I wrote:
> It would make a lot more sense to base the money supply on sand (silicon) > or kilowatt hours of generating capacity, or some other useful commodity. > Here is an interesting quiz: 1. In England circa 1800, what was the most valuable material per gram: iron, diamonds, or gold? Answer: Iron, when it was worked into the blue steel springs of marine chronometers, used for navigation. England led the world in chronometer production. At the peak of their value, chronometers were worth about 1/3 the cost of a ship. They were the high tech gadgets of that era, like computers are today. The spring was the most critical part, and the hardest to make. 2. Today, what is the most valuable substance on earth: silicon, gold, or uranium? You know the answer: silicon, when converted into something like an Intel processor. A tiny bit of it is worth hundreds of dollars. Demand is so great, you can sell it practically unlimited quantities. If NAND semiconductor memory (SSD) replaces hard disk storage, here is the size of the market: There are, at present, more bytes of hard disk storage than there are grains of sand on all the beaches of the earth. Think about that. Compared to gold, computer storage is a Niagara Falls of money. The thing is, people want it. It is useful. Companies such as Google use it to earn money. You can't do that with gold. (I am not sure it would be a good idea to base the money supply on the number of bytes of disk storage available because every single byte on earth could be stored in 7 mL of DNA, which is cheap, to say the least.) The value of any material is a function of the knowledge and skill added to the material, and the usefulness of it. As for diamonds, they are made of carbon and synthetic ones will soon be of better quality and larger size than the natural ones, so the cost of diamonds per kilogram will eventually be about the same as natural gas (which is what they are made of). Women's clothing will be decorated with thousands of them, worth a few hundred dollars at first, and later $20. I hope they will make a good semiconductor substrate. I hope eyeglasses and iPads can be coated with thin film diamond to make them scratch resistant. That will make diamond broadly useful again for the first time since the demise of the diamond record player stylus. There is no reason to think that in the distant future gold will not be available for $20 a ton, for anyone who have some use for a ton of gold. The notion that gold might automatically put a limit on the money supply is based on 18th century technology. I know little about economics, but I can tell that the economists and "gold bugs" who entertain such notions know *nothing* about technology, and nothing about the future. - Jed