Back in old England economist Sir Thomas Gresham 1519-1579 said that ‘Bad money drives out good money”. At that time nearly all money was precious metal coinage. Being in coin form standardized the metals to government standards and made commercial transactions possible. That was good money. Bad money was basically inflationary when greedy rulers debased or lowered the gold or silver content of the coins. People recognized the difference in the coins quickly. They hoarded the good ones while spending only the lower value debased coins. Good coins disappeared even faster in times of war when gold and silver was replaced with copper and paper money as in the American Civil War. Ten years later when the Franco-Prussian war broke out the city of Kaiserslautern, which used Bavarian coins suddenly experienced a coin shortage that brought commerce in the city to a stand still. Silver coins vanished and with 200,000 German troops stationed in the city or passing though, the demand for coins sky-rocketed. To remedy the situation the city fathers authorized the issue of Darlehen Schein notes with the denominations of one, two and five gulden dated July 31, 1870. These notes were valid until three months after peace was declared. (A Darlehen Schein is a note issued by a state loan office or bank much like a mortgage bank.) Here we have a one gulden note that was issued to the Kammgarnspinnerei.
This highlights the problem with making money out of precious metals. The Chinese, for example, did not want money (coin) to be made of precious metals, for the very reason that if coins are made of precious metals, the coins will be shaved, debased, but mostly hoarded because people understand precious metals as a commodity. Hoarding immobilizes "money objects" from circulation. Therefore, to the Chinese of the past, "money items" like coins should be made of only base metals. To them, coins were only a seen as a means of exchange and a measure of value, and NOT a "store of value," like many Western societies believed. This is why you see that the Chinese coins of the "cast coin" era (the round coins with square holes in their middles) are only made of base metals like copper and tin, etc.
