The subject of paper money versus commodity based money (gold, silver) has been discussed countless of times. However, there is one aspect of that discussion
which has not been considered seriously yet. The issue is entropy of metals. Metals represent a form of nonrenewable resources. We mine the metal ores, refine
them and bring them into circulation using huge amounts of energy. However, once mined, metals will not last forever. There is only a question of time before
they disintegrate due to the forces of corrosion and friction. For instance, a large car engine might lose one pound of its mass due to friction over its
effective lifetime. That loss of metal is irreplaceable since it was spread in tiny amounts in the exhaust fume over many years. Similarly, coins in
circulation lose mass effectively due to friction and corrosion. Occasionally, people also throw coins away either because they think the coins have no value
or, quite possibly, they believe that throwing coins away will bring them luck.
The public is not aware of the continous loss of metals due to the forces of friction and corrosion simply because these losses are dwarfed by the continous process of mining new metals. However, the earth is a finite planet which means, that metal ores will be exhausted one day. The question is, how long will the metals continue to exist above the ground once they are mined? I am not an expert on these matters, but I believe that the lifespan of metals can be measured in centuries only (if not less), not millennia. In other words, once the business of mining metals stops simply because in a economy contstrained by the lack of energy resources, food production will be much more important than mining metal ores of poor quality. In other words, we do not fully realize that the cheapness of metals is the result of the cheapness of fossil energy sources (coal, oil and NG).
Back to paper based fiat money. There is less than one ounce of gold per world citizen above ground. That figure will not change dramatically once the mining for gold stops for good as there less gold under ground than there is gold above ground (a staggering thought). Some experts claim that there is less silver above ground than there is gold. These observations, if true, make it clear that we can not have a monetary system based on precious metals only. There is just not enough precious metal around in order to satisfy the needs of more than 6 billion people living on earth. It is therefore clear that we do not have much choice when issuing a currency. That money must be printed on paper or in form of bytes in a computer memory system.
Since paper is a renewable resource, printing money on paper is a sustainable activity while minting coins out of metals is not sustainable since the mass of all coins issued is subject to a decline rate of roughly 2% per year (the decline due to friction, corrosion etc). As long we have trees, we can print paper money. However, metal coins will one day disappear from circulation simply because metals will become very scarce.
The public is not aware of the continous loss of metals due to the forces of friction and corrosion simply because these losses are dwarfed by the continous process of mining new metals. However, the earth is a finite planet which means, that metal ores will be exhausted one day. The question is, how long will the metals continue to exist above the ground once they are mined? I am not an expert on these matters, but I believe that the lifespan of metals can be measured in centuries only (if not less), not millennia. In other words, once the business of mining metals stops simply because in a economy contstrained by the lack of energy resources, food production will be much more important than mining metal ores of poor quality. In other words, we do not fully realize that the cheapness of metals is the result of the cheapness of fossil energy sources (coal, oil and NG).
Back to paper based fiat money. There is less than one ounce of gold per world citizen above ground. That figure will not change dramatically once the mining for gold stops for good as there less gold under ground than there is gold above ground (a staggering thought). Some experts claim that there is less silver above ground than there is gold. These observations, if true, make it clear that we can not have a monetary system based on precious metals only. There is just not enough precious metal around in order to satisfy the needs of more than 6 billion people living on earth. It is therefore clear that we do not have much choice when issuing a currency. That money must be printed on paper or in form of bytes in a computer memory system.
Since paper is a renewable resource, printing money on paper is a sustainable activity while minting coins out of metals is not sustainable since the mass of all coins issued is subject to a decline rate of roughly 2% per year (the decline due to friction, corrosion etc). As long we have trees, we can print paper money. However, metal coins will one day disappear from circulation simply because metals will become very scarce.
