North on Money, Part 2

Why did gold and silver become the market's choice of money? Gary North answers:

Individuals in the past voluntarily adopted gold and silver coins as the preferred commodities to facilitate economic exchange. They did not accept these two metals as the preferred monetary units because of their commitment to economic theory. They chose those metals because there are advantages offered by these metals that competing commodities do not possess to the same degree. The main advantage is continuity of value (price) over time. . .

Gold and silver have been universally recognized by societies throughout the world as reliable forms of money. This has given an advantage to any society that restricted the use of money to gold and silver coins, or warehouse receipts to specific quantities of gold and silver. This is what the 19th century provided more than any society in modern times.

Historically, the only society that has maintained a gold coin standard for 1000 years was Byzantine society, from the fourth century until the 15th century. That was the longest period of monetary stability in the history of man. Eastern Rome was wealthier than Western Rome, and the most important single reason for this was the fact that Eastern Rome had a stable monetary order for 1000 years.

And on the subject of deflation:

When gold and silver coins are the primary form of money, increases [in] the production of nonmonetary assets tends to lower prices. There is a steady increase in the output of goods and services other than money, and therefore we have a situation in which more goods and services are chasing essentially the same quantity of money. This leads to steadily lower prices.

Steadily lower prices are the correct economic goal. Whenever we view scarcity as a liability, then the increase in productivity steadily reduces the effect of this liability. If we want to see a decrease in scarcity, we want to see a decrease in the general price level. As greater productivity enters the society, the competition among sellers of goods and services in order to gain ownership of gold and silver will lead to a reduction of prices.

This is the whole point of competition. We want to see lower prices. Lower prices are an indication of increased wealth. So, deflation, in the sense of price deflation, is a social benefit and an individual benefit. Deflation in the sense of the contraction of the money supply is not a social benefit and not an individual benefit. Gold and silver produce the kind of price deflation that is good for individuals as well as social order. Fiat money produces the kind of economic crisis and monetary contraction that is bad for individuals and social order. [my emphasis]