This article got me thinking...

If silver is scarce, and industrial demand is growing, then doesn't that compete directly with silver as money? In short, how can you use silver as money if it's worth more as an industrial input? For that matter, how would you pay for your industrial silver in a silver based money system? Easier to chuck it straight in the furnace, no? Might cause some accounting problems, but it does cut out the middle man. I just don't see how it can work. The virtue of gold as money is that it's nearly useless for anything else. Even in the form of jewlery it's only a couple of steps from being money again.

I understand the scarcity argument and how it favors silver for small transactions, but that's more of a historical accident than an actual limitation. Both metals are divisible (and heavy!) so it makes just as much sense to have a small fraction of gold in a coin (say the polar bear's nose on a twonee) than a full silver coin of equal value. Anyone who travelled in Mexico pre- 80's can tell you how inconvenient large coins are. Of course that was the original argument for paper money, so why not just stick with that <g>?

ebear