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Blog Posted in avatar   Alexander Baron's Blog

The Truth About Fiat Money

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By Alexander Baron
Posted Apr 20, 2013 in Politics
What is so terrible about fiat money? According to Ron Paul and other hard money advocates, fiat money is the cause of all our problems because it allows the government to inflate, inflate, inflate, thereby imposing an invisible tax on savers and by degrees deprecating the currency to a nothingness.
The solution is to restore the gold standard when we will see the return of Mom's apple pie, The Brady Bunch, the restoration of the rule of law, and all will be peace, light and happiness not only throughout Ameri-K-a but the entire world. If only.
There are a couple of things Congressman Paul appears to be forgetting. One is that America and indeed the world had the gold standard before, and there were still wars, depressions and drunkenness. The other is that it is not the American Government that inflates the currency but the Federal Reserve. The third, which he probably doesn't realise and wouldn't accept even if he did, is that inflation is not necessarily a bad thing, because the money supply must increase if the economy is to expand and the people are to be assured a constant supply of goods and services. And let's not talk about capital goods and infrastructure.
Money in our pockets is a good thing; here is one of our resident nutters to explain why:
“Today if you go into a shop to buy food and your credit card is refused by the computer, you can pay with cash. What happens when there is no cash? You are at the mercy of the computer. If it refuses your card or microchip, you have no means to purchase anything.”
Is David Icke right, or is he right?
It is not fiat money, cash, printing money or minting coin (including electronically) that is the problem. Rather it is the creation of money as a debt. Congressman Paul and others assert that if governments are allowed to print money then they will always do so. This argument is superficially persuasive, but the same can be said - in different contexts - for all manner of things besides money.
Cars are dangerous, they injure or kill people. So we have responsible laws relating to them. Before he is allowed on the road alone, a driver must pass a driving test. The speed of cars is regulated, as are their designs, and so on.
Alcohol is dangerous, so we have laws relating to its production, distribution and sale, etc. If we trust the government to regulate the traffic on our roads, and what we drink, eat and otherwise consume, can we not trust it with money also?
If money/credit is created responsibly, by national, or even by local government, this can be a blessing rather than a curse, for one thing it will dispose of most of the public debt, that thing Congressman Paul says we have hanging around our necks due to the government printing press.
So how can this be achieved? It has been achieved in practice by the so-called Guernsey Experiment, and there are other ways it can be achieved, which you can check out here.

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