The world is currently in the midst of an economic meltdown, the like of which is unprecedented in modern times.

A number of countries are on the brink of collapse (Ireland, Greece, Spain, not forgetting the Middle- East revolts were sparked and by an ordinary citizen who was merely trying to earn a living in Tunisia, and protests for staple foodstuffs like sugar in Egypt).

Others are facing severe austerity measures in a vain hope to turn the situation around (such as the UK, typical stiff upper lip approach), whilst the US, who are arguably most to blame for the crisis, continue to add to the problem through printing of trillions of more dollars in an attempt to keep demand buoyant.

In reality, the situation is already well past the tipping point.

There is no hope of a recovery. So what is the way forward for the global community?

Given the global nature of the problem, the solution needs to be likewise, i.e. the implementation of a sustainable global economic system, which western capitalism certainly is not. That’s a discussion for another day.

Roots of the Problem – Paper Money.

However the roots of current the economic turmoil can be traced back to a specific process – the move away from having a store of silver and gold to back up paper money supply i.e. the de-linking of the money supply from the gold and silver standard.

This was a gradual process, as different countries abandoned the gold standard at varying times depending on their individual circumstances: famously Germany after WWI, and Britain after WWII, as the wars had effectively bankrupted their economies.

Hence the need arose to print unrestricted paper money to create ‘wealth’.

The problem with printing paper money with no gold reserve is the risk of rampant inflation.

In comparison to the gold standard backed currency, inflation is minimal, if not nil.

The esteemed economist, John Maynard Keynes, warned against the risks of inflation.

"By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some".

So inflation should be seen as a decrease in the purchasing power, or value, of the medium of exchange, i.e. paper money, rather than an increase in price levels.

It could even be argued that inflation is another form of taxation!.

Gold Standard Abolished The death blow was delivered in 1971, when the US President Richard Nixon, as a result of another war (Vietnam) abolished the gold standard for the US dollar.

Up until this point, the gold standard effectively existed globally, as all other currencies were pegged to the dollar, which was itself backed by gold.

Gold vs. Paper Money.

So how can we measure the impact of the move away from gold backing for paper, or fiat currency, as it is also known?

Quite simply, the worth of any commodity can be determined by its purchasing power over time. So we can compare what money and gold could buy today at some point in the past. Gold historically has a fixed value; its purchasing power does not erode, if anything, it increases.

The French Philosopher, Voltaire, summed up the situation, when he famously quoted that ‘paper money eventually returns to it’s intrinsic value – nil.’ The purchasing power of gold has increased four fold, with the supply not even doubling across the same period.

The second article in the series will look at the gold and silver standard from an Islamic perspective – let us not forget that that the Islamic Dirham and Dinar introduced in Medina at the time Prophet Muhammad (saw) are based on specific weights of gold and silver, and are the recognised currency for Muslims and the economic system based on shariah.

We will also be giving you ten reasons why NOW is the right time to invest your own wealth in gold and silver.