If fiat money goes to its inherent value, as has happened over and over throughout history, we will have a rocky period, very confused, possibly violent.
As equilibrium returns, there will be at first a barter economy. THink of farmers’ markets all over. Nobody will trust any paper money, but they will trust silver and gold. Forget the hypothetical gold bricks, you are right, you can’t make change for them.
That is the purpose of silver. Through most of history, the value ratio of silver to gold has been about 15 to 1. Currently it’s about 75 to 1, an imbalance which I believe will be redressed. Anyhow, “real money” will start with the old pre-1965 silver dime. In today’s dollar terms, it’s worth somewhere over a dollar. Think of a dime as buying a can of soup. That’s the entry level.
Moving up you will have the old quarters, half dollars etc and then one troy ounce silver coins. In today’s terms, about 12 bucks, but soon to move way up.
Then we transition to small gold coins. A 1/20th ounce gold coin is the size of the rim of a .45 caliber bullet shell. Today, that’s worth 45 dollars. Then 1/10th, 1/4, 1/2 and full troy ounce gold coins. For most folks these are the biggest “denominations” we will ever handle. Today a one ounce gold coin is equal to 9 one hundred dollar bills.
There is a good chance that there will be at least a period between the collapse of the old fiat paper regime and the beginning of a new regime, if it comes. Paper just won’t be trusted if the old paper has become “confederate money.”
During that period, gold and silver will be king.
That reveals precisely my question. Why should anyone trust silver or gold? Because thousands of years of human culture have irrationally placed value on these two very "ordinary" elements? They are shiny, and rare. They have remarkable properties, to be sure, but the Egyptians were not informed of these properties 4,000 years ago when they valued them.
What is the intrinsic (economic) value of gold in a world economy that no longer prices it relative to other economic instruments? It strikes me that gold's value is strictly dependent on an economic system that has afforded it value as a traded commodity. Gold is currently worth $900; OK then. What happens if the dollar doesn't exist? Doesn't the prospective value of gold depend on a continued reliance on the way the world works right now?