Your Money is Worthless

16 Trillion Reasons for the Bankruptcy of Our Nation

Jerry Robinson

Revised and expanded edition: July 2012

Second printing: April 2009

First printing: March 2009

Text is one chapter from Bankruptcy of Our Nation, Revised and Updated. Copyright © 2009, 2012 by Jerry Robinson. All rights reserved. No part of this e-book may be used or reproduced in any manner whatsoever without written permission of the publisher, except in the case of brief quotations in articles and reviews. For information write:

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Contents

"O Ye of Little Fiat..."

Economics 101: What They Didn't Teach You in School

A Brief History of Fiat Currencies

Recent Fiat Failures

The Failures of Fiat Money Ignored

The Biblical Views of Fiat Currencies

This is a special preview e-book featuring one of the most compelling chapters from the book Bankruptcy of Our Nation, Revised and Updated, from economist and international speaker Jerry Robinson. Be sure to check out a special link at the end to download your free copy of 5 Income Streams You Can Create Now and in Retirement!

Why it Matters

Now more than ever, it’s vital that you secure your own financial future.

The U.S. national debt has surpassed the $16 trillion mark, with future unfunded obligations of over $120 trillion – and the government has no plan. None. And shockingly, this economic crisis is much worse than you may realize. Now learn more about the dangerous state of the U.S. dollar as a fiat currency and how history has not been kind to nations and empires which bankrupted their future for short term financial gains.

Introduction

According to the laws of physics, an apple thrown upward into the air will be pulled downward by the invisible force of gravity. And while history does not necessarily subscribe to a set of predictable laws, it can teach us valuable lessons. Those lessons can even be forceful at times. It has been said that while history may never truly repeat, it does at least rhyme. And unfortunately, in the case of the ongoing American economic decline, we have a wide array of historical precedents. Anyone who has studied economic history is aware that all empires that have risen have also fallen. No empire can maintain its stranglehold on power forever. There is always a people group waiting in the wings to replace the current reigning power.

This concise e-book is all about how economic empires which have risen and fallen throughout history. In particular, it will focus on the failure of the paper currencies that these empires have used. A fiat currency, like the U.S. dollar, is a currency that is not backed by any type of commodity. Instead, it is issued by “fiat” or decree. The fiat currency derives its value from the full faith and credit of the underlying nation. What kind of “faith” must the citizens possess? In essence, the citizenry must believe that the monetary authorities will keep the supply of the fiat currency in scarce supply. Sadly, governments and their central banks have an embarrassing track record of consistently inflating their money supply during difficult economic times. The fact is no fiat currency has ever succeeded in the long run. Ever. The reasons why empires consistently destroy their currencies through overproduction are legion, including military overextension, runaway entitlement spending, and massive greed andcorruption at every level of government and commerce.

In addition to these maladies, another symptom is often present: a deceptive belief that the underlying economy is somehow “exceptional” and immune to the laws of economics. That is, at its height, nearly every empire believes itself to be invincible. Will America follow the same historical pattern and seemingly inevitable conclusion?

A Short History of Fiat Currencies

There is no subtler, no surer means of overturning the existing basis

of society than to debauch the currency. The process engages all the

hidden forces of economic law on the side of destruction, and does it

in a manner which not one man in a million is able to diagnose.[1]

— Sir John Maynard Keynes

With the exception only of the period of the gold standard, practically

all governments of history have used their exclusive power to issue

money to defraud and plunder the people.[2]

— Friedrich A. Hayek, Nobel prizewinner, economist

OVERVIEW: A fiat currency, like the U.S. dollar, is a currency that is not backed by any type of commodity (gold, silver, etc). Since an underlying commodity does not give value to the fiat currency, only one thing can determine its value: scarcity. Governments and their central banks, however, have a terrible track record of keeping fiat currencies in scarce supply. This chapter reveals some of history’s fiat currencies. No fiat currency has ever succeeded in the long run. Ever.

“O Ye of Little Fiat . . .”

