Throughout history, no system of fiat money has endured the test of time. There have been numerous examples, most notably in 18th century France leading up to the French Revolution.
The reason? It is too easy to create fiat money.
Governments create money to solve problems – wars, natural disasters, poverty, re-election. When money can be created “out of thin air” there is seemingly no limit to how much money can be created or how many problems can be solved.
Governments like to solve problems.
The world’s money handlers profit by creating money to lend to businesses and individuals. When money, in the form of credit, can be created “out of thin air”, there is seemingly no limit to the prosperity that can be fostered or the money that can be made.
Money handlers like to make money.
No one has benefited more from today’s fiat money system than governments and the financial industry. Governments have borrowed and spent to please their constituents, and the world’s money handlers have grown wealthy as few can imagine.
Not a Panacea
But, over time, fiat money proves it is not the great panacea that people at first think it is. In the broad sweep of history, its effects, though initially welcomed and embraced as hope for a new era of prosperity, prove fleeting.
Ultimately, despite what the government and the money handlers tell them, people come to realize that their money is losing its value at a quickening pace. It is losing value because too much of it has been created.
The words of the government issuing the money begin to ring hollow and the riches of the money handlers become far too egregious.
This realization comes to different people in different ways.
The poor usually suffer first and most, as they experience difficulty making ends meet. Their money no longer purchases what it once did. The poor have little understanding of history’s broad sweeps, what money is, or what money once was. They know little of storing value.
Those in the middle may have prospered by participating in the speculative games offered up by the money handlers. Throughout history, rising asset prices fueled by the extraordinary creation of money and credit have provided the opportunity for ordinary individuals to obtain great wealth and notoriety.
Eventually, they too come to realize that their money has lost value and the lifestyle to which they have become accustomed can no longer be supported.
But, as in nearly all eras, the money handlers prosper more than all others. Those at the top – the business elite, the bankers, the peddlers of influence – they reap the benefits that fiat money provides, most of them knowing well its dark secrets and sordid past.
At some point in time, with a populace accustomed to ever-increasing prosperity and hope, fiat money fails to deliver.
The seams begin to bulge and the system becomes increasingly strained as ever-increasing amounts of fiat money must be poured into the economy to maintain its momentum.
The public becomes disillusioned, realizing they have been duped into behaving in ways that their forefathers would ridicule. Their profligate ways – lifestyles which don’t square with incomes – give way to the harsh, cold reality that there is no free lunch and there are no easy riches.
They realize the government has mismanaged the nation’s affairs, that the money handlers have once again benefited handsomely, and then there is unrest.
One thing leads to another, and one more fiat money system comes to an end….
Whether intentional or by happenstance, whether inspired by Ayn Rand and an Objectivist self interest, motivated by his early years as a gold bug, or driven by a simple desire to be popular, Alan Greenspan’s actions have resulted in drawing nearer the end of another era of fiat money.
Alan Greenspan’s gift to the world was to squash the hope that Paul Volcker’s actions had augured – to bring nearer that eventuality that can not be avoided, and which should not be put off. For Man is Man – his tools have far outpaced his ability to reason and he is not suited for a world of pure fiat money.
No one knows what tomorrow will bring, but all signs indicate that the future of fiat money will not be one of enduring value. A generation of relative stability has begat instability.
Eventually, the current system of fiat money will give way to a new system, and this process has been by hastened by Alan Greenspan.
This was Alan Greenspan’s gift.
via The Mess That Greenspan Made: Three Sins, One Gift – The Gift.
10 Responses
I’d favor an agricultural currency, preferably hemp once we fix the laws. Unlike a metallic currency, there’s no incentive to hoard and keep useful materials out of circulation. There would always be a guaranteed market for the underlying commodity meaning if you need money you could effectively plant it and harvest it.
Hmm, print the money on “hemp”? At least that way if it became worthless you could still enjoy it! ;^)
Can’t say it better. The historical record is one reason why I am very skeptical of the bailout mentality. Printing money simply doesn’t work long term. Besides, it appears that most of the thrust of the bailouts it to restore a system that was spiraling out of control long before the situation became critical. We shouldn’t go back to what had become business as usual but back even further–to a system of saving for a rainy day, being prudent and frugal, and living within or below our means.
Not so much print money on hemp, but back currency with hemp, just as a gold backed currency doesn’t mean you have to use coins.
Though there’s no reason to use paper made from something other than hemp for such a currency…
So money from paper made from hemp would not only be more sustainable, but more fun, too!
And I think we should have real artists design our currency, so it’s more interesting and even more collectible. Kinda like magic card money… anything so it has some value intrinsically as well as what it is backed by.
Ah, hell, the world would be way more fun if we were in charge, huh?
That’s totally awesome, Donna. You’re a visionary.
Worth mentioning that George Washington was a hemp farmer. As was Thomas Jefferson; and Ben Franklin made hemp paper.
Was thinking we could make the switch to metric at the same time. So a kg note would get you a kilogram of specified quality hemp. Etc. Simple.
I’m unconvinced that Greenspan gave any “gift,” any more that someone who punches me in the nose gives me the “gift” of knowledge about how that feels.
The federal government is debasing currency as fast as it can, and is planning to do it faster. The Obama team has signed on to continue the GOP idiocy in this regard.