You are correct that I was associating money with government because that is the historic norm and accepted tradition. Plus, money must be legal in this country. I am aware that other entities, perhaps a bank, can establish their own money. At one time the military had its own script. Getting others to have faith in it and accept it is the problem. Even U.S. Treasury Notes are suspect now.
I am sticking with the philosophical argument about the value of money. Others have noted the characteristics a medium of exchange should have. Being legal, widely accepted and portable are among them. Buying big-ticket items with gold coins is not practical for buyer or seller.
I think it is preferable for money to be backed by something valuable and tangible. It used to be gold. However, as a population grows and the need for more money arises, it is hard to find, buy and store that much gold. As I recall, and I am not confident in this, the U.S. Treasury would keep an accepted ratio of gold to money when we were on the gold standard. That is the same as requiring banks to keep a certain reserve ratio.
The gold standard moderated swings in currency values but it did not eliminate it. Other factors affect that as we know from Econ 101. It also does not make currency or gold immune to manipulation. The rap against the Federal Reserve is its manipulation of the money supply at the whim of politics. The same can be done with gold.
Gold is having a hard time meeting the demand right now. Many who think they own gold only own gold certificates, or a promise to exchange it for gold. Those certificates have a value in the amount of gold they can be exchanged for but no monetary value is assured. In fact, they may get nothing. Some of the big gold sellers, like JP Morgan Chase, have admitted they don’t have near enough gold on hand or assured of delivery to honor all of the certificates they have sold.
This is getting too long so I will revert to my original statement: I agree with Steve Forbes that money itself has no intrinsic value. Its value is as a medium of exchange because its worth otherwise is in a constant state of flux. That worth is determined by how much of it someone wants in exchange for what the have. Anything is worth what someone will pay for it, period, no matter what the medium of exchange is.
As to “money must be legal in this country,” the Constitution says “no State shall make anything but gold and silver coin a tender in payment of debts” (tender laws are not required, but if States (not the United States) choose to enact them, only gold and silver coin can be the required legal tender. Congress is given the power to “coin money,” again linking money to intrinsic value.
If the supply of gold increases more slowly than the economy, then prices fall slowly. This is a good thing, and when it has happened in the past, the population has seen rapid increases in wealth and prosperity.
As George Bernard Shaw said: “You have to choose [as a voter] between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”
It is true that government can manipulate the gold standard, as for example by putting less gold in the coins. But every citizen can understand that. The problem with paper money is that ordinary citizens don’t seem to understand the debasement process.
A quote from Keynes: “Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency. . . Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose.”
Those against metal-backed money are allies of Lenin, whether they know it or not. You might be interested in reading the essay by Warren Buffett’s father on this subject.