Gold and the Scientific Method

As an engineer, the role that gold has played in monetary systems throughout history is fascinating to me. If you are an engineer or scientist by profession, you were taught the Scientific Method - observe, postulate a theory, then test the theory. If the theory survived the testing, it would be accepted as being true, or as being an accurate model, or as being a viable system - something that could then be used to reliably predict future outcomes.

Sounds like a pretty good method. So, why isn't the Scientific Method used to create and control monetary systems?

It seems that throughout history, over long periods of time, the same mistake is made again and again - although intentions are initially noble, governments and their banks always end up creating too much money. At first things seem to go well - everyone prospers for a while, but it always ends badly. More money relative to things that the money can purchase causes the money to lose value, people lose faith, and disasters occur - a moral hazard.

Surely, these can't be the results of using a system developed using the Scientific Method, where the outcome can be reliably predicted.

Now, these problems only occur when a monetary system uses fiat money - money that is not backed by anything other than faith in the government and the economy of the country that issues it. The same government that, in recent centuries, in most of the western world, offers themselves for re-election every few years - their aim is to please their constituents, while at the same time controlling the money supply - maybe this is part of the problem.

Another type of monetary system, one which uses commodity money, for example gold coins and paper money backed by gold, doesn't seem to suffer the same fate as fiat money systems - this must be because in a commodity backed system, money can not be "created" - it has to be dug out of the ground. Digging is harder than printing or making entries in an account.

In fact, you might guess that the commodity backed monetary system is the result of the Scientific Method first used thousands of years ago - a system which has stood the test of time - continually tested over millennia ... and surviving. Maybe the real problem with government and money over the centuries is that there has been a proven monetary system available, but governments just don't use it enough, or they stop using it from time to time - and then problems arise.

Today, we find ourselves thirty some years removed from any linkage to gold, and look around - debt, credit, stocks, bonds, hedge funds, real estate.

Hmmm...

If we are not going to use the monetary system that we know has worked successfully throughout history, maybe someone should run some tests to see if the system we are using can really endure. Maybe we should conduct some experiments, somehow, instead of just continuing to create more money - money creation as a cure for all the world's economic problems - we know how that will probably turn out.