Fiat Money of the Past, Part 1

Joseph Dewey
This entry is part 15 of 31 in the series 2011B

2011B

Successful No interest Fiat Money of the Past

Before we explore fiat money more deeply let us give a definition of it to avoid confusion – as, at present, the term is used in a variety of ways.
The word “fiat” comes from the Latin, which literally means, “let it be done.” The common modern definition is expressed by Dictionary.com as: “an authoritative decree, sanction, or order.”
Fiat money is often defined as unbacked money created by government decree or sanction but technically this extends to any money that is not fully backed by a commodity. So for the sake of clarification and purpose of this treatise we’ll define it as follows.

“Fiat money is any money, paper, coin, substance or digital creation which is not fully backed by a commodity. It exists only because of a decree or sanction made with enough authority to cause the people to accept it as money.”

That said we must now ask if it is possible to create a feasible fiat money system as illustrated in the parable. Many fundamentalists think not and feel that every possible form of fiat money is doomed to failure.

And why is this?

Basically because they look at the surface of a few examples of failed money in the past and lump all fiat money into one category. They pretty much call it the god-awful bad category. This is basically where their analysis begins and ends.

Let us look below the surface and first ask ourselves why fiat money has received such bad press.

Here are three reasons various economies have had problems with fiat money in the past and present.

(1) Too much money is printed or created and placed into circulation. If there is more money in circulation than the value of goods and services needed there will be inflation. If there is a shortage of money there will be deflation. If the right amount of money is in circulation the prices will be stable.

This runs contrary to the party line of some thinkers who believe that all fiat money is inflationary. It is not. It is only inflationary when too much money is added to circulation. For instance, during the Great Depression we had a contraction of the fractional fiat money in circulation and prices went down, not up.

(2) The second problem is the government borrows the fiat money from banks and burdens its taxpayers with paying the accumulating interest rather than creating interest free money itself.

(3) Because the money is easily created the temptation of governments to overspend by borrowing too much money is great. This straps their people with not only high interest payments but a large amount of debt.

These problems may seem significant enough to make us think we should ditch fiat money and go with a gold standard until we look at the problems of maintaining such a gold standard. Earlier we covered the gold standard and we discovered even more problems there.

Some simply state that fiat money is bad because it has always failed in the past. They count as failure every money system that is no longer with us but overlook the fact that money systems have often changed in history, not because they failed but because a new king or power comes to the throne. War and conquest has also greatly altered money systems of the past. Sometimes a good money system has been replaced with a bad one. If a new king saw the system benefitted the people more than himself then the temptation was to install one that was unstable but good for the elite.

Gold and silver backed currencies (as has been previously illustrated) have their own set of problems and one could also argue that they have all failed because they no longer exist. There is not one country in the entire world that has a gold or silver backed currency. The last one was Switzerland which backed its money with 40% gold reserves but in the year 2000 they had a referendum and the people voted to go off it. Now they merely have gold reserves for security purposes just as we do.

One might ask that if gold and silver backed currencies are so great then why has every nation on the planet abandoned them? If they are so stable and bring prosperity (as advocates claim) then why hasn’t one nation seen the light?

With all things considered a growing number of thinkers are considering that interest free fiat money represents the best hope for a permanent money system that allows for unlimited expansion of prosperity. To create this, a definite change from the one in use today is required. That is, instead of our government giving away its power to create money to private banks it will instead reserve that power to itself. It will then be able to create money for the people’s welfare, which will be interest free and debt free.

The Federal Reserve notes of today are a promise to pay. The new notes will not contain any promise to pay but will be real constitutional money.

Has there ever been any such debt and interest free fiat money in the past that we can examine to see how it worked?

Fortunately, the answer is yes. Let us look at a few.

SPARTA

For the first example let’s look way back to the foundation of the ancient Spartan way of life originated by its king Lycurgus around 800 BC. Because his story is almost larger than life some historians believe he was a fabled character but this is not likely as Plutarch wrote in detail, about him quoting historians Eratosthenes, Apollodorus, Timæus, and Xenophon as sources. No less than Plato and Aristotle also wrote of him.

There is no dispute though that an ancient powerful lawgiver created the legendary Spartan way of life along with a most unusual fiat interest free money system.

Plutarch presents Lycurgus as a dedicated spiritual leader who sought not for power but to elevate the minds and hearts of the people in a system of discipline and equality. He believed that riches, especially gold and silver, were a major detriment to the spirit. Plutarch says he banned “ownership of any gold or silver, and to allow only money made of iron. The iron coins of Sparta were dipped in vinegar when red hot to make the metal brittle and worthless. Merchants laughed at this money because it had no intrinsic value, so imports of luxuries stopped. Robbery and bribery vanished from Sparta instantly.

“All useless occupations were banned in Sparta. This law was hardly necessary, because along with gold and silver, all of the evil creatures that accompany them went away too. Who would come to practice fraud, fortune-telling, prostitution, jewelry, or the other trades of luxury and larceny, in a country where there was no gold and silver money? So luxury, deprived little by little of the fuel that fed it, gradually died out. The rich had no advantage over the poor because wealth was useless.”

The only money left in Sparta were iron discs called Pelanors. They had no intrinsic value as did gold and silver for the vinegar made them useless for anything except fiat money. Lycurgus set their value by fiat and this was their only money for centuries. During this period the Spartan city-state and way of life flourished.