Fiat currencies are faith-based currencies. Individuals who live, work, and transact in a fiat currency system are a people of great faith. Faith, you say? What exactly does faith have to do with a fiat currency system? Faith has everything to do with a fiat currency. As we have already learned, a fiat currency system is one determined by the governing authorities with no backing of any physical commodity. Because fiat currencies do not derive their value from anything tangible, their value is determined by their scarcity. Fiat currency systems, like that of the U.S. dollar, demand an enormous amount of trust from the public in the monetary competency of their governments. Why? Because the future value of a fiat currency is entirely dependent upon the financial wisdom and vigilant oversight of the nation’s monetary authorities in keeping the currency in a limited and strictly measured supply. Those who use and transact in a fiat currency system demonstrate great faith in their government’s ability to make sound monetary decisions.

If the authorities choose to adopt unsound monetary policies, such as massively inflating the amount of currency in circulation, the public will suffer as each fiat dollar becomes worth less, if not worthless! Under such an irresponsible monetary system, the citizenry will seek to preserve their purchasing power by reducing their holdings in the fiat currency as it declines in value. However, the fiat currency is not always the only casualty in such situations, as the public often loses trust in the entire system, including the current political leaders, the central bank, and even the national banking system.

Therefore, it is not a misnomer to call fiat currencies what they truly are: faith-based currencies. The faith expressed by the public is not rooted within the currency itself, but instead, within the ability of the nation’s monetary authorities to properly steward the value of the fiat currency.

Question: Is the U.S. dollar the first fiat (faith-based) currency in existence? And if it is not, what kind of historical track record do fiat currencies have? Are fiat currencies more likely to succeed or to fail?

Answer: The U.S. dollar is not the first fiat currency in history. In fact, the first known fiat currency system was originated under the Song Dynasty in China during the 11th century.[3] Since the dawn of fiat creation, governments who have chosen to adopt fiat currency systems have had one unfortunate thing in common: they have abused their money-printing privileges through the overproduction of their national currency until it becomes completely worthless. Interestingly, a cursory examination of the rationale behind many of these periods of currency collapse began with reasonable objectives. In other words, it is difficult to find a historical example of a fiat currency collapse that was initiated with sinister motives to destroy the currency. Instead, history demonstrates that the varied periods of currency overproduction occurred when a government became seduced by the suggestion that their economic misfortunes could be solved through the production of just “a little more” money. But printing money “out of thin air,” as the fiat currency system so easily allows, always comes at an enormous cost. History is clear. Every fiat currency devised throughout history has faced the same embarrassing and miserable death: utter collapse by overproduction. The fact that so many currency collapses throughout history were initiated under the auspices of “good intentions” should be a cause for concern to all who distrust the true motives of the monetary authorities in our modern era.

A comprehensive historical review of fiat currencies also reveals another interesting phenomenon. Often, just prior to the demise of a fiat currency, the nation’s economy appears to be experiencing widespread prosperity.[4] Of course, this “prosperity” is simply an illusion. In reality, as more of the fiat currency is produced and circulated throughout the national economy, the average standard of living experiences a temporary increase which creates an illusion of growing wealth in the nation. While this illusion appears real, the “prosperity” that is encountered by the masses of people is of artificial origin, manufactured and fueled by the government’s overproduction of the currency. After a nation experiences this inflation-fueled illusion of prosperity, the death of the currency is not far behind. The irony is cruel.

Economics 101: What They Didn’t Teach You in School

Before we begin our brief excursion through history concerning fiat currencies, consider this brief illustration regarding currency overproduction. Imagine for a moment that two brothers — we will call them Bill and Joe — wake up to find themselves stranded on a deserted island. After several desperate attempts to be rescued, the two brothers soon realize that the tropic island may have become their new home. They soon begin surveying the island in search of food, water, and shelter. Bill soon discovers a fruit tree and immediately lays claim to it.

There Is Nothing New Under the Sun

According to the Bible, King Solomon was the wisest man who ever lived (1 Kings 4:31). As one of the greatest kings of ancient Israel, Solomon lived a life of luxury and comfort in the upper echelons of his society. History tells us that his riches were immense (1 Kings 3:13; 2 Chronicles 1:12). As a king, he was denied no request. His popularity and fame as a successful ruler were spread throughout the entire region. And based upon his biblical writings, it is obvious that the man was filled with great knowledge, common sense, and wisdom.

