Today, all banknotes and coins are "worthless" and many stock prices do not reflect reality.

Many centuries ago, precious metals, especially gold and silver, became the safest means of exchanging goods. The monarchs secured for themselves the exclusive right to mint coins from these precious metals, and the monarch, who had the most abundant mines in his territory and was able to mine these metals, was also one of the richest, and his country flourished accordingly.

But there was not enough gold and silver at the time to cover all consumption and support economic growth. Especially during the wars (which took place quite continuously in the Middle Ages, but also in the Modern Age), the rulers did not have enough money to finance them, and therefore even had to borrow it.

Once upon a time, a certain Scotsman John Law came up with the idea to “collect” from the people coins made from gold and silver in exchange for a banknote (or a confirmation if you like) on which was written that the holder would be paid the corresponding value in coins against handing over the banknote - understand gold or silver coins, not today's worthless copper and the like. By the way, this is still mentioned on some banknotes today!

However, the problem arose when the monarch, who had "exclusivity" for issuing these banknotes, began printing more banknotes, which were no longer covered by these precious metal coins. People thus began to pay with worthless papers, as more were issued than the amount of gold and silver coins in the eminent's depository.

And economies around the world still suffer from this problem today. Central banks print worthless papers called money. If only 10% of all banknotes in circulation were to be exchanged for gold, then all countries in the world would go bankrupt immediately, as they do not have such gold reserves. There is enough gold in the world - yearly production is over 3,000 tons, so it perfectly covers world consumption and even some wanabe "investment companies" can offer overpriced gold to inexperienced investors on TV or on the Internet. However, there is not enough gold in the vaults of Central Banks to cover the original purpose of banknotes.

The issuance of shares actually works the same way. A company issues shares for its further development, but what actually covers the value of these shares? Only uncertain future results of the company. It is wonderfully described on the example of the Mississippi Company in the book mentioned below. The investor always only SPECULATES on the future value of the company.

I recommend the book THE GREAT GAMBLER by Claude Cueni to all those interested in this issue. It is a captivating story, based on real events, in which even the greatest layman learns in the form of a novel what really stands behind money and the value of shares.

In my opinion, it is therefore advisable to keep as much cash as I need for the next 6 months and to have everything else in quality investment products. Collectibles (with stamps on top) are among those that have been constantly appreciated for more than 150 years. With banknotes and stocks, you never know when the market will collapse - which has happened many times already. On the contrary, the collector's market has been operating for centuries without major shocks.

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  • Radek Novák
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