely accepted, liquid, and marketable commodity—historically it’s been gold and silver.”
As banking systems develop, people often begin trading notes issued by the banks backed by the gold or silver held there. At any time, people can trade these notes for physical metal. This is known as a gold or silver standard.
Mike then contrasts this sound commodity-backed money system with the fiat scheme we have today.
“Investopedia defines fiat money as a government-issued currency not backed by a physical commodity such as gold or silver. So, what is fiat backed by? ‘The full faith and credit’ of the issuing government. In other words – nothing.”
All modern currencies are fiat, including dollars, yen, yuan, and euros.
So, what’s the problem with fiat?
It is effectively limitless.
This is the root of inflation.
“Governments can create as much fiat money as they want. We often refer to this as ‘money printing,’ although today it’s not even that hard. A government or central bank can create new money with a few keyboard strokes. … Sound money, such as gold and silver, or currencies backed by a commodity, is limited by the supply of that commodity. You can’t print gold or silver. That means if a country issues a gold-backed currency, the only way it can create more is to acquire more gold. This limits the issuance of new money, minimizing inflation and keeping the value of money relatively constrained and constant.”
And why do governments inflate their currencies?
Because it empowers them.
Monetary inflation allows government to borrow and spend to a far greater extent than it can when limited by a sound money system.
Mike compares the expansion of the gold supply with the expansion of the U.S. money supply to illustrate just how much governments devalue their currencies.
“When you boil it all down, fiat money is smoke and mirrors. You want real money. And gold and silver have been filling that role for thousands of years.”
Mike then turns to another important question: what makes something good money?
“Aristotle listed four characteristics of sound money: it must be durable, portable, divisible, and have intrinsic value. Gold possesses all of these characteristics, which is why gold has served as money for thousands of years. I would add a fifth characteristic – scarcity. Iron isn’t money because it is common and abundant.”
Mike highlights some examples of how both gold and silver meet these characteristics. He specifically zeros in on the assertion made by some that gold “has no utility” or intrinsic value.
“That’s just an asinine thing to say! Gold is one of the most useful metals in the world. Due to its utility, coupled with its scarcity, gold is also one of the most valuable metals in the world.”
Mike wraps up the show emphasizing that even though we live in a fiat money world, you want to have sound money to protect your wealth. You can get real money – gold and silver – at Money Metals Exchange. Just call 800-800-1865 and talk to a precious metals specialist today!
Articles Mentioned in the Show
https://www.moneymetals.com/news/2025/05/16/gold-helping-to-unlock-mysteries-of-the-universe-004052" rel=”noreferrer”>Gold Helping to Unlock the Mysteries of the Universe
https://www.moneymetals.com/news/2025/05/15/what-is-the-current-inflation-situation-004065" rel=”noreferrer”>What Is the Current Inflation Situation?
https://www.moneymetals.com/news/2025/05/08/students-are-only-being-taught-half-the-inflation-story-004046" rel=”noreferrer”>Students Are Only Being Taught Half of the Inflation Story
