History
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When you make something a standard, it must fulfil some requirements. For example, suppose Listerine becomes a standard in mouthwashes. In that case, it is because the product gives results, it delivers what it claims, there is a track which shows its effectiveness, customers are satisfied, maintains its demand, and clinically can show results. You cannot pick something randomly and claim it to be a standard in the industry. Anyone who wants to introduce a competition must meet or exceed the standard set by Listerine. Otherwise, it will only struggle in the market, deliver less than optimal results to the users, and have many dissatisfied customers.
First and foremost, the standard must deliver what it claims. If a mouthwash does not clean your mouth, then it is not a mouthwash. It adheres to all standards in every industry, if there are any. People may choose other products for cost, convenience, and availability, but a substandard product will never deliver the same effectiveness and satisfaction as the standard. As a result, the customers may face bad results like dental caries, gum disease, and bad breath. This may also set up a chain of secondary complications like difficulty eating, cosmetic defects, and less satisfying intimacy.
Suppose an industry is new, and the available products are in a preliminary stage. In this case, creativity, innovation, and invention will keep raising the bar. This is particularly true in high-tech industries. In some sectors, the margin for progress is small and slow. In contrast, in others, there is an infinite potential for growth and improvement, and progress and improvements are rapid and revolutionary. Theoretically, no standard is final, and a better product or service could always be. This keeps the engines of creativity, innovation, invention, and entrepreneurship going.
What is clear is that a lower or bad standard will deliver less desirable results, will keep causing troubles, and will always have a threat of being replaced. This threat never truly fades away, but it is higher when the standard is low, when the margin for improvement and growth is considerable, or both. The more critical the industry is, the higher the need for a better standard. The need for higher standards is also more crucial in high-ticket items and essential items of need. You do not want your home to start falling apart within a few years of construction, or you do not wish to have life-saving or maintenance equipment fail on you.
Standard must also prove itself. If a standard is forced, especially in critical and expensive situations, it will fail quickly. Governments and their agencies always try to force standards, which fail quickly. Forced standards, as opposed to the accepted standards, always involve corruption, cronyism, and special interest. On the other hand, the accepted standards are natural and survive for a long time until a revolutionary technology replaces them. People love to have good return on onvestment and a good value for the buck. If people realize that the return on investment is not good and the product is not worth the price, they do not take much time to quit.
These facts also gave rise to the term “Gold Standard”. Gold became standard money almost worldwide very early and remained for a long time because of its specific, unique properties. Gold is virtually indestructible. Gold coins found even after thousands years in the depths of a sea, from sunken ships, are still good as new. Gold retains its value. Its supply increases only by 1-2% a year for a very long period. We may find an asteroid with an abundant supply of gold, but that has been just a theory so far, and there is no solid reason for expecting a sudden decline in the value of gold. Gold is highly valued, so you must not carry large quantities. Gold is also highly divisible, hence very suitable for transactions.
Gold still has the problem of storage and the risk of robbery. At some point, carrying it also becomes cumbersome. That gave rise to the Gold receipts, bills, and notes. Bearer was issued a note equivalent to the worth of gold that a banker or a jeweler deposited. The bearer was eligible to claim the quantity equivalent to the cost of the note at the bank or jeweler’s shop. This made gold transactions much easier. Governments started issuing gold coins with the excuse of standardization. Nothing could be further from the truth. Soon, governments, pressured by the needs of warfare and welfare, started debasing the money by shaving the edges of the coins.
Debasing always results in inflation, and their replacement is with more reliable coins, whether private or issued by another government. Still, most people trusted private coins more than government-issued ones because private issuers care more about their reputation due to competition. Hence came the laws giving governments a monopoly over the issue of money. Certain strings were attached, like you could pay taxes only with the government-issued cash. Later, governments replaced coins with paper bills. A bill was always a claim on the part of the bearer for a preset quantity of gold.
That is why the private or the government issuer always kept a 100% reserve, i.e., a quantity of gold in vaults equal in worth to the quantity of money issued. The debasing done by shaving the coins quickly became fractional reserves; only a fraction of the funds issued was kept in vaults as gold reserves. The main issue was war and welfare. The excess quantity of money issued was spent on these purposes. This also led to inflation and bank runs. People fearful of a bank running out of gold, since it did not have 100% reserves, in the first place, would start showing up at the bank with an increasing pace, resulting in bank defaults.
In addition, when governments gained a monopoly on the issue of money, reserve ratios kept declining from 100% to zero percent when currency was detached from gold completely. The end of the gold standard is the root cause of the inflationary and debt crisis we are in now.