Re: The Economy Of Plenty

Eric Watt Forste (
Thu, 18 Sep 1997 12:29:40 -0700

Damien Sullivan writes:
> In a sense, modern currency is backed by valuable goods: it is
> backed by all the valuable goods in existence.

Well, actually it's backed by a threat of force called the legal-tender
laws. If you take that threat away, people would go back to using
currencies based on a most-marketable good in short order.

> Gold was hardly useful or practically valuable itself. Jewelry
> only goes so far, and chip wires are new and also probably don't
> go that far. (You can't eat gold.) But everyone believed that
> everyone else would sell food or iron or blacksmithing for gold,
> so everyone sold things for gold. Again, the real backing is mutual
> agreement, or rather faith and habit which may get rationalized as
> mutual agreement. (Or they may not.)

The non-catallactic utility of gold has been just a small part
of its value; the relationship between the catallactic value of
gold and the non-catallactic value of gold is vaguely similar
to the relationship between unbacked notes and reserves in a
fractional-reserve system. But what gets something established
in the first place as a currency is its status as a
most-marketable good, and that requires some non-catallactic
utility in the first place.

> I can't see that there's any serious problem with fiat currency
> except the ability to "print" a lot of it, which seems to be
> generally accepted as a bad idea these days.

The serious problem with monopolized fiat currency is the implicit
tax on currency-holders that happens with every expansion of the
money supply relative to demand ("velocity"). Just because that
implicit, regressive tax is not abused so much as to seriously
threaten the stability of the economy (anymore... it was different
in the 1970s) doesn't make it right, doesn't make it any better
than the political fraud that it is.

Eric Watt Forste ++ ++ expectation foils perception -pcd