Why Fiat Money is Awesome

If the title makes you bristle, you are probably a libertarian. If the title invokes no emotions in you, then congratulations, you are probably a person with adequate social skills.

Fiat money refers to an item which acts as a medium of account, medium of exchange and store of value for the sole reason that people believe it performs in those ways. Often this is backed up by the state.

Some people prefer commodity money to fiat money because they believe that fiat money is too easily open to fraud by the government issuing it. Iron Pyrite can never be turned into gold, but governments can turn paper and ink into fiat money.

Commodity money, normally in the form of gold, has had some pernicious consequences. The traditional complaints about the Gold Standard have been covered before, but I want to raise other objections.

Gold, as a commodity, promotes violence. As a physical store of great wealth it induced a colossal state supported system of piracy, murder, pillage and theft throughout the early modern world. England robbed Spain, France robbed England, Black Beard robbed everyone, and they sodomised one another all round the rum soaked West Indies.

Both counterfeiting, and inflation, can be transfers of value from holders of currency to producers of currency, but neither is inherently violent. Ill gotten gain must be far more ill-ly gotten in commodity currency regimes.

There’s a reason all Bond villains once planned to rob Fort Knox, it was where all the gold was kept. These days there’s no point in doing that, all you need to do is hack into a computer and add a few ,000s to your bank balance. Generic guard #3 gets to live.

There is an incentive to steal money under all systems of monetary exchange, money is lighter than a cow, but it can become a cow when you need it too. However, commodity money systems induce violence in ways in which fiat currencies do not and this is a draw back of the system rarely acknowledged.