Sunday, 25 December 2016

Isaac Newton: Money Must Have Fixed Quantity of Precious Metal

In Isabel Paterson’s classic book The God Of The Machine, there is an informative discussion on the nature of sound money in the chapter, “Why Real Money Is Indispensable.”

Paterson says that the economists who advocate fiat money (paper currency not redeemable in gold) are below the mental level of savages. She shows that the economic prosperity of a nation directly linked to the soundness of its currency. When money gets debased, economic activity comes to a standstill. She says that “the material used for money must be durable, divisible, incorruptible, portable, not easily imitated, and found in nature in sufficient but limited quantity.”

The chapter has an interesting account of Isaac Newton's argument on why money needs to have a physical value attached to it.

Here’s the excerpt:
"Sir Isaac Newton was asked by the British Treasury officials and financiers of his day why the monetary pound had to be a fixed quantity of precious metal. Why, indeed, must it consist of precious metal, or have any objective reality? Since paper currency was already accepted, why could not notes be issued without ever being redeemed? The reason they put the question supplies the answer; the government was heavily in debt, and they hoped to find a safe way of being dishonest. But Newton was asked as a mathematician, not as a moralist. He replied: "Gentlemen, in applied mathematics, you must describe your unit." Paper currency cannot be described mathematically as money. A dollar is a certain weight of gold; that is a mathematical description, by measure (weight). Is a piece of paper of certain dimensions (length, breadth, and thickness, or else weight) a dollar? Certainly not. Is a given-sized piece of paper a dollar even if numerals and words of a certain size are stamped on it with a given quantity of ink? No.”
Unfortunately the modern economists and politicians have forgotten Newton’s answer to why the monetary pound must have a fixed quantity of precious metal.

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