But upon a deeper inspection of Solomon’s writings, another striking theme emerges: a profound sense of despair. Despite his vast wealth, wisdom, and fame, the great king discovered that a life lived apart from the Creator was futile and that humanity’s quest for meaning outside of God would always be fruitless. His observations were summed up best when he said, “All is vanity” (Eccles. 1:2, 12:8). Solomon’s sobering realization gives new meaning to the oft-said phrase, “Ignorance is bliss.”

Another one of Solomon’s famous quotes is found in the Book of Ecclesiastes: “Generations come and generations go, but the earth never changes. The sun rises and the sun sets, then hurries around to rise again. The wind blows south, and then turns north. Around and around it goes, blowing in circles. Rivers run into the sea, but the sea is never full. Then the water returns again to the rivers and flows out again to the sea. Everything is wearisome beyond description. No matter how much we see, we are never satisfied. No matter how much we hear, we are not content. History merely repeats itself. It has all been done before. Nothing under the sun is truly new. Sometimes people say, ‘Here is something new!’ But actually it is old; nothing is ever truly new. We don’t remember what happened in the past, and in future generations, no one will remember what we are doing now” (Eccles. 1:4–11; NLT).

Norman Cousins would later paraphrase King Solomon in his famous quip, “History is a vast early warning system.”[5] But perhaps George Santayana said it best when he wrote, “Those who do not know history are doomed to repeat it.”[6] Does this mean that history always represents destiny? No. However, we must admit that while history may not always repeat, it certainly rhymes. And the rhyming of history is what this chapter is about. While each historical case of fiat currency collapse is unique, it is all rooted in the same basic problem: human greed.

Joe, who is literally starving, begs his brother Bill for a piece of fruit. Under normal circumstances, Bill would accept money as payment for his newfound treasure trove. But what good is paper currency on this island?

After he realizes that no amount of begging will work on his stingy brother, Joe devises a plan. In his pocket, Joe has eight golf balls. He approaches Bill with the idea of using the eight golf balls as the island’s new official currency. Bill agrees and under their new “currency” system, both men receive four golf balls with which to trade for things that the other man may find.

Finally, Joe, who is famished and desperate for food, offers Bill one of his golf balls for a piece of fruit from Bill’s tree. Bill considers it a fair trade. Suddenly, as the two men are finalizing their transaction, a very loud noise, like something striking the ground, is heard just a few hundred feet away. Eager to see what has caused the noise, Joe and Bill run to investigate. What they discover shocks them both. Right there on the white sandy beach in front of them lays a very large wooden crate attached to a parachute. The outside of the box reads: “Golf Balls — 100,000 count.”

Now considering what we have learned so far, what effect do you think this new box containing 100,000 golf balls is going to have upon the price of the piece of fruit that Joe wants to buy?

Answer: The price of Bill’s fruit will go up dramatically. And the price increase happens instantaneously as the available money supply on the island (golf balls) has suddenly increased from 8 to just over 100,000 in a few brief moments! Given this dramatic increase in the money supply, do you think that Bill is still willing to accept just 1 golf ball for his precious fruit? Why not 50 or 100? Or even 1,000?

Interestingly, Bill could not ask for more than 8 golf balls for his fruit prior to the discovery of the 100,000 golf balls. And yet, just moments after the discovery of the golf balls, his price could rise immediately.

This above illustration provides a classic example of the effects that changes in the money supply have on prices within an economy. This is the definition of inflation: an increase in the money supply. Inflation is basically a hidden tax on consumers and will be discussed in further detail in our next chapter. Of course, the government and their paid economists prefer to define inflation as an increase in the prices within the economy. However, price increases are only a symptom of the increasing money supply. The reason why governments prefer to define inflation as an increase in prices and not in the money supply is simple. If inflation is simply an increase in prices, then how can anyone blame the government? Instead, we should blame those greedy capitalists and businesses who are always trying to raise prices. Don’t be fooled. Inflation is an increase in the money supply. The only one to blame is the government and their central banking scheme.

At its most rudimentary level, our current monetary system shares many similarities with our golf ball illustration. In essence, the more scarce the money supply, the lower the price of the goods and services denominated in that currency. The opposite is also true. The more abundant the money supply, the higher the prices will be for the same goods and services. This is because the amount of money within any economy is directly related to, and has a direct effect upon, the prices within that economic system.

Is milk more expensive? If so, either the dairy business is passing on its higher costs to consumers, or more currency has been pumped into the economy.