Plutarch gives his reason for the end of this money system:

“For five hundred years, Sparta kept the laws of Lycurgus and was the strongest and most famous city in Greece. But eventually gold and silver were allowed in, and along with them came all of the evils spawned by the love of money. Lysander must take the blame, because he brought home rich spoils from the wars. Although not corrupt himself, Lysander infected Sparta with greed and luxury, and thus subverted the laws of Lycurgus.”

From Plutarch’s Lives of Noble Grecians and Romans, Lycurgus chapter

ROME

When Numa Pompilius came to power as the second king of Rome around 715 BC he contemplated a major problem that lay before him. To facilitate prosperity for his people he needed money and lots of it. The problem was that the authorized money of the world was composed of gold and silver.
Why was this a problem?

Because most of the gold and silver was in the private hands of the various religious temple cults or eastern religions and merchants. These private interests had power over the money and if he wanted an increase in the money supply he had to play the beggar and humbly strike his best bargain while placing Rome as collateral.

What do do?

Numa formulated an ingenious plan. He would decree that gold and silver would merely be commodities in his kingdom. They could be traded as commodities as unmarked coins or bars but the real money would be bronze, an alloy composed of mostly copper which was abundantly available.

Numa monetized bronze and the citizens used this internally for money or nomisma. In early Rome they called it nummi. Because his name was so close to “nummi,” some historians think Numa was his adopted name rather than given one.

Gold and silver was used internally for jewelry, medallions, ornaments etc and for trade with other governments. Since gold and silver were used for money outside Rome their reserves were used for necessary trade but not for internal money.

The brass money took on various shapes at first but eventually evolved into coins bearing an image. As long as Bronze was the designated money gold and silver coins and bars were blank and merely traded by weight with foreign interests or for practical internal use.

From the time of Numa the nummi had more monetary value than the commodity value of the bronze and the fiat value increased over time until the time of the second Punic war (218-202 BC) a one ounce bronze coin was worth 30 ounces of the commodity. In other words, over 96% of its value was fiat rather than intrinsic.

No one complained of being cheated during this fiat money system because the money was based on law and not the product of debasement as happened later in the Roman Empire. When the people expected a certain weight and percentage of gold or silver and the size or content was reduced then the people felt cheated and rejected the money. But because the bronze money was based on the fiat principle from the beginning and the value was established by law the people accepted it from beginning to the end of its dominance.

After war depleted their resources and plunder increased Rome’s supply of gold and silver, silver, and later gold, gained a legal status as money and by 146 BC Rome ceased producing bronze money.

So we had a period of over 500 years where bronze fiat money financed the rise of the longest lasting world power in recorded history.

During this period of time the people had their greatest freedom and were enterprising as they created a great nation state. Then when silver and gold became money hundreds of thousands of slaves were added to the kingdom – many of them mining for gold and silver to increase the money supply.

Then came the money changers which included the likes of which Jesus chased out of the temple.

The ratio of the value of gold to silver in Rome was usually set at 12:1, but in India and Asia it was set around 6:1 or 7:1. This meant that a money changer could take six pounds of silver to India and trade it for a full pound of gold. Then he could return home and trade that pound of gold for 12 pounds of silver and double his money. Then by repeating the process over and over he could become rich without producing anything.

Over time this created instability in the gold/silver money systems in both the East and West.

Contrary to the belief of many inflation was a problem on the gold/silver standard of Rome. Zarlinga tells us that “soldiers in the 2nd century BC got 110-125 denarii per year. A hundred years later, their pay doubled to 225; after another hundred years to 300; and by the 3rd century AD had increased to probably 600 denarii per year.”

Up to about 250 AD the silver content of coins remained fairly consistent but then started dropping. By 270 AD it had dropped to 4% of its original value. At this low point Diocletion instituted wage and price controls in an attempt to force people on pain of death to accept an inflationary currency. In the process many businesses were destroyed.

In 312 AD Constantine began minting the pure gold solidus, which gained the reputation of being the longest circulating coin in history – over 700 continuous years. This period was not immune to inflation as during periods of plunder there were excessive amounts of gold coins added to the system. Some think this contributed to the fall of Rome. The solidus was in circulation beyond 1000 AD long after the fall of Rome during our darkest age. It weighed 4.5 grams and was never debased and desired and accepted by all.

This gold standard did little to save the empire during the time of Rome’s greatest decline. It also did nothing to prevent a descent into the period we call the Dark Ages. It is interesting that during these two periods the world had the purest most consistent gold standard in the history of the world.

BUT… during the period of Rome’s greatest progress and individual freedom they were fueled with fiat currency.

Data on Roman money taken from
Lost Science of Money By Stephen Zarlenga

History of Monetary Systems by Alexander Del Mar, 1895

“The Imperial Foundations”. Coins in history : a survey of coinage from the reform of Diocletian to the Latin Monetary Union. Porteous, John (1969)

A History of Money by Glyn Davies, 1994

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Copyright by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

Series NavigationQuestioning MormonismFiat Money of the Past, Part 2

20 thoughts on “Fiat Money of the Past, Part 1”

  3. Since JJ denies all the evidence I have posted, Here is a free download for anyone interested in some real evidence. I don’t have time to counter all of his misinformation it takes up to much of my time and energy. It is pretty disappointing to say the least, I need to take a break for a while.

    http://mises.org/books/historyofmoney.pdf

    Reply

    1. Rothbard in the book you reference says nothing about money in ancient Greece or Rome so I do not see how you expect it to deal with anything I’ve said lately. It starts out with English banking in the 1600s.

