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Posts Tagged ‘goldsmiths’

Gold Bars

On liberty-themed radio shows and sites, one often hears the claim that fiat currencies don’t last long, and in some generous but inaccurate cases, that a fiat currency has never lasted more than a couple hundred years.

The English tally sticks were an example of a fiat currency that lasted more than 500 years. Before you say that it wasn’t a currency because it didn’t circulate widely, how is circulation between the citizens of England and the government not widespread circulation?

The gold double standard is this: pointing to examples of fiat currencies failing, and completely overlooking examples of failed gold standards. The argument is that it was government’s fault for historical instances of gold standards failing. Ah, but isn’t that the same blame foisted upon most fiat currencies as well?

One aspect of the gold double standard is the use of word association of fiat currency with fractional reserve banking. That is, the lending of more fiat currency than the fraction of reserves held. Where did fractional reserve banking originate? From goldsmiths, not fiat currency bankers.

One of the primary arguments against a fiat currency is that it is doomed to fail because governments will progressively issue more currency than is in productive demand, and that a gold standard is necessary to tie the government’s hands in limiting the increase in the money supply. But how did the gold standard prevent the Great Depression starting in 1929?

Some will argue that the gold standard in effect in 1929 only backed the currency by 35-40%, and that its failure resulted from less than 100% backing. However, with 100% backing, where does the money come to pay the compound interest demanded from bankers on their loans of gold?

An insidious consequence of a 100% gold reserve standard with compound interest is that those who own the gold will eventually control all the money supply.

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