So far, things in your small community are still pretty calm.
After the Great Crash of '06, you remember watching the news reports about the looting and burning in the cities and were glad you weren't there. You remember how martial law was declared and seeing the National Guard patrolling the streets. You remember how the President came on TV and said it was a time for belt-tightening and self-sacrifice for the good of the Country. You watched truck after truck pulling into the food distribution centers and the people standing in line to receive their daily rations. You watched as the Chairman of the Fed told us how this was only a temporary situation. That after their measures had taken effect, things would return to normal.
But somehow . . . they just never did.
Ever since oil went up and transportation prices sky-rocketed, the Wal-Mart truck is only coming in once a week, instead of once a day. And when it does arrive, it is usually only half-full. People are even camping out over night to be the first in line-arguments and small fights are taking place and even if you do get into the store, there is a limit set on how much you can purchase. And once things are gone, there are gone until the next week or longer. And now even that has stopped.
Most of the smaller businesses have already closed their doors. Once they were out of stock, they couldn't ever get replacements for their products and couldn't pay the rent.
After you were laid off you were doing OK for awhile. But things sure were expensive. You remember going into the grocery store and spending $400 for a weeks worth of groceries that used to cost you $200. Every day you went job hunting, but no matter where you looked there was nothing to be found. People just didn't have any money to pay you. The employers that were left were mostly one-man operations trading their skills for goods.
You heard it said that our economy was a service-related economy and we really didn't make anything anymore and that was why. One guy said that our trade deficit was so large that this is only a much needed correction. But it didn't matter to you-what you did know was that you had to have food for the kids and you didn't have the money to get it.
And pretty soon you were behind on both your car payment and mortgage. You finally had to put them up for sale so you didn't lose all you had in them, but nobody had the money to buy them. Someone finally came and took the car, but it didn't matter-you couldn't afford any gas and didn't have anywhere to go anyway. They told you that the house was theirs, but nobody ever did anything about it and you are still living in it so far. Must have been because of the massive bankruptcys in the financial industry you read about in the early years.
On one of your job hunting trips you finally caught a break when you found a farmer willing to trade you some chickens and vegetable seeds for that old generator you bought for camping. Well at least you may not starve.
A few months have gone by and your small garden and livestock operation has been pretty much a success-you are eating and even producing a surplus that you are trading with some of your neighbors. Those candles and matches you traded for the eggs the other day has made everyone happy. And the toilet paper you got for those 2 fryers have pretty much made your year!
Alternative marketplaces have started to spring up. The small farmers market in the center of town has grown tremendously. In fact they are selling a lot more than food down there now. You took some eggs down today and came back with a roll of silver dimes. Sure was a lot easier and safer to carry than that pile of firewood.
You think you have made a really good trade-but when you get home your wife just looks at you kind of funny and says "Honey, we can't eat those."
And immediately you feel like the fool and realize she is right. We sure can't eat them-what was I thinking of ? You'd always heard that you could use silver or gold as money, but why would you ever want to ???
If for some reason our currency does fail us, there may be the possibility that precious metals, like gold or silver will eventually arise to take its place; though barter will probably play a larger part at first or in short term situations.
(So please remember that we are talking long-term here; a complete paper dollar crash that might last for an extended period of time and gold and silver are being used as the primary currency in the economy.)
Even in the worst of times people will need goods and services they are unable to produce for themselves and some sort of economy will probably exist.
Besides having a good supply of these metals in stock, it may also be a good idea to know a little bit about them so we can be good traders.
Why would we ever want to use silver or gold as money? Like the wife in our example said 'You can't eat it!'
When we have wealth in the form of things we can use, like eggs, chickens, rabbits or firewood, they can be inconvenient to transport, store/maintain or trade with.
We may have a dozen eggs and need some toilet paper. Someone may have some toilet paper and need some firewood. Someone may have some firewood and need some water.
People have different needs at different times. What we have, may not be what they need and vice versa which is one reason that money came into being in the first place. It is the so-called grease in the wheels of commerce.
It makes it easier for us to trade with. If we can take $1 and use it to buy anything we need at a particular time, it is much more convenient than finding someone who has exactly what we need or arranging a 3/4/5 way exchange. Or waiting until next Wednesday when the firewood guy comes to market.
It is also much easier to transport money. Using your wheelbarrow to haul some firewood down to the store is a lot harder than carrying around a few bucks in your wallet.
And certain forms of money can also be used to store up some of our wealth for future use. Money, historically has been small, durable and easily hid. If we were good farmers, we were able to take some of our vegetables and sell our surplus for some money which would be worth the same as our vegetables. We could then hide this money and use it at some later time to buy the things we needed. Whereas, if we tried to store our vegetables or eggs, they may not last very long. We are able to preserve our wealth in the form of money.
Money is used to make it easy to . . .
Why Gold or Silver?
While we may not be able to eat them, they have a long history of use as money behind them. People trust them. The expression 'Good as Gold' is ingrained in the mass consciousness of society.
They are durable and last for ages. You can go out in your backyard and bury some gold and 1,000 years from now someone can dig it up and it will be just like you buried it. Same color, same luster, same weight-nothing has been lost. Silver does tarnish with age but can also be brought back to its original color.
They are easy to work with. Both are easy to melt and add more to, cut into smaller pieces and hammer or form into different shapes or mark with writings or stamps.
We can weigh them and test them to make sure we are getting the real thing and know exactly how much we are getting. When you try and use a cord of firewood as currency, problems may arise.
They are relatively rare. There is only so much that is in the earth and circulation and unless you are a master alchemist, you can't make them yourself or print them up like paper money. They are hard to find and get out of the earth. Once you do find some it may be mixed in with other rocks or minerals and be hard to extract in their pure form.