      Reply

  4. Blayne
    Yeah I read it did you read mine? You said “they were not by a long shot” my quote proved you wrong. They had been around and along time before 212 otherwise they would not be “recoining” and “revaluing” them, they circulated internally with various others coins foreign and domestic. Your idea that there was a pure fiat system with nothing but bronze coins is simply not true.

    JJ
    I said the denarius was first minted around 269 BC and first used as internal money around 212-214 BC

    Before the denarius bronze was used as fiat money.

    Quoting Harl: “”Documents from AD 1000-1350 reveal that great numbers of ‘black money,’ low grade silver deniers, circulated between countryside and city every year in a seasonal cycle.” Page 4

    1000-1350 AD is a long ways from 715BC-214 BC. No coin called a denier existed during the time period in question – not by a long ways.”

    I can’t find any reference you give that shows that any of this information is incorrect. If I missed it can you give it to me again?

    Or if any reader can find it I would appreciate being enlightened.

    Blayne
    Your the one who is using totalitarian systems to justify your fiat theory. Yeah right like fiat money now helps have greater freedom… Amazing…Sigh! You are really reaching to justify a fiat system using brutal totalitarian regimes where everything is implemented by force.

    JJ
    Almost everything was totalitarian in those days. You can’t really blame that on the money systems except for the fact that when Rome switched over to silver and gold around 214 BC they had to add about 300,000 slaves to work in the mines.

    During the fiat money period the Romans rid themselves of their kings and established the Republic (508-264 BC) and this period did have greater democracy and freedom than during the emperors.

    Quoting JJ
    The fiat principle can work indefinitely as long as excessive money is not printed

    Blayne
    Which is why it never has in history… Sigh.

    JJ
    I’d say 500 years in early Rome and then another 500 years in Sparta were a couple pretty good test runs.

    Blayne
    Of course the gold standard will not work if left in the hands of central authority, this has been your strawman argument from day one. I am not and never have been arguing for a gold standard as you describe but you keep setting up this strawman and knocking it down and claiming fiat currency is better despite my advocacy for a free market with “no central authority”.

    JJ
    Since there are no clear historical examples of the money system you believe in I am forced to use ones that really existed to make my points. England after the fall of Rome was perhaps closest to one that used gold but with no central authority, but there aren’t many records available.

    Quoting JJ
    The fiat principle worked for 500 years during the foundation of Rome and could have continued indefinitely if they had not switched to gold and silver coins.

    Blayne
    As I said this is quite a stretch of the imagination and you have not proven your case and gone to some extreme interpretation to justify your theory.

    JJ
    It’s not my theory. I got it from experts on the history of money such as Stephen Zarlenga, Alexander Del Mar, Alexander James, Emilio Peruzzi, ancient Roman historian Titus Livius (Livy) to name a few. Even Harl who you quoted doesn’t disagree with anything I wrote and acknowledges that gold and silver were not used as money in ancient Rome.

    Blayne
    Yeah your strawman gold standard and fiat schemes both have the same problem; some central manager controlling them!

    JJ
    Unfortunately, you can’t point to an successful example of your idea of a money system that has ever worked. The closest you can come is the 19th century but during one of its freest periods before the Civil War there were 1,606 state banks, each putting 7,000 different kinds of bank notes and many of them fraudulent. Some of them were discounted 40% or more when they were accepted in a different area. Imagine how many different notes we would have today if we had a free for all with no universal money.

    Blayne
    And thus you reveal your complete lack of understanding here and repeat the so often held myth that expanding the money supply is what creates prosperity and that some central planner controlling the money supply can do this if he is honest.

    JJ
    Friedman spent many years researching this and published his great work The Monetary History of the United States which illustrates that an expanded money supply produces prosperity and a contracted one brings hard times.

    What evidence proves your point?

    Blayne:
    Which one more time is like saying charging up the credit card creates prosperity. Wealth and prosperity is created by men and women who produce things not by some central planner expanding the money supply.

    JJ
    This statement illustrates my earlier point t that you are just looking at the surface. If you looked deeper you would realize that I am not advocating a debt riddled system such as we have today. I advocate the creation of money that is not created from a loan, but by fiat alone. This is nothing like a credit card where money and interest are due. There would be no debt or interest due.

    You lump all fiat money into one category and for some strange reason refuse to differentiate to argue with what I am really talking about. You keep creating the straw man of a fiat money system as we have today which I agree does not work.

    You accuse me of wanting central planning which presents a distorted picture of my belief. I only advocate printing up enough money to allow the economy to work and then let free enterprise do the planning as to what to do with the money.

    Blayne:
    This is why every fiat system in history has failed…

    JJ
    This is just not true. The systems in Rome and Greece did not fail, and I will have more examples to come.

