Fiat money is a medium of exchange, but it has no commercial commodity value, no producer or consumer value, nor does it convey any title to an underlying commodity property. The only method of imparting value to an irredeemable paper fiat money is through government decree based solely upon the enforcement of legal tender laws with threat of penalty. In total and absolute contrast, commodity money, such as gold money, is a medium of exchange which retains an underlying commercial commodity value, it retains both a producer and consumer value and since that value is inherent in the underlying commodity of the money it actually conveys title to the commodity as private property of the individual holding the commodity money. Additionally, there is no necessity to involve the impartation of value to a commodity money by government, nor is there a need to enforce the use of commodity money by legal tender laws.
Given the generalized acceptability of gold commodity money, any form of that money, based upon weight would translate into a universal medium of exchange and do so on a global scale even though the coinage may be of foreign origin. Because of this characteristic of gold money, it is possible to construct all currencies based upon weight and the exchange opportunities of such currencies would be subject to both producer and consumer costs that cannot be found in any other type of money, especially fiat money. Gold money, unlike fiat money, is based upon the most fundamental principles of a barter economy; as such the indirect exchange involved with gold money maintains a direct interaction with the underlying pre-existing barter economy. In fact, gold money is the direct result of the barter economy. Gold maintains its marketable characteristic because of its connection to the most basic barter economic principles, which make up its foundation.
Today, the world is plagued with fluctuating fiat currencies that provide absolutely no consistency as a medium of exchange. Exchange becomes difficult since there arises a conflict in the manner in which fiat money must be sustained and in order for any exchange to take place, this system is dysfunctional on several levels, but especially in the balance of trade between countries, and to a large degree the means by which companies of all sizes, and individuals make economizing decisions. Gold money, on the other hand, based upon weight is a very stable and provides a solid foundation on which to base exchange, this factor also gives the ability to make sound economizing decisions and reliable information on which such decisions can be made.
As a medium of exchange, money normally serves as a measure of value, but in order to actually contain a measure there must be an imputation of value otherwise there can be no real measure on which to base value. As such, fiat money does not serve as a measure of value since the face value is in contradistinction with the underlying value, which is essentially the value of the paper itself. The imputation of value found in fiat monetary systems has absolutely nothing to do with the money itself for there is no value to fiat money, all value is imparted to fiat money via the government legal tender laws used to enforce its use and the manipulation of interest rates which serves to provide fiat money with a pricing structure.
It is apparent within the world that we live that most people associate the measure of value of their fiat dollars in terms of face value, but that is far from a meaningful measure of value and only is a numerical valuation that does not relate to the ordinal value of fiat currency since the currency is subjected to inflationary depreciation. As such, the ability to actually measure value within a fiat monetary regime becomes increasingly difficult as time progresses and depreciation takes place. With an unstable purchasing power, it becomes impossible for fiat money to actually serve as a concrete measure of value, this is particularly true considering the nature of our political economy since the continuous state of government and central banking intervention precludes a stable constant of value measurements.
Since fully functional money always arises as commodity money with all the market characteristics of a commodity value; that being said the question therefore, is how does fiat money arise and what is necessary to transform what amounts to pieces of paper into a medium of exchange? Fiat money is a forced unit of value and exchange, which never arises naturally from a voluntary exchange with an underlying measure of value. Fiat money is developed as a money substitute that carries with it some of the characteristics of money but essentially is not money in the purest sense of the word.
Such money substitutes cannot convey title to any underlying value since there is no underlying value in fiat currencies. Since it is not possible for title to be conveyed all claims of ownership are null and void; indeed, under a fiat monetary regime there are usually numerous claims to each fiat monetary unit and those claims range from the U.S. Government, to the Federal Reserve System, to national and regional banks and then to corporations, as well as individuals, but these claims do not convey absolute title to something that cannot, in the strictest sense, be considered private property at any point in ownership.
There are other problems that arise with a fiat monetary system, especially when that system is subject to a fractional reserve system of banking. Under a fractional reserve system the banks do not maintain a 100 % reserve therefore, the system lends itself to providing numerous claims at the same time on the same money, thus the possibility of bank runs is ever present in such a system. When a bank run occurs, the problem is revealed as people want to lay claim to their money but there is only a fraction of their money available to them under the system.
Prior to 1914, the year the Federal Reserve Act took full effect, commodity gold money circulated in various forms ranging from bullion to gold certificates. Gold certificates are actual claim to title of the amount of gold on deposit or warehoused at a banking institution, as such they can and have served as mediums of exchange only because of the underlying value of the gold that entitled them. Additionally, there are non-monetary instruments, which also can be exchanged as though they were money and yet they do not bear weight upon the total supply of money in circulation, they simply serve as an exchange unit in lieu of the money they represent. An interesting fact about gold commodity money is that, unlike fiat money, the gold proper and the gold certificates could circulate side-by-side without affecting the total money stock. This is possible because when a gold certificate is issued in a particular denomination, the equal amount of gold was take out of circulation and placed on deposit, thus there are no nominal pressures on the supply of money.
