Economics Questions

Re: Fiat Money

John Mahler — Thu, 27 Sep 2007 05:46:31 GMT

Fiat money doesn't work. It seems to work. It seems to work for those who are enmeshed in the "monoply" board game and adhere to its rules.

For the outside observer, not party to the central bankers and governments which foist this Ponzy scheme upon loyal but disinterested citizens,

husbanded animals producing wealth measured with the yardstick of tribute and consumer debt, it seems to work. As with all money backing schemes it

suffers from finitude. There are only so many sould upon whose backs the breakers of humanity can place the debt required of debt based currency.

That finitude is as fragile as the finitude of metallic backed currency and coin clipping money changers of historic record. Fiat money is rife with moral

moral hazard instituted by those who seek to convince the gullible public of its legitimacy because of its comonality. The full faith and credit of fiat money is

based upon the willing ignorance of those who trade in it. One day a small child will cry out, "The King is naked" and the scheme will fall apart as knowingly

wise scholars such as Meises has often said over the years. The question is not how much will we lose as traders in this despotic graft of amoral bankers,

but how many quarts of human blood will be required of citizens wanting only parity for time lost holding the wishes of prosperity promised of fiat currency.

John Mahler <Frederic Bastiat is one tritse everyone shold know in their souls>

Re: Fiat Money

aludanyi — Wed, 26 Sep 2007 16:21:58 GMT

Only one reason: everyone is forced by the government to accept it. And yes it is falling apart from its own illogic, the only thing you have to add to this... the process is slow, so it is hard to detect in the first place, but it is an ongoing process with a definitive end.

Re: Fiat Money

johndolce — Wed, 26 Sep 2007 16:12:37 GMT

Not only can they make you pay your taxes in USD, but their real power lies in the fact that all US businesses are required to accept USD as payment of debt

Re: Fiat Money

DSnead — Wed, 26 Sep 2007 02:05:33 GMT

The main reasons why I think it is able to exist are 1) most people are too ignorant to realize the consequences 2) some people believe creating money out of thin air "creates" wealth 3) the incredibly fallacious nonsense that the Fed/Central Banks "manage" the economy by using fiat currecy 4) to those who understand how terrible fiat money is, they are forced by violence to use it.

Re: Fiat Money

ContumacySince87 — Thu, 20 Sep 2007 21:57:54 GMT

Charles Anthony:
I suspect that most people alive today do not even know what "government support of a currency" even means. Why would you expect them to lose confidence?

I could definately see the media getting a hold of it and causing mass hysteria (anyone recall Y2K). People may be more educated, but they are educated by the government in most cases and are trained not to think for themselves, but instead to rely on the media for their opinions. Truth is always defeated by an ambitious journalist looking to make a name for himself.

Re: Fiat Money

Webster — Thu, 20 Sep 2007 21:24:42 GMT

Charles Anthony:
Webster:
How many people know that it is the legal tender of OPEC? That the government has only needed to enforce the legal tender laws a handful of times since their inception? I think very few.
I question whether that is relevent.

I am merely stating that most people do not know the value of the currency aside from its domestic legal support, responding to the earlier comment about it being a commodity currency for oil, and that few people know how seldom does the government need to use the legal tender laws to force acceptance.

Charles Anthony:

Webster:
Most people, I suspect, tie the value of the currency to the government's support of it, and thus would lose confidence in it if the government withdrew that support.
I suspect that most people alive today do not even know what "government support of a currency" even means. Why would you expect them to lose confidence?

I suspect that most people have read "is legal tender for all debts, public and private" on a dollar bill. They know that the government requires that it be accepted, which then gives it value. I do not expect people to continue trusting paper money with no commodity or legal tender guarantee to retain its value.

Re: Fiat Money

Charles Anthony — Thu, 20 Sep 2007 18:55:07 GMT

Webster:
How many people know that it is the legal tender of OPEC? That the government has only needed to enforce the legal tender laws a handful of times since their inception? I think very few.

I question whether that is relevent.

Webster:
Most people, I suspect, tie the value of the currency to the government's support of it, and thus would lose confidence in it if the government withdrew that support.

I suspect that most people alive today do not even know what "government support of a currency" even means. Why would you expect them to lose confidence?

Re: Fiat Money

Webster — Thu, 20 Sep 2007 18:20:18 GMT

For the most part, I agree. However, I was not bringing up the past example as a demonstration of monetary collapse, as no monetary collapse occured. In regards to the monetary collapse, I am merely saying that it seems to me as if the government withdrawing its official support from a paper currency would cause people to lose confidence in that currency. How many people know that it is the legal tender of OPEC? That the government has only needed to enforce the legal tender laws a handful of times since their inception? I think very few. Most people, I suspect, tie the value of the currency to the government's support of it, and thus would lose confidence in it if the government withdrew that support.

Regarding praxeology, please forgive me, but I am a debater and I like to see how concepts work in the world. My reason tells me that people will not abandon the most convenient currency merely because it is required for the payment of taxes, and, unsurprisingly, that is what happened in the real world. Formating a theory from the evidence is difficult, but it is possible to get some confirmation of a theory through the use of historical evidence, at least when the theory is simple (here, merely that it is conceivable that the people use a form of money that is not legal tender for the payment of taxes).

Regarding convenience, I do not believe that the convenience of our currency lies in its acceptance for the payment of taxes, but in the fact that it is nationally accepted, of certain value (with no concerns about debasement), and in wide use. If these conditions are met, it will still be the most convenient currency, even in the complete absence of taxes.

Re: Fiat Money

Charles Anthony — Thu, 20 Sep 2007 18:10:37 GMT

Webster:
I fail to see what education had to do with the issue.

-- because education, among other things, will influence a person's perception.