    Reply

  5. Quoting Blayne: 
Not by a long ways huh?
    “The Republic in 213-212 B.C. thus revalued its heavy denarius, or quadrigatus, and began recoining quadrigati into lighter denarii at two-thirds the old weight” (pg.
    So what does this tell us it tells us? If they were being revalued and recoined then these SILVER COINS were in circulation long before this and thus were going to be recoined most likely due to degradation through circulation and also to debase them as the Romans were fond of doing, thus proving they were one example of being in the time period you speak of.
    Quoting JJ:
    Did you not read my post? I said that the denarius first appeared around 269 BC. Between 269 BC and 214 BC danarii were minted but these were like the old U.S. trade dollars, used for external purposes and not official internal money. The denarii were not monetized until somewhere around 212-214 BC.
    Before 269 BC they had some blank silver coins and bars that they used for trade but not internal money. They were not called danarii at that time.
    Blayne
    Yeah I read it did you read mine? You said “they were not by a long shot” my quote proved you wrong. They had been around and along time before 212 otherwise they would not be “recoining” and “revaluing” them, they circulated internally with various others coins foreign and domestic. Your idea that there was a pure fiat system with nothing but bronze coins is simply not true.

    JJ
    Coins appear as they are minted and disappear when the minting ceases.

    Blayne
    Coins can stay around for many hundreds of years after minting.

    quoting JJ
    Actually living under Lenin was not nearly as bad as living under Stalin.
    quiting Blayne
    So what’s your point?
    JJ
    You’re the one who brought up totalitarianism in relation to money. If there is such a relation then the greater freedoms and lesser slavery and terror during the fiat era is a good sign.

    Blayne
    Your the one who is using totalitarian systems to justify your fiat theory. Yeah right like fiat money now helps have greater freedom… Amazing…Sigh! You are really reaching to justify a fiat system using brutal totalitarian regimes where everything is implemented by force.

    JJ
    The fiat principle can work indefinitely as long as excessive money is not printed

    Blayne
    Which is why it never has in history… Sigh.

    JJ
    just like a gold standard can if it is not debased. Sometimes it doesn’t work that good though as with the Solidus at the decline and fall of the Roman Empire.

    Blayne
    Of course the gold standard will not work if left in the hands of central authority, this has been your strawman argument from day one. I am not and never have been arguing for a gold standard as you describe but you keep setting up this strawman and knocking it down and claiming fiat currency is better despite my advocacy for a free market with “no central authority”.
    JJ
    The fiat principle worked for 500 years during the foundation of Rome and could have continued indefinitely if they had not switched to gold and silver coins.

    Blayne
    As I said this is quite a stretch of the imagination and you have not proven your case and gone to some extreme interpretation to justify your theory.

    quoting Blayne:
    That is the difference. Gold and silver money has worked forever and is still working today
    quoting JJ
    What are you talking about? It is not working anywhere as money. It only is working as a commodity like wheat, but neither is money at the present. When’s the last time you bought a loaf of bread with gold or real silver?

    Blayne
    Well there are merchants who will take gold and silver. Money is anything that can be traded for goods and services just because it does not have some government sanction means nothing. If I have enough gold and silver I can pay off all my debts and buy anything I want if this is not money nothing is. The only reason one cannot go to most stores and buy a loaf of bread with gold or silver is once again because of government force or fiat. In a free market that would not be problem. So people take gold and silver and exchange it for FRN’s of they need to, same difference the gold and silver is still what paid for the goods or services.
    JJ
    And how is borrowing too much money the fault of the fiat principle?
    It wasn’t the fault of gold the metal, but gold the system. When it was seen as not working they changed it instantly with the stroke of a pen.

    Blayne
    Which brings us again to one of the two pillars of a sound monetary system “No Central authority”. Borrowing is the fault of the fiat system because that is how the money is created and makes it much easier for central managers to debase the currency.

    JJ
    We (at least I) are not talking about gold the commodity failing any more than we are talking about wheat failing. It is NOT (repeat NOT) in dispute that all commodities will retain value. BUT the system that creates money based on gold, which we call the gold standard, is fallible. This can and has failed many times just as every money system that has ever existed in history had problems and has come and gone.
    You can argue that if men were perfect then the gold standard would not have failed but that argument can be made for any money system.

    Blayne
    The system that creates money based on gold is not what I advocate again this is your strawman argument. Your argument is exactly that; if men are perfect a fiat system can work. I have already pointed out the flaws in fiat money even if its managers are honest. You have yet to offer how to keep the men perfect and how to create value from nothing. Without government decree.

    Gold silver and PM’s have intrinsic value, fiat paper does not it is created from nothing. Gold and silver retains value despite what schemes central planners use. Fiat money only has value by decree period, huge difference. Which is why everyone who can is getting gold and silver because they know when the fiat system collapses it will still have value.
    JJ
    No more absurd then your examples of fiat money failing. The both have the same problem – leaders not following the rules or using sound reasoning.
    The difference between the two is this. Under a gold standard that follows the rules there are still periods of contraction which are very painful and there is often a shortage of money for expansion.
    Blayne
    Yeah your strawman gold standard and fiat schemes both have the same problem; some central manager controlling them!

    JJ
    Under a fiat system that follows the rules there would be no significant contractions and money would always be available for expansion creating more prosperity.

    Blayne
    And thus you reveal your complete lack of understanding here and repeat the so often held myth that expanding the money supply is what creates prosperity and that some central planner controlling the money supply can do this if he is honest. Which one more time is like saying charging up the credit card creates prosperity. Wealth and prosperity is created by men and women who produce things not by some central planner expanding the money supply. This is why every fiat system in history has failed and your theory brings nothing new to the table. It still puts the money supply into the hands of some central authority and expects to “create” prosperity by properly managing said money supply. Your extreme reaching into totalitarian regimes of history to try and justify central authority of the money supply is frankly quite sad to say the least.

