Silver Coin Commerce™

The term fiat money is used to mean:

• any money declared by a government to be legal tender.
• state-issued money which is neither legally convertible to any other thing, nor fixed in value in terms of any objective standard.
• money without intrinsic value.

Fiat money refers to money that is not backed by reserves of another commodity. The money itself is given value by government fiat (Latin for “let it be done”) or decree, enforcing legal tender laws, previously known as “forced tender”, whereby debtors are legally relieved of the debt if they (offer to) pay it off in the government’s money. By law the refusal of “legal tender” money in favor of some other form of payment is illegal, and has at times in history (Rome under Diocletian, and post-revolutionary France during the collapse of the assignats) invoked the death penalty.

An example of fiat money is the new, international currency, the Euro. Its introduction changed the face of money, superseding many of the world’s oldest currencies.

Governments through history have often switched to forms of fiat money in times of need such as war, sometimes by suspending the service they provided of exchanging their money for gold, and other times by simply printing the money that they needed. When governments produce money more rapidly than economic growth, the money supply overtakes economic value. Therefore, the excess money eventually dilutes the market value of all money issued. This is called inflation.

In 1971 the US switched to fiat money indefinitely. At this point in time, many of the economically developed countries’ currencies were fixed to the US dollar, and so this single step meant that much of the western world’s currencies became fiat money based.

Following the first Gulf War the president of Iraq, Saddam Hussein, repealed the existing Iraqi fiat currency and replaced it with a new currency. Despite having no backing by a commodity and with no central authority mandating its use or defending its value, the old currency continued to circulate within the politically isolated Kurdish regions of Iraq. It became known as the Swiss Dinar. This currency remained relatively strong and stable for over a decade. It was formally replaced following the second Gulf War.

ArminVoigt                                                                                                                                                                                                                                                                                                                                                                                                                        Via ProBlogPartners™       

References:

• Wikipedia.com
• gainesvillecoins.com

Have you read The Wealth of Nations yet? Because that, my friends, is a tough read. You almost have to read each paragraph, or each sentence, and then stop and think about it for a while.  At least that’s how it was for me. On the exact opposite end of the spectrum, you have Whatever Happened to Penny Candy? By Richard J. Maybury. But don’t let the name fool you. This book has many profound concepts and lessons, maybe even more impactful because unlike Wealth of Nations, this book is not the least bit intimidating.

The book is broken into two major parts. The first part, is the more fun part to read as the author presents economic and monetary concepts in letter form, as if he is describing the contents to his Nephew “Chris”. This section also starts out with the Shel Silverstein poem “Smart” from his book Where the Sidewalk Ends
. The second part of the book is a bunch of useful information that, if so inclined one could explore to find other resources about economics, legal systems etc.

What’s great about this book is that a surprising amount of concepts are covered within the 15 or so “letters”. The first one entitled “Money: Coins and Paper” explains inflation and recession:

“Dear Chris,

In your last letter you asked me to explain inflation and recession. You said newspapers have been discussing these things and you don’t understand what it’s all about.

Don’t feel alone. Inflation and recession are things most people complain about but few understand. They know their careers, businesses and investments are affected profoundly every day, but they don’t know exactly how. Even teachers, newsmen, and politicians are often confused. They know these things are dangerous, but they can’t figure out where it all came from or where it’s all going.

I’ll do my best to explain as clearly as possible You’ll not only learn some important things about your future, but you’ll be able to tell others about theirs. You will also be much better able to become successful in whatever career, business or investments you choose. And, you’ll be much better able to stay successful—you’ll know the hazards that are out there waiting to ambush you. As they say, forewarned is forearmed…”

As you can see, the information is presented one on one, which makes the concepts more poignant and relevant. From the “Money” letter, the author then presents a letter entitled Tanstaafl, The Romans and Us, which explains the “Their Ain’t No Such Thing as a Free Lunch!” concept and saying. He then goes on to present letters explaining about dollars, legal tender laws, boom and bust cycles, federal debt, and more.

This book was surprisingly fun to read, and I highly suggest it as a possible family read. I’m encouraging the rest of my family to give it a look. I certainly learned a few things, and I think this is one of those books that can encourage more interest and discussion with younger family members.

Whatever Happened to Penny Candy? is available at most libraries or you can buy it here.

Pete Skenandore
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