The Search for a Sound Basis for Money

Ever since the emergence of the science of economics (or perhaps science in general or even earlier) man has been on the quest for the conditions require for a stable economic system.  In order to understand how to bring such a system about, it should be necessary to have at a least a brief overview of the history of economics and money.

Recent economic events and a similar history of unfavorable conditions and instability have shown us our markets are not enough and certainly not ideal when it comes to the pursuits of both the individual and/or mankind as a whole Philosophers of economy throughout our history have been trying to solve the problems nations face from global instability. Today one of our best descriptions of a subset of this problem is called the “impossible trinity“:

The Impossible trinity (also known as the Trilemma) is a trilemma in international economics which states that it is impossible to have all three of the following at the same time:
According to the impossible trinity, a central bank can only pursue two of the above-mentioned three policies simultaneously. To see why, consider this example:Assume that world interest rate is at 5%. If the home central bank tries to set domestic interest rate at a rate lower than 5%, for example at 2%, there will be a depreciation pressure on the home currency, because investors would want to sell their low yielding domestic currency and buy higher yielding foreign currency.
If the central bank also wants to have free capital flows, the only way the central bank could prevent depreciation of the home currency is to sell its foreign currency reserves. Since foreign currency reserves of a central bank is limited, once the reserves are depleted, the domestic currency will depreciate.Hence, all three of the policy objectives mentioned above cannot be pursued simultaneously. A central bank has to forgo one of the three objectives. Therefore a central bank has three policy combination options.
a) Stable Exchange Rate and Free Capital Flow
b) Independent Monetary Policy and Free Capital Flow
c) Stable Exchange Rate and Independent Monetary Policy

Our current paradigm leaves us with an inability to create a sound economy that functions with a sound money! Thankfully we have “alternative” perspectives from creative thinkers such as John Nash that pointed out:

I think there is a good analogy to mathematical theories like, for example, “class field theory”. In mathematics a set of axioms can be taken as a foundation and then an area for theoretical study is brought into being. For example, if one set of axioms is specified and accepted we have the theory of rings while if another set of axioms is the foundation we have the theory of Moufang loops.
So, from a critical point of view, the theory of macro-economics of the Keynesians is like the theory of plane geometry without the axiom of Euclid that was classically called the “parallel postulate”. (It is an interesting fact in the history of science that there was a time, before the nineteenth century, when mathematicians were speculating that this axiom or postulate was not necessary, that it should be derivable from the others.)
So I feel that the macroeconomics of the Keynesians is comparable to a scientific study of a mathematical area which is carried out with an insufficient set of axioms. And the result is analogous to the situation in plane geometry, the plane does not need to be really flat and the area within a circle can expand hyperbolically as a function of the radius rather than merely with the square of the radius. (This picture suggests the pattern of inflation that can result in a country, over extended time periods, when there is continually a certain amount of gradual inflation.)
The missing axiom is simply an accepted axiom that the money being put into circulation by the central authorities should be so handled as to maintain, over long terms of time, a stable value.

Nash successfully levates the possibility of an incorruptible gold standard:

Looking backwards, in the period of time between 1717 and 1931 the Bank of England actually had to operate with the axiom accepted that we are viewing as comparable to Euclid’s “parallel postulate”. The theory of what can be done, in central banking, with a money value axiom being in effect is not an empty theory but this is an area which seems hardly to have been studied at all since the advent of “the Keynesians” in “the thirties”.

He then goes on to discuss different considerations for a possible standard and basically comes up with an abstract idea for an Index of Prices. “[A] modern alternative is possible, one that would provide a good standard independent of state pardoners.  This idea occurred to me fairly recently.” Nash writes. He elaborates on his insight with examples and possibilities:

The long-term trend of the value of any index of prices will depend, sometimes predictably on the choice of the composition of that index.
It is a coincidental fact that the inherent nature of mining and mining technology makes it possible for the prices of certain commodities that are produced as a result of the devotion of labor and capital to the effort of mining to increase less (or decrease more) than might be expected.  There is a “dimension paradox”: Agricultural products are produced by using the two-dimensional resource of the earth surface, so the “disappearing frontier” creates a limitation. In contrast, some mining, particularly for elemental metals, can essentially be done in three dimensions, although, of course, there are increasing costs for deep digging.
If we then consider which commodities would be optimally suitable for providing a basis for a means of transferring utility, and if we specifically consider the possibility that the trading partners may be located in different nations and perhaps on different continents, than the suitability of such commodities with regard to the ideal function of facilitating utility transfer depends on the extent to which such a commodity seems to have a value independent of its geographical location.
Clearly, in terms of this geographical perspective, gold has historically been optimal, largely because the labor cost of moving it over great distances is so small relative to the value of what is being transported.  Thus, gold formed a very efficiently movable medium for the transportation of a value exchangeable for other values, ultimately deriving, in one way or another, from human labor (with the achievements of warriors here also being viewed as involving labor).
Nowadays, however, few would propose a return to the actual use of simply the metal gold as a standard, for the following reasons.
(i) The cost of mining gold effectively does depend on the technology. Recent cyanide leaching techniques have made it possible again to profitability mind gold at formerly abandoned sites in the U.S. so that it is now a big producer.  However, the unpredictability of the cost is a negative factor.
(ii) The location of potential gold-mining locations may not be “politically appealing.” so it would seem undesirable to make a political choice to enhance the economic importance of those particular areas.
(iii) There is some negative psychology about gold such tat even if it were the most logical choice after all, the unpopularity of the idea could be very obstructive.
However, right now platinum would be even better than gold, because it has more value per unit of weight.
Crude petroleum could also be used for barter transactions, and in view of the present state of the global economy it would seem a proper component of an index of prices of internationally traded commodities that enter into the costs of industrial consumption.

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