    I was going to dig into this further but I see little point in continuing this argument with you. I guess we will have to agree to disagree here because we are much farther apart on this then I thought.

    Reply

  6. 
Quoting Blayne: 
Not by a long ways huh?
    “The Republic in 213-212 B.C. thus revalued its heavy denarius, or quadrigatus, and began recoining quadrigati into lighter denarii at two-thirds the old weight” (pg.
    So what does this tell us it tells us? If they were being revalued and recoined then these SILVER COINS were in circulation long before this and thus were going to be recoined most likely due to degradation through circulation and also to debase them as the Romans were fond of doing, thus proving they were one example of being in the time period you speak of.

    Quoting JJ:
    Did you not read my post? I said that the denarius first appeared around 269 BC. Between 269 BC and 214 BC danarii were minted but these were like the old U.S. trade dollars, used for external purposes and not official internal money. The denarii were not monetized until somewhere around 212-214 BC.

    Before 269 BC they had some blank silver coins and bars that they used for trade but not internal money. They were not called danarii at that time.

    Blayne;
    So you think these coins just magically appeared on the scene and disappeared on certain dates?

    JJ
    Why would I think that? Coins appear as they are minted and disappear when the minting ceases.

    Quoting JJ: 
There was more freedom during from 715BC-214BC than the periods where gold and silver reigned and Christians were fed to the lions or when Constantine persecuted all who did not accept the authorized religion or money system.

    Blayne

    That’s like saying there was more freedom under Lennon then there was under Stalin in the USSR both were brutal totalitarian regimes.

    JJ
    Actually living under Lenin was not nearly as bad as living under Stalin.

    Blayne
    So what’s your point?

    JJ
    You’re the one who brought up totalitarianism in relation to money. If there is such a relation then the greater freedoms and lesser slavery and terror during the fiat era is a good sign.

    JJ
 quoting Blayne: 
Also the Celtibarians and Gauls minted Silver denarri to pay tribute and pay their men in Romes armies.


    Quoting JJ
: And this is pertinent because? This was in a different time period and does not relate to the discussion.

    Blayne:
    It shows there were silver coins in circulation and that they did not need to be minted by Rome showing that in practicality they still used precious metals.

    JJ
    There is no dispute that Rome used gold and silver for money after 214 BC. This has no relation to the fiat/bronze period.

    During the silver/gold minting periods there were a number of mints in the kingdom but they had to be approved by the emperor.

    Blayne:
    What part of departing from sound money is what causes failure do you not understand? Fiat money cannot work forever by its very nature it is created by some central authority.

    JJ
    And you know this because? A thing isn’t true just because you say it.

    The fiat principle can work indefinitely as long as excessive money is not printed, just like a gold standard can if it is not debased. Sometimes it doesn’t work that good though as with the Solidus at the decline and fall of the Roman Empire.

    The fiat principle worked for 500 years during the foundation of Rome and could have continued indefinitely if they had not switched to gold and silver coins.

    Blayne:
    That is the difference. Gold and silver money has worked forever and is still working today

    JJ
    What are you talking about? It is not working anywhere as money. It only is working as a commodity like wheat, but neither is money at the present. When’s the last time you bought a loaf of bread with gold or real silver?

    Blayne
    that is why everyone who can is getting as much of it as they can as yet another fiat system collapses.

    JJ
    And they are also storing wheat, but that doesn’t mean wheat is working as money. It is not under dispute (as you seem to mysteriously think) that commodities have value and always have.

    The current fiat system is miles away from the one I endorse and will collapse unless something is done. Any fiat or gold system where there is too much debt or interest will fail.

    Blayne
    There is a huge difference in debasing gold and silver it has to be melted down and mixed with non precious metals. It is much more work. time, effort and inconvenience, and plus it is more easily detectable by the people verses just printing more paper money and reducing the value drastically overnight without anyone realizing it till prices start rising.

    JJ
    Governments have to reissue coins every year or so anyway so changing the formula and debasing currency would take no additional effort. And coins never stopped anyone from clipping, altering or counterfeiting them. If we had a fractional gold standard, as most gold standard people would accept, excessive output would be easy.

    Quoting JJ: 
FDR debased gold 40% in the period of one day with just a signature stealing a large portion of the nation’s wealth. I’ve never seen such a quick debasement with fiat money.

    Blayne:
    
Please explain how that is the fault of gold?

    JJ
    And how is borrowing too much money the fault of the fiat principle?

    It wasn’t the fault of gold the metal, but gold the system. When it was seen as not working they changed it instantly with the stroke of a pen.

    Blayne:
    That is theft not debasement.

    JJ
    It is both.

    Blayne:
    He outlawed gold and confiscated it so how is it that gold failed because FDR stole it under threat of violence?

    JJ
    We (at least I) are not talking about gold the commodity failing any more than we are talking about wheat failing. It is NOT (repeat NOT) in dispute that all commodities will retain value. BUT the system that creates money based on gold, which we call the gold standard, is fallible. This can and has failed many times just as every money system that has ever existed in history had problems and has come and gone.

    You can argue that if men were perfect then the gold standard would not have failed but that argument can be made for any money system.

