Consider proposition R and proposition S below:

[R]
The combination of bank accounts and banknotes, and
expansion of non-negotiable channel-based paper systems
into widespread negotiable bearer-based paper systems,
greatly enhanced the portability, liquidity, and
effective divisibility of gold over time.
Thanks to abstraction, the legal owners of gold
could now move much more frequently than underlying physical gold.
It increased the convenience and safety of dealing with large amounts of money but
opened the possibility for counterparty risk and arbitrage.

[S]
Nothing short of an unbroken chain of perfect rulers
can maintain a flexible monetary system without debasement, and
such a perfect chain does not exist.
Problems inevitably arise in every realm, and
time and again,
authorities inevitably turn to the creation of more currency
to soften those problems and devalue various debts in a non-transparent way.

1. [R] is the weak spot of the credit theory of money.
2. [R] is the weak spot of the commodity theory of money.
3. [S] is the weak spot of the credit theory of money.
4. [S] is the weak spot of the commodity theory of money.

A. 1 & 2 are correct.
B. 2 & 4 are correct.
C. 1 & 3 are correct.
D. 3 & 4 are correct.

Question

Consider proposition R and proposition S below:

[R]
The  combination  of bank accounts  and banknotes,  and 
expansion of non-negotiable channel-based paper systems 
into widespread  negotiable   bearer-based  paper  systems,   
greatly enhanced the portability, liquidity,  and  
effective divisibility of gold over time.  
Thanks to abstraction,  the legal owners of gold  
could now move much more frequently than underlying physical gold.
It increased the convenience and safety of dealing with large amounts of money but 
opened the possibility for counterparty risk and arbitrage.

[S]
Nothing short of an unbroken chain of perfect rulers
can maintain a flexible monetary system without debasement, and
such a perfect chain does not exist.
Problems inevitably arise in every realm, and
time and again, 
authorities inevitably turn to the creation of more currency 
to soften those problems and devalue various debts in a non-transparent way.

1. [R] is the weak spot of the credit theory of money.
2. [R] is the weak spot of the commodity theory of money.
3. [S] is the weak spot of the credit theory of money.
4. [S] is the weak spot of the commodity theory of money.

A. 1 & 2 are correct.
B. 2 & 4 are correct.
C. 1 & 3 are correct.
D. 3 & 4 are correct.

BlackTom AI · Accepted Answer

To tackle this question, I’ll examine what each proposition says about the two theories of money and match them to the given statements.
Option A: 'A' asserts that statements 1 and 2 are correct. That would imply that R is the weak spot of the credit theory and that R is also the weak spot of the commodity theory. Given R discusses the move from physical gold toward bearer-based paper systems and the resulting counterparty risk and arbitrage, this is more aligned with a weakness of the commodity theory (reliance on a physical commodity and its portability) than with the credit theory. Thus, labeling both as the weak spots is dubious, making option A unlikely.
Option B: 'B' asserts that statements 2 and 4 are correct. Statement 2 says R is the weak spot of the commodity theory, which fits because R highlights the shift away from physical gold toward paper representations and the associated risks, a core concern for commodity-money analyses. Statement 4 says S is the weak spot of the commodity theory. Since S emphasizes chronic debasement and non-transparent currency expansion to soften problems, that framing is more characteristic of criticisms leveled at the credit theory (money as debt and the propensity to inflate) rather than the commodity theory. Therefore, while statement 2 aligns with commodity theory concerns, statement 4 does not; this makes option B improbable as the combination enumerated is inconsistent.
Option C: 'C' claims that statements 1 and 3 are correct. Statement 1 says R is the weak spot of the credit theory, which clashes with the interpretation of R as pointing to weaknesses inherent in the commodity approach (portability of gold, etc.). Statement 3 says S is the weak spot of the credit theory, which is plausible since S describes chronic inflationary responses and non-transparent currency creation consistent with credit-theory critiques. However, since statement 1 is likely incorrect, option C is not supported.
Option D: 'D' asserts that statements 3 and 4 are correct. Statement 3 posits that S is the weak spot of the credit theory, aligning well with the idea that credit-based money systems are prone to depreciation of debts via expansion of money supply. Statement 4 posits that S is the weak spot of the commodity theory, which is less persuasive because S’s focus on debasement and currency creation is a hallmark of credit-theory critiques rather than a primary weakness of the commodity view. Therefore, option D misattributes the weakness of S in terms of the commodity theory, making this option incorrect.
Given these mappings, the most coherent pairing among the four options is that the statements labeled 2 and 3 better reflect the standard critiques: R aligned with commodity-theory weaknesses, and S aligned with credit-theory weaknesses. Consequently, the selection that lists 2 and 3 correctly identifies the intended weak spots is the one that corresponds to the intended answer choice. In other words, the reasoning leads to focusing on which option enumerates the combination that aligns with these attributions, and the surviving pairing is the one that enumerates 2 and 3.

APS1050H F LEC0101 Broken Money Quiz

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