Has bread become more expensive than it used to be? Either the costs of making bread have gone up, or the government is allowing more currency to be injected into the economy.

Therefore, if the price of everything seems to be going up within a particular economy, ask this question: Is the government increasing the supply of money within the system? In our modern era, the answer is almost always yes, regardless of where you live.

When an increase in a nation’s money supply, or inflation, becomes uncontrollable, it is called hyperinflation. Hyperinflation is one of the most dangerous economic problems that can confront a nation as it causes dramatic price increases which eventually cripple the underlying economy. Unfortunately, hyperinflation has been at the root of nearly every fiat currency system collapse in history.

A Brief History of Fiat Currencies

Let us now examine several nations that have resorted to the use of fiat currencies throughout history. While all of these experiments with paper currency ended in disaster, let them serve as a testimony and reminder to mankind’s tendency toward greed, coupled with his embarrassing inability to rule himself.

Ancient Rome

Our brief journey through the history of fiat money begins in the time of ancient Rome. The story of the rise and fall of the Roman Empire offers a wealth of insights. And while the empire’s rise was due to a variety of interesting factors, the reasons for its fall are rather predictable and historically identifiable: significant government overspending, financial greed, an entitlement mentality, and military overextension.

Obviously, the colossal costs of financing the empire’s perpetual state of war, plus its numerous public works projects and entitlement programs, required ever-increasing tax revenues. Over time, many could not bear the increasing tax burden and sought relief through tax evasion. As many sought financial relief by opting to evade their taxes, the empire’s revenues consistently fell short. Instead of making draconian spending cuts, the empire moved to create a stealth tax that no one could hide from: inflation. (As history will demonstrate, a shortfall in government revenue rarely leads to meaningful cuts in public spending.)

While Rome did not use paper money, the empire still provides one of the first pure examples of currency debasement in history. The official currency of the Roman Empire was the denarius, a metal coin composed of 100 percent pure silver. The pure silver content of the Roman denarius remained intact until Emperor Nero came to power. In a.d. 64, Rome suffered a great fire, which required a massive urban rebuilding effort. The immense rebuilding costs required more money than the Roman treasury held in reserves. In order to raise adequate funding for the reconstruction, Nero exacted higher tax revenues from Rome’s provinces.

But Nero did not stop there. In an effort to raise even more money, the maniacal emperor intimidated coin makers at the mint to dilute the silver content in the denarius. To accomplish this, the silver content of the empire’s silver coins was melted down and replaced partially with iron or copper. Similarly, the empire’s gold coins were diluted and partially replaced with copper. Because the dilution of the silver and gold coin content was done in limited amounts, few citizens noticed the new hybrid coins.

As the empire’s financial needs grew, cheaper metals like copper and tin began to replace the gold and silver coins that had once been the empire’s currency. Using these cheaper metals meant that more currency could be produced and the money supply could be artificially expanded. The inflationary pressures caused by the increased supply of currency naturally led to higher prices within the Empire.

In a.d. 301, Emperor Diocletian sought to end the increasing prices through price controls. By issuing the Edict of Prices, Diocletian threatened any and all merchants with the death penalty if their prices went above Rome’s acceptable range.

Through the debasement of the Empire’s currency, the government leaders were able to raise large sums of new money for their pet projects. However, Rome’s flirtation with currency debasement became an obsession. By the end of the Roman Empire, a denarius coin was approximately .02 percent silver and 99.98 percent iron! As the Roman currency continued declining in value, merchants and laborers alike shunned its use.[7] The Empire’s failed economic policies, coupled with its widespread currency debasement, eventually led to massive hyperinflation and the fall of the Roman Empire.[8]

China

Today, China is an economic powerhouse that has gained the attention of savvy investors from around the world. But relatively few know that this Far East nation was the first to develop paper money. The paper notes, known as the Jiaozi, were originated and issued under the Song Dynasty in the 10th century a.d. Ironically, the purpose for introducing the paper currency was to combat inflationary pressures created by an overproduction of iron coins. To counter the declining value of the iron coins, a bank in the Szechuan province began issuing the paper currency in exchange for the devalued coins. Initially, the new paper money system seemed to be successful. However, it did not take long before the monetary authorities began overproducing the paper currency, causing it to decline in value. The currency was eventually abandoned.[9]

Shortly thereafter, under the Yuan Dynasty, the Chinese attempted another form of paper currency. The Chao, as it was known, lasted for a short time. Its demise came after an extreme overproduction of the currency led to massive hyperinflation.