    Blayne:
    Every example of gold and silver “supposedly failing” you give is the same and it is absurd.

    JJ
    No more absurd then your examples of fiat money failing. The both have the same problem – leaders not following the rules or using sound reasoning.

    The difference between the two is this. Under a gold standard that follows the rules there are still periods of contraction which are very painful and there is often a shortage of money for expansion.

    Under a fiat system that follows the rules there would be no significant contractions and money would always be available for expansion creating more prosperity.

    Reply

  7. Blayne:
    Really He agrees with you? Perhaps you could provide a reference for that?

    JJ
    Did you not read my last post. He said:
    “Etruscan towns, the most sophisticated centers in Italy during the sixth and fifth century BC never struck gold and silver coins even though they had extensive trade with the Greeks and Carthaginians. Etruscans reserved gold and silver, which were costly metals imported from Central Europe or the East, for plate and jewelry.” Page 21

    Sure sounds like this agrees with what I said about gold and silver not being monetized. Most money historians that I have studied think gold and silver was not used as internal money until about 214 BC. Some observe that it was used externally and count that as being used for money when it was not used internally. Note my quote above by Harl. Money historian Stephen Zarlenga thinks the period was much longer than mentioned by Harl.

    Blayne
    Harls says that before the denarius there was a coin called the denier that was STILL a low grade silver coin that was the primary coin of Rome.

    JJ
    Wow… Are you even reading the book? Here is what he said on page 4:
    “Documents from AD 1000-1350 reveal that great numbers of ‘black money,’ low grade silver deniers, circulated between countryside and city every year in a seasonal cycle.” Page 4

    1000-1350 AD is a long ways from 715BC-214 BC. No coin called a denier existed during the time period in question – not by a long ways.

    Blayne:
    He also says there was no official coin of Rome during that period and they used various silver gold and bronze long with wheat and oil as currency,

    JJ
    I’ve searched through the book and cannot find this type of reference. Could you supply the exact quote and page number?

    There were some gold and silver coins and bars during the 500 year period in question but they were used for trade purposes – a little like the U.S. trade dollar of the 1800s. The fiat nummi was the coin traded as official money internally. Money historians I have read agree with this. There are a few who lump official coins together with the commodities and call them all money but these are glossing over important details.

    Blayne:
    and they were a totalitarian economy by force of arms hardly a justification for you theory of a sound fiat currency.

    JJ
    There was more freedom during from 715BC-214BC than the periods where gold and silver reigned and Christians were fed to the lions or when Constantine persecuted all who did not accept the authorized religion or money system.

    Blayne:
    Also the Celtibarians and Gauls minted Silver denarri to pay tribute and pay their men in Romes armies.

    JJ
    And this is pertinent because? This was in a different time period and does not relate to the discussion.

    Blayne:
    Also you have not shown a single instance where gold or PM failed.

    JJ
    How about every instance? Where did it not fail if you apply the same standard to it as you do to fiat money?

    You seem to believe gold and silver money would work forever if some authority did not debase it. Well, fiat money would work forever also if some authority did not debase it through creating too much money.

    There is no difference in the problem of debasing gold and silver money and introducing too much currency into the fiat system debasing it. This debasement must be solved in either system and so far no one has done it.

    Blayne:
    Every example you point to has been a debasement of it or a departure into paper.

    JJ
    Not so. I talked about the gold solidus, which lasted for 700 years and was not debased. There were still a lot of problems including the fall of the empire and the dark ages that followed.

    Blayne
    Yes gold and PM’s can be debased and that is why there cannot be any central authority.

    JJ
    But private banking also debased it a number of times in history so what is your point?

    Blayne:
    However gold silver and PM;s are much harder to debase then simply printing notes.

    JJ
    FDR debased gold 40% in the period of one day with just a signature stealing a large portion of the nation’s wealth. I’ve never seen such a quick debasement with fiat money.

    Blayne:
    So the two pillars of sound money are: No central authority creating and controlling it, and No money from nothing or by fiat. Value or value!

    JJ
    But you still haven’t given me an example of a time where unrestricted private money created a successful gold standard. You cited the period of 1870-1913 but this was more controlled by government (state governments) than was the previous 100 years.

    Reply

    1. JJ
      Wow… Are you even reading the book? Here is what he said on page 4:
      “Documents from AD 1000-1350 reveal that great numbers of ‘black money,’ low grade silver deniers, circulated between countryside and city every year in a seasonal cycle.” Page 4
      1000-1350 AD is a long ways from 715BC-214 BC. No coin called a denier existed during the time period in question – not by a long ways.
      Blayne
      Not by a long ways huh?

      “The Republic in 213-212 B.C. thus revalued its heavy denarius, or quadrigatus, and began recoining quadrigati into lighter denarii at two-thirds the old weight” (pg. 8)

      So what does this tell us it tells us? If they were being revalued and recoined then these SILVER COINS were in circulation long before this and thus were going to be recoined most likely due to degradation through circulation and also to debase them as the Romans were fond of doing, thus proving they were one example of being in the time period you speak of.

      So you think these coins just magically appeared on the scene and disappeared on certain dates? I will go through and get more references as I have time. In the mean time I will answer some of your other questions.

      JJ
      There was more freedom during from 715BC-214BC than the periods where gold and silver reigned and Christians were fed to the lions or when Constantine persecuted all who did not accept the authorized religion or money system.