In this country, fiat money was saddled upon the gold money system by using the certificate system as a medium. It was necessary for those who supported the creation of a complete fiat monetary system to use the existing certificate system as a means of injection into the economy. The fact is that no fiat system can arise without the facility of an existing commodity monetary system upon which it is \"piggy-backed\"; usually this action is executed by stealth and deception without the population of a country ever being aware that it has taken place. It is in this manner that what was once completely worthless paper can be issued into the money stream and assumes purchasing power for it is accepted and used, by an unsuspecting public, as though it had equal purchasing power as real titled money. Essentially, fiat money appeared to be exactly like certificate receipts and since those certificate receipts represented a complete and unconditional claim to gold money, fiat money with no claim to any absolute money was exchanged as though it were absolute money. Problems arise when the monetary policies of both government and central bank extend the usage well beyond reserves; this is particularly true when there is a political agenda behind such expansive policies.
In most cases, people rarely think of how money actually functions within an economy. In most people’s minds money has a very one-dimensional quality…it buys things. It is, in the minds of most people, a purely linear mechanism that can be counted in a straight line. Basically, money is the purchasing power that each monetary unit provides in an economic transactional exchange. One of the primary signs of the quality of money is its purchasing power, but also, in relationship to that purchasing power is the savings rate. This is both a real and perceived quality that translates into cash-holding behaviors of people.
It is therefore, nothing more than the liquidity status of money that allows for transactional exchange to take place within an economy and as long as that liquidity provides purchasing power at virtual face value for such transactions and the settlement of debts then there is rarely a problem in perception, but when the face value of a currency does not relate to the purchase value then the problem becomes evident and confidence is lost. That is the primary problem with fiat currencies, due to the likelihood in fiat monetary expansion the purchasing power never remains at the face value of the currency.
Now, in terms of perception it really doesn’t matter how purchasing power is generated because people are only interested in what and how much they can purchase with a given unit of money. It is only when that purchasing power is diminished that people begin to take notice however, it is rarely understood that it is not a problem in pricing as they continually rise, but a problem with the currency as it continually depreciates in purchasing power.
With a fiat monetary system there must be a mechanism that provides for the imputation of value and the primary force behind that mechanism is government, its legal tender laws and taxation. Under fiat monetary systems taxation is not related to revenues since under such systems there is no need for taxation, it only serves as a social control and as an enforcement mechanism to require people to use the fiat currency. People do not voluntarily use fiat money; it is a monopoly that government has granted itself outside the parameters of Constitutional authority. Fiat currencies do not arise naturally nor voluntarily, they are always are imposed and the reasons they are imposed are evident to some people, it is purely for the benefit of government. Central Banks likewise, are instruments of this government monopoly and function at both the behest and benefit of the government and the political interests of the government.
The imposition of fiat currencies have never been for the benefit of the people and in fact, the people are the ones that always have suffered when government imposes fiat currencies upon them. Fiat currencies are the most deceptive of currencies for while they retain their face values; the deliberate policy of monetary inflation robs people of their labor and their ability to generate wealth. Essentially, there comes a time when people work for pennies on the hour while they think they are receiving the full face value of their fiat currency paychecks. It is a feudal system that always, without exception creates a peonage where the people labor for little and the government benefits from the virtual unlimited resources of a country. Fiat currencies used by governments always create a productive serfdom and the people that make up that serfdom rarely understand their own fate.
“The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”- Adam Smith
In support of the fiat monetary system, the government has allowed for certain creativity in banking and accounting. What would be considered criminal under an asset monetary system is sanctioned and encouraged under a fiat monetary system and for good reason, without such activities a fiat monetary system could not perform the primary functions of a transactional economic exchange unit, in other words it would not act as money in the economy. Under any total fiat monetary system it is imperative that there be a pricing mechanism to support the imputation of value otherwise it doesn’t function as money, it would be nothing more than what it really is: paper. Of course, this mechanism is found in the various schemes created by both government and the Federal Reserve Banking System.
There are those who mistakenly think that fiat money functions as money because it circulates, but the truth is that without the various artificial mechanisms put in place by government and banking there would be absolutely no value imparted to the paper we use as money. The truth is that the government could print all the fiat money it wanted to and without those hidden mechanisms it would be nothing but the paper it really is: worthless. Voltaire knew exactly what he was talking about when he correctly stated, ““At the end fiat money returns to its inner value—zero.”