By the mid-15th century, the Ming Dynasty, apparently unimpressed with the enormous failures caused by their novel monetary experiments, decided this time to completely abandon the use of paper money within the country, choosing instead to return to silver coinage.

France

In 1720, France got a taste of paper money gone awry, thanks in part to Scottish economist John Law and his Mississippi Bubble scheme.

Confronted with massive deficits left to him by his great grandfather (King Louis XIV), King Louis XV was eager to find a way to balance the government’s budget. With the nation teetering on the edge of insolvency, John Law convinced King Louis XV to adopt a paper currency and enforce its usage among the public by making it the only acceptable form of payment for taxes. Soon, the paper money became very popular with the French people. After a few wrong turns economically, including an investment scheme in the Louisiana swamplands, France resorted to overprinting the currency. Within four years of the introduction of paper money into the system, France and its citizens went from being impoverished to being fantastically wealthy (on paper), and then back into poverty again. The paper money experiment conducted by Law and King Louis XV completely destroyed the French economy.

But just one generation later, during the French Revolution, France had apparently forgotten the lessons of the past. In 1791, the nation made yet another attempt at issuing a paper currency called the Assignat. By 1795, just four short years later, as the national inflation rate raged at an alarming 13,000 percent, the Assignat became completely worthless. The French Revolution was eventually brought to an end under the strong leadership of Napoleon Bonaparte. Napoleon re-established a gold-backed monetary system in France to replace its failed paper money system, which led the country into an era of prosperity.

Later, in 1936, France nationalized the Bank of France and removed the gold backing from the French currency. The new fiat paper currency that was introduced became completely worthless just over a decade later.

Weimar Republic (Pre-Hitler Germany)

Our next lesson in the dangers of paper money takes us back to a pre-Hitler Germany. Hyperinflation struck the Weimar Republic of Germany in the post-World War I era of the 1920s. At the Treaty of Versailles, Germany accepted its defeat and was forced to pay war reparations to France. War-torn and humiliated, Germany and its frail economy had little hope of being able to repay its enormous war debts. As Germany’s reparation payments became increasingly inconsistent, France grew impatient.

Determined to make Germany pay, France led a military invasion into the debt-ridden country in January 1923. French and Belgian troops stormed a German industrial area, known as the Ruhr, where Germany was known to hold much of its wealth. Once the Ruhr had been successfully occupied, the German economy faced even further calamity. The German leaders reacted by printing even more of their increasingly worthless paper money, known as the mark, in order to satiate their French overlords. But as the German government continued to print millions of marks to remain solvent, Germany’s citizens began noticing a dramatic increase in their wages. This increase was due to the excess currency that was being created within the system. There are pictures from Germany showing workers being paid with wheelbarrows full of currency. The problem, however, was that the prices of goods and services was growing at a faster rate than wages. For example, in 1922 a loaf of bread cost an average of 160 marks. But by the fall of 1923, the same loaf of bread cost 1,500,000 marks!

As was the case with most nations before them, Germany believed that it could overcome the rising prices by printing even more money. The results, of course, were completely disastrous. Not only did the overproduction of the German mark wipe out much of the German population’s life savings, it also caused prices to rise dramatically on life’s most basic necessities, like food and clothing. Mass hunger in the nation led to starvation in the poorest communities. Soon, poverty spread to the more affluent communities as the prices of goods and services skyrocketed, with no end in sight. As the German currency became completely worthless, many families found that it made more economic sense to burn the stacks of their marks than to use them to purchase firewood. Others used the marks as decorative wallpaper. And while Germany’s bout with hyperinflation was extreme, it provides us with the startling possibilities that can occur when a nation ignores fundamental economic and monetary laws.

In 1924, after their spectacular monetary failure, Germany replaced the mark with a new and improved currency, the “Rentenmark.” In addition, France learned that if it sought to regain Germany as a viable economic partner, it must become more reasonable in its debt repayment schedule. These new arrangements provided some much-needed relief to the German government and its people. The good times would not last for long, however. Later, in the wake of the

U.S. stock market collapse of 1929, Germany fell into another deep economic depression. This financial meltdown led to another round of social chaos which would ultimately provide the perfect breeding ground for the rise of another one of history’s maniacal dictators: Adolf Hitler.

