In whom we trust (Our fiat money divagations)

A picture from the hyperinflation times in the Weimar Republic

 

 A question arose: why not issue our own fiat money? To answer the question: we would have to have a trusted network of users as well as a trusted body issuing the currency. Which is not such a bad idea(l) at all. Still we are living in a world touched by the effects of original sin. Supposing the currency-creator/issuer/protector decided to inflate the currency and secretly printed large amounts of backed-by-nothing-but-the-users'-trust banknotes. This, of course, would out – sooner or later – the bigger the number of our currency users, the later. But before that happens the counterfeiter buys large amounts of real stuff and runs.

We cannot rule the scenario out especially if we intend to make our fiat money available to anyone ready to buy it. Which seems inevitable unless we, our "little society", has all the means necessary to fulfill our needs (which vary from human to human) at our disposal. Our own natural resources, own own land, our own industry (assuming we want some), our own water, our own mills, machine factories – all the stuff. Then we can trade with each other using our fiat money while at the same time keeping outsiders out or checking them thoroughly before letting them participate in our economy.

An argument put forward against commodity money, specifically gold, is that its value might radically change in time based e.g. on the amount of gold mined during a given period. Gold is also used in electronics or dentistry – the metal's price is dependent on much more than our fiat money issuer's decree. So commodity money is subject to (even big) changes in value. As is the case with everything in this vale of tears.

The same holds true for our fiat currency. One shouldn't expect (in a free economy, that is) that the price of a loaf of bread would always be (let's suppose) 2.5 OFM (Our Fiat Money). Take one year of poor harvest and you know the rest... So, finally, on a free market it still boils down to people's free decisions at any given moment. One can't expect an economy with fixed (supposedly forever) prices to function effectively or, truth be told, to function at all. And that is, that is: fixing the prices, what you would have to do to "keep the stability" of our currency or to "avoid 'price gouging'". Then enforcers would be needed. Birth of a police state is looming on the horizon.

Let's say that for some reason in becomes impossible to exchange our fiat money. One has to stay with what one has for an indefinite period of time. Now the technical aspect comes into play. What form would OFM take? Physical bills? tokens? some electronic form?

 

[As an aside: Bitcoin is privately issued fiat money. It has its advantages over state fiat money – it is officially stated (and the promise is hoped to be kept) how many BTCs will be issued, for one. Technical frauds, government interventions notwithstanding, BTC is still highly vulnerable. It operates, the whole electronic currency system operates as long as there is electricity in our cables. The moment the wires go dead, all e-currency users are dead in the water.]

If OFM has physical form, what form is it? Most possibly banknotes. What could you do with a fiat banknote other than exchange it for something 'solid'? Maybe use it as toilet paper or fuel to burn in your furnace?

With commodity money it is different: if our commodity money is wood, you could build something with it, use it as fuel, make a tool of of it. It has more uses than a piece of paper. During hard times anything might become money – an egg, a lighter – and though these might have more practical and direct use than a piece of gold, it seems that historically gold retained its value even during war.

All of the above suggests that any kind of commodity money is always better, more useful than fiat currency.

 

The more popular our fiat currency becomes, the more prone it is to an attack by the state, banksters etc. It seems harder to attack and take over commodity money than fiat currency.

Solid, real, touchable goods vs. something created out of thin air.

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What are our alternatives? Representative money – representing time of work which you might exchange with another participant in the system? I dig in your garden for an hour = you fix my car for 20 minutes?

 

A question arises then: why not refer to solid, commodity-backed currency or just barter? Why not?

An "Amish Paradise"? You need to build a house – the whole community comes to help. We have our own trees, saws, sawmills. I might not especially like you – but I come to help you for the sake of independence of our community.

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We are living in a world in which a Norwegian bitcoin mining company is considering a move to the north of the country because electricity prices are much lower there and they need a lot of power to 'mine' some (some would say: "the") fiat currency in the form of virtual ones and zeroes.

 

One might say: well, just another day of economy in action. One might ask: isn't that a little bit detached from reality – a reality, the reality created DIRECTLY by the Creator – the reality of a grain of mustard seed growing and becoming a great tree?

 

We are living in a world in which serious (if one might call such an entity serious) sports clubs have separate esports sections. Hundreds of people live, function and make a living – hundreds of people whose activity revolves around something so unattached to producing real, solid, touchable goods as playing computer games.

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To sum up:

Chesterton declared that his short description of distributism (the economic system he advocated) was: "Every man three acres and a cow". He meant it descriptively, not literally. Cooperation of independent, free persons – each being an owner, none being a serf. What kind of currency would aid make such a society easier to attain? Our bet is some kind of commodity money. Yet for it to amount to something we need the most valuable currency which is catholic faith and putting it into practice.