1) The rationale is that silver is significantly harder to create, while paper notes are easy. If the paper notes must be redeemable for silver, it is some level of control on the creation of paper notes, in that a rational economic actor is unlikely to create significantly more notes than they can redeem. Austrian Business Cycle Theory places the blame for the business cycles firmly on the creation of unbacked paper currencies and the resulting inflation. Most people calling for sliver (or gold for that matter) backing of the US dollar subscribe to ABCT, and believe that such backing would reduce or eliminate the damage done by business cycles.

No. There isn't. There are many bad rationales for metal-backed currencies, but as a practical matter given the relative sizes of modern economies and the sizes of precious metal reserves, any such setup would have to be absurdly leveraged

• Meaning that there would be very little actual metal backing the theoretical convertibility, so it would be vulnerable as all hell to runs. The smallest twitch of panic in the markets would utterly exhaust the actual reserves, so the backing would be a lie.

Or alternatively the price on the precious metals would have to be so absurdly high that the distinction between a mine and a printing press would be utterly meaningless.

Very rough numbers pulled from wikipedia: in order for the value of silver reserves to equal gdp the price of silver would need to hit.. (90 trillion gross world product /540,000 tonnes of silver) .. about 5000 dollars/troy ounce at which point the currency can be debased by mining more silver because the price of doing so would be 2 orders of magnitude less than the value of the metal. And this would in fact instantly start happening unless you outlaw silver mining. Effectively that would be legal currency printing for anyone with a silver mine. Hello inflation.

1) Distinguish between government and individual use of value-tokens. For individuals, money can be traded for silver at many shops, and silver for money at some of them. Of course, there are probably better stores of value than either USD or shiny metal (I might suggest productive working capital in the form of equipment, education, stocks/bonds, or other investments).

2) Anyone who uses the phrase "intrinsic value" is at least 50 years out of date in their microecon thinking - http://en.wikipedia.org/wiki/Marginalism is a good intro to a more modern (and in fact more true - it fits actual data a lot better) theory.

Yes, there is a rationale for having a commodity-backed currency.

Fiat currency has a failure mode in which there's a self-reinforcing mutual lack of confidence. If I think that the Ruritanian Lira is wastepaper, I will try to get rid of my Lira -- I will spend as fast as possible. And this is inflationary. And once other people see the inflationary pressure, they also will head for the exits. Purely fiat currencies can go effectively to zero within a period of a few years -- particularly if they are backed by a weak government that isn't reliably able to force people to accept and use the currency.

With metal or other commodity currencies, there's a floor on that process. Whatever you think of the Ruritanian government, you can use silver for jewelry, wiring, and so forth. Silver does have an intrinsic value separate from its use as a currency. Put another way -- if the currency depreciated badly enough, people would limit the money supply by melting down the silver and using it for wiring, and that would limit the inflationary pressure.

That doesn't necessarily make silver currency a good idea or even a good investment -- it might happen that the market-clearing price, if you ignore the currency uses, leaves a lot of room for depreciation.

Is there a good rationale for a silver backing?

There is some rationale for currency backed by hard commodities. Most people nowadays consider that the drawbacks outweigh the advantages, but valid arguments pro exist.

Was there a rationale historically?

Yes. The governments have a habit of printing money and it's an addictive thing. You need ways to stop the governments from going on a binge and printing lots and lots of money (historically, that happened on a pretty regular basis). Nowadays in the West the problem is considered fixed because technically governments don't print money any more, it's done by a theoretically independent central bank which does not have to listen to what the government tells it. In practice it's... slightly different :-/

Serious question : why not drop by your friendly neighborhood University and ask (or email) an economist?

Dollars already have value. You need to give them to the US government in order to produce valuable goods and services inside the United States. That's all there is to it, really - if someone wants to make #{product} in a US plant, they now owe US dollars to the government, which they need to acquire by selling #{product}. So if you have US dollars, you can buy things like #{product}.

That's the concise answer.

All money is fiat money, regardless of what material you use. If you use printed paper, it's fiat money. If you use precious metals, it's fiat money. It makes no difference because no metal (or any material) has "intrinsic" value. There is no such thing as "intrinsic" value because value is an opinion, not a fact. Money is not a fact; money is a symbol.

More details at:

http://www.forbes.com/sites/pascalemmanuelgobry/2013/01/08/all-money-is-fiat-money/

http://www.alternet.org/story/146150/have_you_caught_gold_fever_the_value_of_that_shiny_metal_is_as_artificial_as_paper_money?paging=off&current_page=1

Money is backed by violence. If you take some that isn't yours then violence is done to you. Unless you take a whole bunch of it, in which case you get to use violence instead of experience it. The lack of a nation (with its police and military) to back a currency means it is valuable until it isn't. With a nation and the violence that defines a nation, money is worth what the nation says it is no matter what we think or prefer. The state monopoly on money is enforced by the state monopoly on violence.