November 26, 2022

The Gold Standard

Up until the 1930s, the monetary system in the United States was on the gold standard.

The concept of the gold standard was this:

All the money printed in the U.S. was backed by an equal quantity of gold held by the government.

This arrangement prevented the government from printing an unlimited amount of money - i.e., they could only print as much money as they had gold.

In theory, this meant that someone could take a ten-dollar bill to the US government and exchange it for $10 worth of gold.

Given this arrangement, I imagine that the people of this age thought of paper money as kind of like an IOU for gold.

I also imagine that those same people got pretty ticked off when the U.S. went off the gold standard.

I mean, if you don’t have gold behind the IOUs, then they’re just worthless pieces of paper, right?

Not backed by anything.

Yikes!

Buuuuut, wait a second...

What’s GOLD backed by?

When you think about it, gold doesn’t have a heck of a lot of utility.

There are lots of metals that are lighter, stronger, cheaper, and generally more useful.

So why is gold worth anything at all compared to things like aluminum or copper or steel?

Here’s why:

Gold is worth something because people believe that gold is worth something.

That’s it.

Here’s the thing...

Value is a story.

If enough people believe in the story, then they can transact with the “currency” of their belief.

This currency might take the form of gold or dollars or Bitcoin or CryptoKitties or whatever.

Each has very different properties, but they’re all backed by the same thing:

A story that the holder believes in.

Okay, so... why does any of this matter for people like us?

Here’s why:

If the value of something as tangible as a dollar bill is based on a subjective belief in a story, then just imagine how important it must be to provide a clear and compelling narrative about the value that your totally intangible-by-comparison services could provide to your target market.

Yours,

—J