      Blayne
      That’s like saying there was more freedom under Lennon then there was under Stalin in the USSR both were brutal totalitarian regimes. So what’s your point?

      JJ
      quoting Blayne:
      Also the Celtibarians and Gauls minted Silver denarri to pay tribute and pay their men in Romes armies.
      JJ
      And this is pertinent because? This was in a different time period and does not relate to the discussion.

      Blayne
      It shows there were silver coins in circulation and that they did not need to be minted by Rome showing that in practicality they still used precious metals.

      quoting Blayne:
      Also you have not shown a single instance where gold or PM failed.
      JJ
      How about every instance? Where did it not fail if you apply the same standard to it as you do to fiat money?
      You seem to believe gold and silver money would work forever if some authority did not debase it. Well, fiat money would work forever also if some authority did not debase it through creating too much money.
      There is no difference in the problem of debasing gold and silver money and introducing too much currency into the fiat system debasing it. This debasement must be solved in either system and so far no one has done it.

      Blayne
      What part of departing from sound money is what causes failure do you not understand? Fiat money cannot work forever by its very nature it is created by some central authority. That is the difference. Gold and silver money has worked forever and is still working today that is why everyone who can is is getting as much of it as they can as yet another fiat system collapses. There is a huge difference in debasing gold and silver it has to be melted down and mixed with non precious metals. It is much more work. time, effort and inconvenience, and plus it is more easily detectable by the people verses just printing more paper money and reducing the value drastically overnight without anyone realizingit till prices start rising.

      JJ
      FDR debased gold 40% in the period of one day with just a signature stealing a large portion of the nation’s wealth. I’ve never seen such a quick debasement with fiat money.

      Blayne
      Please explain how that is the fault of gold? That is theft not debasement. He outlawed gold and confiscated it so how is it that gold failed because FDR stole it under threat of violence? That like saying your car is a lemon if it gets stolen. Gold did not fail central authority once again failed and became corrupt. People still kept gold and silver and traded it despite FDRs theft. And he did this to shift to what? PAPER MONEY! Every example of gold and silver “supposedly failing” you give is the same and it is absurd.

      JJ
      But you still haven’t given me an example of a time where unrestricted private money created a successful gold standard. You cited the period of 1870-1913 but this was more controlled by government (state governments) than was the previous 100 years.

      Blayne
      I have and you just deny it and ignore it. Most of the 19th century except for the war periods and few other short periods was a relative free market in currency in practice despite state banks and no particular currency was enforced on the people they were free to use what they wanted and did and we prospered the economy expanded even the money supply grew while prices fell etc.

      Reply

  8. Blayne:
    I and Larry K and others have spent significant time and effort digging down far below the surface and using historical references etc. to point out the flaws in your argument and the FACT that there has never been a successful Fiat currency in history and you can’t point to one.

    JJ
    I just pointed to two successful ones. Did you not read my post? Why do you believe the fiat systems of the Spartans and early Rome was not successful? Is it just because you are making your own fiat decree on the matter?

    Blayne:
    Fiat currencies always seem prosperous in the beginning pointing to that and saying they are successful is like saying charging your credit card increases your net worth.

    JJ
    And gold and silver currencies that were practical also worked in the beginning and then went bad. Our constitutional government worked well in the beginning and then got corrupted. By your logic then the Constitution has nothing more going for it than what you think of fiat money.

    In every case you have to look at the principles involved and what works and what doesn’t work. If you introduce a working principle and men corrupt it this doesn’t mean the principle was bad.

    Blayne:
    Your example of the people of Rome accepting bronze currency is quite skewed since they had no choice

    JJ
    So by your logic gold and silver money is not valid because the Constitution mandates it as money and we have no choice in the matter if the law is followed. You’re not making sense here.

    Blayne:
    …and also the real money in practice was still gold and silver,

    JJ
    This is just not true. Silver was not monetized until the denarius was coined and monetized for Rome somewhere around 214 BC. Gold money surfaced around this same period. Before this period fiat bronze was the official money.

    Blayne:
    to say this bronze coin was a successful fiat currency for 500 years happily accepted by the people is quite a stretch of the imagination.

    JJ
    Not a stretch of the imagination at all – though I didn’t use the word “happily.” Money historian Stephen Zarlenga researched this early fiat bronze money and searched for any sign of discontent with the people over the bronze money over the 500 years and could find no evidence of any. However, there was lots of dissatisfaction over the debasement of gold and silver later on. And for good reason. The people were sold on the idea that gold and silver was the real money and when it was debased they felt cheated.

    The early Roman period was much different. The people were not told the value was in the bronze, but in the system itself.

    Blayne:
    You forgot to mention that the silver denarius was still the primary coin of Rome all this time with bronze and gold as subsidiaries and fractions.

    JJ
    Why would I mention this when this was not true?

    From 715BC – 214 BC there was no monetized denarius coins circulating in Rome as money. The denarius was first used for trade purposes in 269 BC, but wasn’t used as money internally until around 214 BC. During the 500 years I mentioned there was no denarius used as Roman money.
    Lost Science of Money By Stephen Zarlenga, Pages 57-59

    Blayne:
    It seems you are looking for facts to support your theory instead of letting the real facts speak for themselves and this leads you to take things out of context and use some extreme creative interpretation to try and fit your theory.

    JJ
    And it appears that you are thinking insider the box of orthodox gold standard anti fiat believers instead of looking outside the box.