You used a historical account and said:

Webster:
Also, the government is percieved as being responsible for economic wellbeing and a collapse of the currency would be percieved as a problem,

To put it crassly, if people were stupid in the 19th century and people were smart in the 21st century, your historical account is comparing apples and oranges in a vegetable soup. That is why I am saying that the history should be left in the past. I am actually a little surprised that I have to spell this out in an Austrian discussion forum. My understanding is that Mises firmly insisted that historical data is unacceptable economic evidence and the whole basis of the school of thought is praxeology.

Webster:
Now, the situation is different because the fiat money is the most convenient form of currency, but if that convenience collapsed I suspect that the money would still fall out of circulation and would be used only for the payment of taxes.

That seems to support my point: the "fiat" currency only exists because people are forced to pay taxes in its form.

Webster:
I do not quite understand why you claim that the primary objective of the government is to redistribute wealth--

Call it just my cynical editorial injection. I believe the sole of objective of government agents is to redistribute wealth: from the tax-payer to the tax-collector. What governments do with the money is different issue -- to me it is irrelevent.

Re: Fiat Money

Webster — Thu, 20 Sep 2007 16:03:15 GMT

I fail to see what education had to do with the issue. My point was merely that requiring a certain currency for the payment of taxes when it is less convenient than other currencies for other transactions does not lead to the sole use of that currency. Now, the situation is different because the fiat money is the most convenient form of currency, but if that convenience collapsed I suspect that the money would still fall out of circulation and would be used only for the payment of taxes.

I do not quite understand why you claim that the primary objective of the government is to redistribute wealth--I think that it would be more accurate to say that the members of government are primarily concerned with maintaining their own power, in which case causing a financial collapse would be bad simply because it would probably eject them from office. But yes, I do agree that with printed currency and a central bank the government has much greater control over taxation.

Re: Fiat Money

Charles Anthony — Thu, 20 Sep 2007 12:42:22 GMT

Webster,

Just to clarify: understandably, the government can not control the value of its currency in the strictest sense. Can we agree the government can have a major influence to the degree that it can influence the value of the taxes it collects? What I am suggesting is that strategically, for a government that wants to redistribute wealth, the power to inflate the currency is best harnessed if the government issues this "fiat" currency and threatens violence in the collection of taxes in that same currency.

With respect to your historical account, I can accept it but I think it would be wise to consider the context and leave it all in the past. Today, more people are more educated than ever before and people have instantaneous access to information.

Re: Fiat Money

Webster — Thu, 20 Sep 2007 01:19:47 GMT

Charles Anthony:
Webster:
So why does the government not remove legal backing?
I insist that one reason might be that the government would lose control over the value of the taxes they collect and the redistribution of wealth.

First of all, there is the mere politics of the situation--removing backing would be percieved as far too radical an action in the present political situation. However, while the government guarantees the legal status of money, it does not, to my knowledge, control its value, and thus it does not control the value of taxes.

Charles Anthony:
Webster:
Primarily because the act of doing so would probably destroy confidence in the currency. Because the currency is backed by the government, it has real value and people need not be forced to accept it.
That does not make sense. Confidence in the currency can not possibly be a problem because tax-payers can use a foreign currency or something else.
There is nothing stopping people today from using a foreign currency or from using chunks of gold. However, the government will force you to pay your taxes in legal tender.

Look at the monetary situation in the 19th century after the regulations that forced the payment of tariffs in specie, while banknotes were the primary currency. Contrary to what your position seems to me to suggest, currency circulated in no greater quantity because it was the only legal tender of the dominant form of taxation. Also, the government is percieved as being responsible for economic wellbeing and a collapse of the currency would be percieved as a problem, thus leading to voting repurcussions for the party that caused the action. Remember that the government is not a rational actor with respect to its collective power, but with respect to the individual members' power. Yes, there is nothing preventing people from using a foreign currency, but our currency is percieved as being most convenient. If expectations of its value collapsed, that perception of convenience would evaporate.

Re: Fiat Money

Charles Anthony — Wed, 19 Sep 2007 15:34:41 GMT

Webster:
So why does the government not remove legal backing?

I insist that one reason might be that the government would lose control over the value of the taxes they collect and the redistribution of wealth.

Webster:
Primarily because the act of doing so would probably destroy confidence in the currency. Because the currency is backed by the government, it has real value and people need not be forced to accept it.

That does not make sense. Confidence in the currency can not possibly be a problem because tax-payers can use a foreign currency or something else.

There is nothing stopping people today from using a foreign currency or from using chunks of gold. However, the government will force you to pay your taxes in legal tender.

Re: Fiat Money

A.B. — Wed, 19 Sep 2007 15:14:50 GMT

I beg to differ, the money is not really "backed" by the government; in fact, currently the dollar has value despite the U.S. government. If the U.S. government stopped "backing" the dollar, and decided to withdraw altogether from the money business (except from preventing counterfeiting) the value of the dollar would either completely collapse or rise enormously. I bet the later would happen since dollar is now accepted and recognized worldwide as money.

Re: Fiat Money

Webster — Wed, 19 Sep 2007 15:02:07 GMT

I would like to take a different tack and argue that our money is not fiat money any longer. True fiat money is that found in instances such as Republican France, where merchants refused to take money at face value and were guillotined. I have only heard of one instance today where legal force was used to make someone accept money (and that was the bizarre instance of a college student trying to pay his tuition in $1 bills as a protest). Instead, most people accept money because of what they expect to be able to buy with it. In that sense, it is a commodity currency, although not a uniform one.

So why does the government not remove legal backing? Primarily because the act of doing so would probably destroy confidence in the currency. Because the currency is backed by the government, it has real value and people need not be forced to accept it.