Prologue: The Brave New World of Elastic Money

Mankind has used money for more than 2500 years. For most of history money has been a commodity and most frequently gold or silver. There are good reasons why gold and silver have held this unique position. These precious metals possess some characteristics that make them particularly useful as monetary commodities, such as homogeneity, durability, divisibility, and, last but not least, relative scarcity. The supply of these metals is essentially fixed. Gold and silver can be mined but only at considerable expense. Their supply cannot be expanded quickly and inexpensively. For most societies throughout history, the supply of money was therefore essentially inelastic.

Today we use money that is very different from what the vast majority of our ancestors used. Today, money is nowhere a commodity. It is everywhere an irredeemable piece of paper that is not backed by anything. We live in a world of “paper money,” although most money today doesn't even exist in the form of paper. It exists only as a book entry. It is electronic money or computer money. It is immaterial money. And because it is immaterial money, its supply is entirely elastic. Those who have the privilege of legally creating this money can produce unlimited quantities of it. Although human history and the growth of civilizations unfolded for the most part on the basis of inelastic money, modern societies around the world are now running their economies on perfectly elastic ...

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