They actually can be put to real use. You may not be able to eat them, but you also can't eat firewood. You can't use them in a fire like you can paper dollars, but they are used in many applications and decorations due to their physical properties.
In short, they meet all three of our criteria for use as money.
1. Once a value for them has been set in the marketplace, they are easy and convenient to trade with.
1 ounce of silver=1 cord of firewood
1 ounce of silver=10 dozen eggs
1 ounce of silver=2 bushels of apples
1 ounce of gold=1 acre of land
Once the value has been set and usage is widespread, people will accept them as money because they know they can also use them to buy products with. They are easy to divide and measure. They are easy and convenient to use.
2. They are relatively easy to carry. In small enough quantities they are lightweight and don't give you the same problems that a goat might.
3. Because of their properties, they can be easy to store/maintain and usually (though not always) retain their wealth storage value.
If an alternative currency does eventually develop after any paper money crash it will more than likely be in the form of gold and silver, though there might also be other currencies accepted (like cigarettes, ammunition, fuel, drugs, prostitution, etc), though these all have some drawbacks.
How do I know I am getting the real thing?
Coinage is usually easy to tell. Each piece is marked and divided into certain denominations. All denominations weigh about the same. There are guide books which detail each piece of real money (though in times of a real crash the collector value may not be anywhere near what it is today and be closer to the usage value-still all coinage may be worth more than any other type of metal due to its good characteristics as money).
Gold and silver bars and rounds can come in many shapes and sizes. Some marked and some not.
Sterling silver is .925 silverwith a .075 additive, usually copper. Sterling made in the USA after approximately the 1850's always has a sterling mark. It may also say Sterling. It may be .925 or show the fraction 925/1000. If it does not have this mark it is not sterling, though sometimes these marks can be very hard to see or are worn away (use your finger to rub any tarnish in suspected spots). English Sterling may also have one of the popular lions head marks on it.
Sterling silver always retains it intrinsic silver value and usually a value also as tableware.
Silverplate has no intrinsic silver value. It is not worth the refining costs to try to redeem the silver. It has very little resale value as tableware.
Sterling will last forever if you want to use it and take care of it. Most Silverplate will last approximately 20 years or less depending on use with the proper care.
Silver also comes in various grades:
Pure silver (.999 fine) Bullion, bars or rounds (though assays are a must)
Britannia silver (.9584 fine) highest quality used in manufacturing, made in Great Britain and carries the figure of Britannia (The Goddess) on it
Sterling silver (.925 fine) See above
Coin silver (.900 fine) 90% silver with usually 10% copper mixed in; usually reads 'coin silver' or '900' or marked with 'dollar' or a 'D'
Alloyed silver (.800 fine) normally 80% silver to 20% copper
German silver (varying composition) composed chiefly of nickel and copper with a small amount of silver; after 1890 it was marked 'German Silver'
If silver and gold ever do regain their status as actual currency, you will definitely want to know how to test them.
One of the primary means is through Specific Gravity or the weight test. Warlord has a very good article about it on this site, along with how to buy your silver and the psychology of it, so we won't even go into this here.
Another thing that you need to be aware of is that many items are weighted to give the appearance of fine silver, while only being plate. The specific gravity test is a sure indication.
At other times you may find flatware that has a makers mark, but rather than being made entirely of silver, only a portion of it is, as in a knife which may have a stainless steel blade (once again, specific gravity).
And of course we've all heard about how coins have been clipped, worn and devalued in other ways over the years.
The Nitric Acid Test. This test is used to differentiate between silver and other metals. (if doing this test for collection purposes, due it inconspicuously and wipe it off afterwards or use a test stone).
Basically, when nitric acid is applied to a piece of suspected silver, such as sterling, the acid will merely turn a grayish, cloudy color. If it is high in copper content or plated, a greenish color will appear which means it is low grade.
Nitric Acid tests can also be done for suspected Gold.
Scratch the object with a file (or make a mark on a test stone) and apply a drop of Nitric Acid.
-If the object turns a bright green it is gold plated or gold filled on base metal.
-If the object turns a pinkish cream colour it is gold-plated or gold filled on silver.
-10 karat gold will turn dark brown.
-12 karat gold will turn light brown.
-14 karat or higher will have little or no reaction.
A more sophisticated method is with dichromate acid, which you can obtain through jewelry or chemical supply houses (Shwerter Salts).
When mixed with nitric acid (1/8th of a teaspoon of potassium dichromate with 1/4 ounce nitric acid) and placed upon a piece of metal you will find it turns the metals different colors:
- Brass - Dark Brown
- Copper - Brown
- Nickel - Blue
- Palladium - None
- Gold - None
- Silver Pure - Bright Red
- Silver .925 - Dark Red
- Silver .800 - Brown
- Silver .500 - Green
- Lead - Yellow
- Tin - Yellow
(Use caution and follow instructions whenever dealing with any chemicals).
Another common method of testing and determining exact compositions is with fire assays, which are beyond the scope of this article and my experience, though I have attempted it with very poor results.
And just as a short aside, if you do know how to test and work with various metals and someone else doesn't, it may give you a slight advantage in your trading activities.
Now I can't predict the future and don't think anyone else has much of an idea either. Is it possible, that once again our currency will be based upon the use of gold or silver? Maybe, and primarily because of their history and convenience. Will we rely on these metals in the early stages of a crash or for a short-term one. Probably not, which is why we need food, water and other barter items. Will small marketplaces eventually decide upon a usable value for them. Eventually, just as they will with barter goods. Should we have a little bit on hand and be knowledgeable about this subject. Yes!