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Source link: http://archive.mises.org/2352/the-demise-of-fiat-money-systems/

The Demise of Fiat Money Systems

August 15, 2004 by

Fred Sheehan has written an essay Stefan Zweig Meets Mr. Market, on The Daily Reckoning web site. The essay mentions Austrian school economist Eugen von Böhm-Bawerk. The theme of the essay is the complacency of the citizens of countries on the verge of hyper-inflation as most of the population was unable to see that things might be different in the future than in the past. He examines the case of France’s assignat inflation and Weimer Germany’s hyper-inflation. Sheehan then draws parallels to our current situation with the US dollar. A very thoughtful essay and well worth reading.

On the same theme is Peter Warburton’s The debasement of world currency: it is inflation, but not as we know it. Warburton argues that the world’s financial system has been experiencing a massive inflation on financial assets, but that it has been hidden by efforts to maintain the price of certain key assets such as gold and oil, through financial deriviativesl.


Jonathan August 16, 2004 at 1:41 am

A lot is written about the gold market (amongst others) being deliberately rigged by an alliance between the authorities and financial market players. I have never seen this claim put forward very convincingly. Sure, one can argue why gold ‘ought’ to be a great deal higher and that it is in the interest of the Fed/market to keep gold low is not in doubt. It is quite another thing to claim that therefore there is a conspiracy.
If there are any good articles on this please point me in their direction. Thanks.

rtr August 16, 2004 at 3:00 pm

The growth of the number of outstanding printed currency is gargantuan. But that is dwarfed by the growth of all other forms of “money” inlcuded in M3.

Paper, whether it be government fiat currency, a certificate representing a definite amount of “gold” from some private “libertarian” institution has a priori no more AND NO LESS any determinate amount of value than a piece of land, a car, absolutely every thing that exists. All of the independent constantly in flux valuations of everything are all determined by the interaction of in flux subjective valuations of individuals. For instance, a $10 million Picaso painting can, ceterus paribus, be valued at 6 cents tomorrow.

Take the entire set of all things that can be exchanged. The single most commonly used medium of exchange in that set is called money, but it is still just another thing in that set of all things that can be exchanged.

It’s possible that monetary theory (including “Austrian” versions of it), whatever that is, is a bunch of over complicated confusions as tenuous as the current fiat currencies. At least, Mises would encourage such a critical continuous re-examination of all the premises upon which it is built.

Certainly a libertarian conception of money would likely involve competing privately manufactured currencies, backed by things like gold and others backed by nothing at all except perhaps the signatures of celebrity athletes. [Perhaps the Mises Institute should issue its own "currency" with faces of famous Austrians :)] It would not be limited to using the force of government to declare that gold is the only legal tender. That does, however, bring many new problems such as what form would civil suits be settled in, especially regarding suits stemming from failures of private currency/banks.

Perhaps a fertile ground for exploring such questions resides in examining the economies of mmmorpg’s (massively multi-player on-line role playing games) such as Everquest and Final Fantasy XI. The “pretend” currencies (computer programed bits representing “gold” and “gil”) take on real value as evidenced by the black market trading of them on ebay. “Money” itself cannot escape subjective valuation. And that brings all sorts of interesting parameters to economic calculation. And it’s probably much more efficient for a rational businessman to calculate using a variety of “currencies”; for instance certificates backing precious metals, perhaps other certificates backing standard industry units such as a semiconductor chip, etc.

Another interesting question is how has it come about that all this credit that can be extended without seeming limit such that billions of it must rot away in shredders and land fills in the form of unsolicted non-claimed offers of credit from myriad sources. And does explicit or tacit government approval of that credit extension (due to the existence of a single legally declared currency) exacerbate all that? I assume these entities must apply for the legal right to extend credit from the government.

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