    I have gained my views by looking for the truth no matter where it leads.

    I give you two examples of fiat money that worked and you reject them out of hand. It sounds like you are the one trying to make facts fit to your views.

    Reply

    1. JJ
      And it appears that you are thinking insider the box of orthodox gold standard anti fiat believers instead of looking outside the box.

      I have gained my views by looking for the truth no matter where it leads.

      I give you two examples of fiat money that worked and you reject them out of hand. It sounds like you are the one trying to make facts fit to your views.

      Blayne
      It seems you are he one stuck inside the box here infatuated with the Keynesian propaganda and refuse to acknowledge anything that disproves it. I have dismissed nothing out of hand I provided historical reference for the silver denarius being the primary coin of Rome during the time period you speak of. and you simply have ignored any historical reference provided challanges your theory. Your examples have been debunked!

      Reply

      1. You statement that the Denarius co-existed as money during the bronze money period of 715 BC – 214 BC is just not correct and not supported by Kenneth W. Harl or any other money historian. It did not exist in any form before about 269 BC. Your source Mr Harl agrees with me and other historians for he says:

        “Etruscan towns, the most sophisticated centers in Italy during the sixth and fifth century BC never struck gold and silver coins even though they had extensive trade with the Greeks and Carthaginians. Etruscans reserved gold and silver, which were costly metals imported from Central Europe or the East, for plate and jewelry.” Page 21

        Reply

        1. Really He agrees with you? Perhaps you could provide a reference for that? Harls says that before the denarius there was a coin called the denier that was STILL a low grade silver coin that was the primary coin of Rome. He also says there was no official coin of Rome during that period and they used various silver gold and bronze long with wheat and oil as currency, and they were a toltalitarian economy by force of arms hardly a justification for you theory of a soud fiat currency . Also the Celtibarians and Gauls minted Silver denarri to pay tribute and pay thier men in Romes armies.

          Also you have not shown a single instance where gold or PM failed. Every example you point to has been a debasement of it or a departure into paper. So how you can claim the gold is responsible is beyond me. Yes gold and PM’s can be debased and that is why there cannot be any central authority. However gold silver and PM;s are much harder to debase then simply printing notes. So the two pillars of sound money are: No central authority creating and controlling it, and No money from nothing or by fiat. Value or value!

          Reply

  9. JJ
    Many fundamentalists think not and feel that every possible form of fiat money is doomed to failure.

    And why is this?

    Basically because they look at the surface of a few examples of failed money in the past and lump all fiat money into one category. They pretty much call it the god-awful bad category. This is basically where their analysis begins and ends.

    Blayne
    I wasn’t going to respond on this topic anymore but I read this statement in disbelief. I and Larry K and others have spent significant time and effort digging down far below the surface and using historical references etc. to point out the flaws in your argument and the FACT that there has never been a successful Fiat currency in history and you can’t point to one. Fiat currencies always seem prosperous in the beginning pointing to that and saying they are successful is like saying charging your credit card increases your net worth.

    Your example of the people of Rome accepting bronze currency is quite skewed since they had no choice and also the real money in practice was still gold and silver, to say this bronze coin was a successful fiat currency for 500 years happily accepted by the people is quite a stretch of the imagination. You forgot to mention that the silver denarius was still the primary coin of Rome all this time with bronze and gold as subsidiaries and fractions. (Coinage in the Roman economy, 300 B.C. to A.D. 700, Part 700 – Kenneth W. Harl Pg. 6) It seems you are looking for facts to support your theory instead of letting the real facts speak for themselves and this leads you to take things out of context and use some extreme creative interpretation to try and fit your theory.

    Reply

  10. And you wrote:

    “For the first example let’s look way back to the foundation of the ancient Spartan way of life originated by its king Lycurgus around 800 BC.”

    Good idea – use an example of a totalitarian state where the Spartans lived almost entirely off the efforts of their slaves. That shows how well fiat money works!

    Reply

    1. Money systems, good and bad, are used by governments good and bad. There is no direct relation to a money system and quality of leaders.
      Lycurgus was not like a Hitler or Stalin as he was adored by his people. Even though he used authority the people loved him as he had their best interests in his heart – unllike a real tyrant. All leaders used strong authority in those days.

      Reply

      1. My point had nothing to do with thq quality of Lycurgus as a leader. The point was that the Spartans lived off of the labor of slavery. Spartans also philosophically eschewed wealth and luxury. Therefore not having gold as a currency was hardly a serious problem for them. Whether or not fiat money is a good idea, this is a very flawed example to use to support it, which simply points to paucity of examples you have for your claim. And that is probably ok if you understand that a new fiat system will undoubtedly not be an exact repeat of something done in the past.

        Reply

        1. I think this was important to include because it is the first historical example of a fiat money system that worked. This set an example that some believe inspired Romes financial beginnings which also used fiat. True, the Spartan way of life would not be practical to duplicate today but the principle that makes fiat work is the same.

          Reply

  11. You ask:

    “One might ask that if gold and silver backed currencies are so great then why has every nation on the planet abandoned them?”

    The answer is obvious. Governments have ambitions to grow and spend money and create services (and buy votes), etc., etc. ad infinitum, and the requirement of backing currency with gold is a huge impediment to those ambitions.Gold doesn’t easily allow governments to act on their whim of moment.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *