Fiat currency advocates
aren't the only ones who perpetuate myths about economics, like the
desirability of central banking. Central banking works great in theory but in
practice central banking is the power to create infinite money, which is
absolute power, and of course it is never exercised by an impartial machine
following infallible formulas; rather is it exercised by fallible people who
are corrupted absolutely by absolute power.
Gold advocates have their
own myths too, foremost of which is that gold is the best money because
central banks can't print it as they print ordinary currency. But of course
Western central banks long have been printing gold in nearly infinite
quantities -- "paper gold," claims on gold that doesn't exist,
hypothecated and rehypothecated from gold leased by
central banks -- and the markets and financial news media long have fallen
for it. It's why the gold price long has ridiculously lagged currency
creation.
A close second among the
myths of the gold bugs is that fiat currency has no intrinsic value -- that,
as Voltaire is said to have observed, "Paper money eventually returns to
its intrinsic value -- zero."
Voltaire's observation arose from his witnessing the corruptibility of
central banking and the destruction of the currency in France in the 1600s
and 1700s. But while a piece of paper purporting to be money may be just a
piece of paper, typically today paper currency represents far more than that
and likely always will, as noted this week by Chris Mayer of The Daily
Reckoning.
Starting with the example
of the U.S. dollar, Mayer notes that this mere paper or its electronic
derivative is given enormous value by the taxing power of the government that
issues it. Value is also conferred on that paper by government's enforcement
of legal tender laws requiring its acceptance "for all debts, public and
private."
Mayer goes on to note
other unappreciated truisms from the age of fiat money, like the obsolescence
of levying taxes for national government revenue, a point perhaps made first
by the vice president of the Federal Reserve Bank of New York, Beardsley Ruml, in 1945, whose observation has been noted from time
to time by GATA and certain other gold bugs, like the Tocqueville Gold Fund's
John Hathaway:
http://www.gata.org/node/10188
http://www.gata.org/node/510
http://www.gata.org/node/511
That is, in a fiat money
regime, governments create money at will and the only purposes of national
taxes are to conceal government's money-creation power from the population
and to determine how money will be distributed, a
mechanism of social control.
Ruml's point illustrates still other
economic myths of the advocates of fiat currency and central banking: the
myths that central banks need to lease gold to earn a little money on a
supposedly dead asset and that the International Monetary Fund needs to sell
gold from time to time to finance aid to poor nations.
Having the power of money
creation without any respect to gold, central banks needn't lease or sell it
for any revenue-raising purpose. No, central banks need to lease or sell gold
only to hamper a potentially competitive currency and maintain their own
absolute power over the world.
Mayer's commentary is
headlined "The Real Reason the U.S. Dollar Has Value" and it's
posted at the Daily Reckoning here:
http://dailyreckoning.com/the-real-reason-the-u-s-dollar-has-value/
