2008-2-21 05:26:00
Blayne writes:
"Wow. Nice parable JJ. Sounds almost realistic. Couple things you forgot to mention. You forgot to mention the depression that happened after the corrupt ones printed excess fiat money because it inflated the economy and in order to correct it the economy had to be deflated and those that thought they had accumulated some wealth found themselves starting over."
JJ:
A depression was not part of the parable so no forgetting was possible.
Both gold backed money and fiat money systems can be mismanaged and there can be too much money in circulation or not enough in either one of them. There is less flexibility on the gold standard and thus more danger to the economy. As proof of this one can observe that almost the entire world experienced the results of the depression and the nations who were on a strict gold standard suffered the worst. Spain, which was not on a gold standard, was the only western country to escape the major results of the depression. Japan bolted from the gold standard and made one of the earliest recoveries. The British, the Swedes and others smelled the coffee and left the gold standard and then started recovery.
At the time of the Great Depression each dollar could be redeemed for gold and many were. This caused a reduction in gold supply and thus a reduction of money to place in circulation. This lack of money in circulation (directly related to the gold supply) was the main reason the depression lasted so long.
Blayne:
"You also forgot to mention that the printing of fiat money was so easy in fact even easier and faster then using alchemy to transmute base medals into gold and create an over abundance of it. So instead they just printed money to make sure everyone had more then enough. Devaluing the fiat money just like an over an abundance of gold created by alchemy (fantasy) would devalue it."
JJ:
The parable does say: "both the fiat and the gold backed money had the same problems and both required honest government to insure that the people could prosper."
You make it sound like some guy in his basement can print up fiat money. Such is, of course not the case. The printing of both fiat money and gold backed money is an easy process, but both must be backed by something or no one will take it. Gold backed money is backed by gold and the public's faith in its value. Fiat money is backed by labor and faith in its value. You can over print gold backed money the way they did in the 1920's just as you can overprint fiat money as we are doing now.
Blayne:
"You also forgot to point out that mining gold takes labor and that the gold mined is representative of the labor already performed to dig it out of the ground and refine it."
JJ:
That's like saying digging holes in the ground and filling them back up represents labor and has value because of it. The only difference between gold locked in a vault and dirt in holes is faith in the value of the gold. Neither one of them are being put to use. Both just sit there.
Blayne:
"There by you have a standard measure of labor that is unchanging."
JJ:
It is not unchanging. The price of gold has changed since the beginning of time.
Blayne:
"Where as the fiat money only represents promise of future labor not performed yet, thus creating a debt note."
JJ:
Fiat money is generally used to pay for current or near future labor. Workable money is placed in circulation and the system works better than gold backed money.
Blayne:
"So indeed the fiat money is created from nothing and assigned an arbitrary value based on a future promise."
JJ:
If fiat money is created from nothing then you could print some in your basement. Fiat money is backed by labor which is something.
Blayne:
"Unfortunately when the leaders and leaches of society realize they don't have to perform any labor to create money when they can just print it and live off the labor of others who believe in the value of the currency then what happens is they can resist such a temptation and the economy becomes over inflated debasing the currency."
JJ:
You mean like happened with the gold standard just before 1929. This problem occurs with both money systems and the only way to prevent it is to have a responsible system run by responsible people.
Blayne:
"As every fiat based economy in known history has done and it crashes!"
JJ:
And every system that has run on gold backed money has crashed even more. The prime example is the worst depression in history -- the Great Depression which lasted ten years.
The current fiat system in this country has worked successfully with no depression for about 68 years. This is a longer period of prosperity with no depression than has taken place during any gold backed period. That ought to tell you something.
Blayne then recites a perilous situation caused by mismanagement, but this can happen on either money system. He then asks:
"If fiat money is based on sound principle then why has it failed without exception every time in history?"
Maybe you should ask this question. "If money is based on sound principle then why has it failed without exception every time in history?"
Sooner or later every money system in history has failed or been replaced by what was thought to be something better. Money is power and power draws forth corruption. When we rise above corruption then most any money system will be stable.
Blayne:
"Gold has held it's value through out history precisely because it represents labor already performed. Where as fiat money is just a debt note or a future promise. And we all know you can only charge the credit card for so long before the bills come due."
JJ:
I get paid regularly by people giving me fiat money for signs I make -- not for signs I will make. I'm not paid in the future I am paid now, just as much as I would be by gold backed money.
The parable illustrates that a city can be built by money issued based on current labor, and time is saved which is spent mining for gold whose only use is to be stored in a vault.
Blayne:
"Get your heads out of the clouds this is simple mathematics. The only place JJ's parable can work is in his fantasy land where he can set the circumstance just perfect get the desired outcome."
JJ:
Then I must be in fantasyland because the only money I receive is fiat money and I buy stuff with it all the time. No gold is necessary. The depression was largely caused because there was a run on gold and the shortage caused a depression in the money supply.
Blayne:
"Don't let JJ's fantasy sway you into believing something that has no sound bases in fact or history."
JJ:
If anyone reading this agrees that fiat money is fantasy I will be glad to take it off your hands. Please mail your fantasy fiat money to JJ Dewey; P. O. Box 8011; Boise, ID 83707.
Copyright © 2008 by JJ Dewey, All Rights Reserved