Recent Fiat Failures

It has been demonstrated that history is replete with examples of the failure of fiat currency systems. However, let us now turn to the currency collapses that have occurred in more recent years.

Austria, 1922: Poor monetary policies from 1914 to 1923 led to massive inflation in the post-World War I era of Austria. The Austrian government kept the printing presses running day and night to deal with their growing fiscal crisis. Between January 1921 and August 1922, Austria’s currency, known as the crown, suffered a 10,000 percent inflation rate. Eventually, the public’s faith in the crown was shattered. By 1924, the Austrian government introduced a new currency to replace the crown, called the shilling. Austria’s citizens received one new shilling for every 10,000 crowns that it turned in to the monetary authorities.[10]

Greece, 1944: In 1944, Greece suffered its worst inflation ever. The inflation reached 8.5 billion percent per month! During this period of inflation, prices doubled every 28 hours.

Hungary, 1946: In 1946, Hungary’s fiat currency suffered from 4.19 quintillion (4.19 x 1018) percent inflation. (Prices doubled every 15 hours.) Each morning, millions of Hungarians listened to a radio broadcast just to keep up with how much their money was worth that day. This is one of the worst cases of hyperinflation in history.

Israel, 1984: In 1984, after battling inflation for a decade, Israel suffered an inflation rate of 445 percent, which was later tamed by price controls.

Argentina, 1989: The 20th century was economically unkind to the Argentinian people. Despite their immense wealth of natural resources, the country consistently faced massive budget deficits throughout much of the 1980s. Faced with insurmountable debt to foreigners and to Argentina’s citizens, the political solution was clear: inflate the currency to pay off the debts. The inflation rate reached levels of over 5,000 percent and soon the country adopted a new currency to replace the old worthless one.

Peru, 1990: In 1990, Peru faced a monthly inflation rate of 397 percent, due to its poor monetary policies.

Norway, 1992: In 1992, Norway, Italy, and Finland experienced major currency problems with their fiat currencies.

Yugoslavia, 1994: From 1993 to 1994, Yugoslavia experienced one of the worst bouts of hyperinflation in history. Mathematical equations are required to measure the height of inflation that struck Yugoslavia during this time. The inflation rate during this period: 5 × 1015 percent!

Ukraine, 1995: From 1993 to 1995, the country of Ukraine suffered from hyperinflationary pressures. At one point, their inflation rate reached 1,400 percent per month!

Mexico, 1994: In 1994, the Mexican peso collapsed in what was known as “the Tequila Hangover.”

Asian Crisis, 1997: In 1997, the Asian Currency Crisis began as Thailand’s fiat currency, the baht, collapsed. The effects of the collapse spread to other Far East nations.

Russia, 1998: In 1998, the Russian ruble collapsed. Like Germany’s Weimar Republic, Russian workers were paid in wheelbarrows full of rubles. While the situation was far from comical, some in the working class joked about the worthless currency: “We pretend to work and they pretend to pay us.”

Turkey, 2001: Beginning in 2001, Turkey experienced major bouts with hyperinflation as its currency, the lira, became increasingly worthless. Currency reform came in 2005, when Turkey issued a new Turkish lira (1 was exchanged for 1,000,000 old lira).

Zimbabwe, 2007: In 2007, after several years of increasing inflation rates, the African nation of Zimbabwe was gripped by massive hyperinflation. By the summer of 2007, the inflation rate was 11,000 percent. One year later, the official monthly inflation figures were over 11,250,000 percent! At this rate of inflation, Zimbabwe residents had to spend their paychecks as soon as they received them just to keep the money from losing its worth.

The Failures of Fiat Money Ignored

While the landscape of world history is littered with failed fiat currencies, history is also replete with vigilant warnings from our ancestors regarding the inherent dangers of fiat currencies. Below I have compiled a list of warnings issued by some of the brightest men in world history regarding the failures of fiat-based money. You will notice some references to gold and silver as a wise backing to a nation’s currency. I will explain those references momentarily.

