Fiat Money

My husband collects these coins from the Roman Empire, which eventually collapsed due to a debased currency. You can clearly see the evidence of inflation just looking at the clipped edges. You can clearly see it in our own coins if you have a quarter old enough. Or, at least you can hear it. Just drop a 1964 quarter onto a hard surface. Take it in your hand and hold it. Look at the edges. Look at the sides. Examine it next to a modern quarter. Drop it too. Hear the difference? Feel it? Look at the sides. We are ensuring our own destruction with debased currency same as the Roman Empire did.

Lew Rockwell has just posted an excellent article about understanding the crisis. It's not what the press passes it off to be, and not what most people think it is, but that's hardly their fault - it isn't like government schools are teaching economic basics despite the desperate need to do so, and if they did, they sure wouldn't be teaching Austrian or Monetarist economics anyway. He's quite right; if it is to be summed up in two words, those words are "fiat money."

"What caused this? It is a simple question, and yet answers are all over the map, as you might expect. Here's mine in two words: fiat money.

The word "fiat" means "out of nothing." Money out of nothing is money that is eventually worth nothing. The possibility of precisely that happening emerged in August 15, 1971. Since Nixon severed the last tie of the dollar to gold, the world's monetary system has not been restrained by anything physical. We've depended on the discretion of central bankers. We can't trust that, and this crisis shows precisely why."

This is a pretty simple concept, and of course it's a huge threat to the powers that be if people start figuring it out. This is why it's essential that we do just that. He's quite right; there is nothing restraining the creation of money anymore. Nothing real. We demand that the government give us more of it, and there's nothing real to give, so we get this debased, inflated currency or a piece of plastic instead. It's bread and circuses time! Turn on the reality television and sit on the couch.

"The first time that people hear this, they find their minds rather boggled, and they want to know more. My whole experience in this area is that once people start digging around the area of monetary theory, they find that (1) it is not as difficult a subject as it seems, (2) it is endlessly fascinating, and (3) it explains far more than they realized before."

Thank you. That is my experience as well. Hell, it happened to me. It happened to my children. Studying economics opened their minds in a way the typical school studies never could. It explains everything. The concept of ownership, the meaning of value, the need for justice - it's all right there in the study of economics. When presidents used to talk about this topic, I would tune out immediately; perfectly sure that economics was so impossibly complex that in reality no one understood it. That was very naive. Thankfully, it is not true. Not so thankfully, once you wake up you realize what a pickle we're in here and there may be nothing stopping our downfall. There's no reason to think we're any better off than the Romans munching their breadsticks and watching their circuses. It could be time to take off for Luxembourg. Maybe Switzerland.

I have always lamented that von Mises' works were not translated in time to stave off disaster here. But then we got the New Deal despite Hayek, didn't we? Ignorance was our enemy then same as now.

"In the American context of the Great Depression, one book captures the whole onset and response. It is Murray Rothbard's America's Great Depression. He shows that it wasn't the 1929 crash that was the problem; it was the response to the crash that created the Depression. Bailouts. Price controls. Wage controls. Government programs. Trade restrictions. Crackdowns on the capital markets. And who did all this? It originated not with FDR but with Herbert Hoover — clear echoes of today. There is no understanding the present crisis without this book."

Tragically familiar, isn't it?

I'm off to buy some books. The greedy government just gave us back some of the debased money we slaved to pay them this year, so no time like the present.