Silver: Commodity or Money?
Even today, 150 years after silver was demonetized and 45 years since silver has disappeared in any proportion from physical coins, silver still is circulating, if not in any official manner, at least as numismatics and as a store of value. The demand has not gone to zero, as some predicted in the 1990s.
Today, close to 40% of silver’s demand is as store of value.
More than 2,300 years ago, Aristotle defined the characteristics of a good form of money as having these attributes: It must be durable; it must be portable; it must be divisible; it must have intrinsic value. Silver has all these attributes. At the same time Aristotle said, “In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings.” The problem with fiat hasn’t changed, and neither have the natural attributes of gold and silver. Silver and gold still possess Aristotle’s characteristics of a good form of money.
It’s a mistake to dismiss silver and gold as money. Even if both have been out of circulation for a long time, they remain in the background of the monetary system as ‘real’ money in extremis: gold as part of the official foreign exchange reserves, and silver as poor man’s gold. During the financial crises in the 1970s and in 2008, both gold and silver spiked on monetary demand Perhaps Julian D. W. Phillips says it best about silver: “The silver price has moved with gold for several years now and we believe it will continue to do so.
However, silver has led the way on this breakout, so we ask again, is this because of the excellent fundamentals? We think not, as it has moved and will be moving as a monetary metal, despite it having no monetary role. With the health of the monetary system slowly decaying over the years,savvy investors are protecting themselves. Many will question this conclusion because it is so long since silver was recognized as money. We would answer by saying that it is more a turning away from fiat currencies to items that have always been recognized as measures of value over man’s existence. It is only since 1973 that the world decided to reject precious metals as money.”