Honest money is a euphemism for gold and silver. It may be used within the context of fiat money – as an element that serves as its opposite. Fiat money is money generated without the backing of gold and silver or any other commodity or resource. Fiat money in this day and age is also associated with state produced money, as that is the normal kind of issuance offered today.
Fiat money is also known as paper money, or electronic money, whereas gold and silver are known as honest money because they are dug honestly out of the ground using physical labor and the sweat of one's brow. Gold and silver are also honest money because their value actually exists.
Since there is nothing behind paper money but the obligation of a state to redeem it, paper money's ultimate worth may be questionable. There is a history of states walking away from the face value of the money that has been printed. But if one has it in one's possession, it is impossible to walk away from the value of gold and silver – and they are an inherent quality.
Gold and silver are honest – and valuable – because they are beautiful, malleable and transportable metals. That makes them money metals in fact. Bits of gold and silver are divisible and yet they can be put back together with a little heat. There is no doubt that gold and silver are attractive and have been used in certain forms as adornments throughout human history. Gold and silver are transportable because their value greatly exceeds their mass.
Lately, there have come to the fore certain arguments that money is a state construct and that gold and silver are not the original or honest money. This argument, which we have labeled Brownian for reference purposes, maintains that money is defined by the state and may be any sort of fiat so long as the state stands behind it.
But the Brownian argument flies in the face of historical fact when it comes to almost any other commodity or invention. Inevitably progress – human advances – appear in the private sector and are then adopted by the public one. To argue that money itself was first an invention of the state is a questionable concept at best and one that most free-market thinkers would have to reject.
The obvious conclusion for those who are interested in these concepts is that gold and silver were adopted privately as a stuff of value – and only later became seen as money by statist entities. Even today, states the world over reject honest money in favor of their own fiat-generated currency.
Ironically, behind governments stand powerful private interests, including central banks. These central banks – and large banks in general – are apt to deal in gold and silver with each other and to value it privately far more than they do in public utterances. Honest money is still accepted the world over, though the rhetoric might make it seem otherwise.