The Blacksmith doesnt starve to death since he only holds 10 BTC of his 100 BTC total capital. Also you need to consider that the other participants dont know that the Blacksmith will hold back 10 BTC this week so they spend all their coins as normal.
This is false. The Balcksmiths started loaning the money in fractional reserve system with the knowledge of their clients. Previous to fractional reserve the blacksmith were not paying interest buy charging a fee. Suddenly the blacksmith starts paying interest instead of paying a fee, and people dont even question why he is paying interest now and where does he get the money? It makes no sense.
Gold has failed as currency. (AS CURRENCY! I DONT SAY THAT GOLD FAILED IN GENERAL!)
Gold has not failed as a currency. Gold was removed slowly from the monetary field by politicians and bankers because it didnt allow them to inflate the currency as they wanted. But gold as currency has not failed.
true, what you say makes no sense.
Gold has failed as a currency, it wasnt removed by politicians and bankers. The Kings in in medieval times already started to reduce the Gold % of a coin since Gold was way to rare to satisfy the market with enough pure gold coins. Many wars in in medieval times started for the reason of acquiring more Gold for the Market.