The facts are clear, there was a very deliberate plan to the creation and execution of a fiat monetary system. When reading the works of John Maynard Keynes it becomes evident that the fiat conspiracy was nothing more than a shared power-grab between the political powers and banking powers. Keynes stated: “By this means (fiat money and fractional reserve banking) government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.”
While fractional reserve banking has been used in various monetary systems, including gold, it is however, fiat currency that benefits the most from a fractional reserve system. Without fractional reserve banking there would be no possible way that fiat money could function as a medium of exchange because the amount of fiat currency necessary to maintain a 100% reserve demand would instantly peel away all perceived and purchase value imparted to the currency by the various schemes used to support the system.
Among those deceptive schemes is the fact that all of the Treasury’s deposits are not counted as a part of its reserve against any money it has issued. Prior to the creation of the Federal Reserve Banking system all U.S. Government deposits were considered a part of the total money supply, thus all variations in the money stock could be readily known. This is not the case in the Fiat Fractional Reserve System since there can be no total demand on all deposits on the banking books.
So demand deposits under the Fiat Fractional Reserve System are subject to limited transferability. The problem, at least for the Fractional Reserve System, is there is simply not enough money to cover all demand deposits. Since the Fractional Reserve System maintains a well-constructed veil that protects the banking system from bank runs. At one time there was a 30-day notice required for the withdrawal of all savings deposits, but it was very rarely imposed for if it were then the veil would instantly be pulled back on the system causing a very rapid and devastating run on banks across the country. Imagine, if you will, that you wanted to withdraw your savings, your money and the bank teller tells you that you would have to give the bank 30 days notice before you would have your own money. It would be an instant confidence breaker in the system and the system would not be able to survive such revelation of the inner workings of the Fractional Reserve System.
The means of payment under the Fiat Fractional Reserve System actually describes one of the essential definitions of fiat money. In this system the Fiat Money may be parked in one form and spent in another, but the system must maintain the interchangeability in order to maintain a degree of parity and acceptability of the system. This characteristic poses one of the problems with the system and that problem is the extreme elasticity necessary to keep the system from imploding upon demand withdrawals and the total lack of asset value.
Every Fiat Monetary System is designed for the benefit of the government and its political allies never the people subjected to its deceptive functions. Fiat Currencies, at the hands of government, has always been a means by which government could, through the hidden taxation of inflationary depreciation, secure a relatively costless form of power generating funds, most of which are used to either extend the scope of government, but also to amass assets. It essentially accomplishes this by simply using inexpensive paper and inking its official signage upon it, then it is just a matter of enforcing the use of the fiat money by the people through a series of penal codes.
Additionally, one of the more insidious characteristics of all fiat monetary systems is that it allows government to divert the wealth and resources from the private markets into its own coffers. Governments, with the instrument of fiat currency, creates what amounts to a vampire economy where the labor and generated wealth from that labor is siphoned off from the people and transmitted to the government without the necessity of the more unpalatable form of direct taxation.
While there are those who sing the praises of the fiat monetary system, it should be no surprise that those who favor such systems the most are bankers and politicians who have a large stake involved in maintaining the fraudulent and deceptive system. It should also not come as a surprise that there are those within our society that exploit the system to increase their own holdings and are essentially granted almost monopolistic rights by the government and are beneficiaries of a system that otherwise makes life difficult for the working individual.
There are some very peculiar consequences of this fiat monetary system, one being a divergence of wealth generation between those who are politically favored and those who are basically politically ignored. Those who are favored by the political influence they peddle are able to take pecuniary advantage of the system, benefiting from the mechanism of inflation in ways that are difficult for the regular citizen to understand, most citizens are completely unaware of the connections between government and those who are politically favored.
Although there are usual detractors, the truth is that all fiat currency systems have been abused throughout history by governments and has always led to corruption and the eventual destruction of the currency itself along with the economic society connected with the currency. Fiat systems lend themselves to total government monopolies over money; in fact it is impossible to maintain a fiat system without such government monopolistic control. Under such monopolistic control the government enjoys the power to dictate and deprive, give favor and grant influences.
It, fiat currency, is the one instrument that the government has at its disposal that can completely subvert all Constitutional restrictions and limitations. From this one monopolistic tool, there is the granting of privilege that our government was never intended to possess; likewise, with this tool the government also has the ability to deprive the most fundamental right of money property upon which all other private property rights rests. Fiat money is the key for all government usurpation and allows government the ability to act as though it were not the servant of the people but their master and they its subjects.
In Liberty and Eternal Vigilance,
Republicae
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