Paper money eventually returns to its intrinsic value — zero. — Voltaire[11]

You have to choose [as a voter] between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold. — George Bernard Shaw[12]

Sound money still means today what it meant in the nineteenth century: the gold standard. — Ludwig von Mises[13]

Paper money is like dram-drinking, it relieves for a moment by deceitful sensation, but gradually diminishes the natural heat, and leaves the body worse than it found it. Were not this the case, and could money be made of paper at pleasure, every sovereign in Europe would be as rich as he pleased.

But the truth is, that it is a bubble, and the attempt vanity. Nature has provided the proper materials for money: gold and silver, and any attempt of ours to rival her is ridiculous. — Thomas Paine[14]

If you increase the quantity of money, you bring about the lowering of the purchasing power of the monetary unit. — Ludwig von Mises[15]

We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors, and a ruined people. — Daniel Webster[16]

The governments alone are responsible for the spread of the superstitious awe with which the common man looks upon every bit of paper upon which the treasury or agencies which it controls have printed the magical words legal tender. — Ludwig von Mises[17]

Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money. — Daniel Webster[18]

Based upon the preceding quotes and all that is known from recorded history, it is hardly conceivable as to why our modern society would dare to build and hold the majority of its wealth in a fiat paper money system. Yet today, every economy in the world uses a fiat currency! Why would nations place their wealth near the precarious cliffs of a fiat currency system? If fiat currencies have a 100 percent chance of failure, then why do modern governments even consider them?

One obvious answer is human greed. Fiat currency systems allow governments, businesses, and consumers to spend more than they actually have. This is because modern fiat money is debt-based money. Today’s monetary systems are based and rooted in debt. In fact, money itself is simply debt. While many financial commentators are quick to point out that you should “get out of debt,” this book is going to explain that the money you hold in your pocket is debt itself. The current system is entirely flawed. How all of this is possible is completely exposed in another chapter of Bankruptcy of Our Nation. In that chapter, I will unveil another possible reason why nations have opted for fiat currencies over more sound and honest money. What we will discover will be shocking, to say the least.

Insanity has been defined as doing the same thing over and over again but expecting a different result. Considering the consistent failures of fiat currency systems throughout history, you may find yourself asking why the world has not created a better monetary system by now. The answer is not easy to find, but it can be found. Solutions do not magically appear simply because a problem exists. Solutions are created only when enough people ask the question and demand an answer.

The Biblical View of Fiat Currencies

One of the tragedies of our modern day is found in the passivity of the population regarding its government’s monetary policy. For the most part, economic literacy levels are at all-time lows around the world. Part of this is due to the increasing complexity of the global financial systems. But it is also due to a growing apathy among the citizenry of various nations. This apathy has allowed government to grow, both in size and in strength, virtually unchecked. The larger the government, the more severe the problems eventually become.

For people of faith the solution to our modern financial crisis is not found in political or economic activism, but rather in simple awareness. This awareness of the monetary system has traditionally been rejected by faith-based communities on the grounds that money is an unspiritual topic. For example, many evangelical Christians have completely shunned economic awareness in the name of spirituality. This is staggering, especially when one considers that the founder of Christianity, Jesus Christ, had more to say about money and possessions than any other topic, including faith, hope, heaven, and hell combined! In fact, over 2,350 verses of the Christian Bible contain a reference to money, wealth, and possessions. Obviously, financial matters are an important topic to the Christian faith.

Considering that the Bible has so much to say about the topic of money, is it possible that it has anything to say about fiat currencies? While this may seem like a strange question, you may be surprised to find that the Bible has a very strong opinion on the topic of fiat currencies. Of course, you will find no scriptural reference to the word “fiat.” That is because this is a relatively modern word. Instead of denouncing fiat currencies, the Bible condemns what it calls “unjust weights and balances.” Interestingly, this phrase is a direct reference to the concept used to manipulate fiat currencies in our modern era. Allow me to explain.

In ancient times, business and commerce were conducted through the use of scales and measures. For example, if a person needed a pound of grain, he would go to the local grain merchant with an acceptable form of payment. The merchant would then weigh out a pound of grain on his scale. When the Bible denounces “unjust weights and balances,” it is referring to the unscrupulous merchants who swindle the average consumer through the use of inaccurate scales and balances. By readjusting their scales in their own favor, merchants could easily cheat and deceive their customers. The Bible obviously takes issue with this practice, equating it with thievery. Apparently, this was a pervasive problem in ancient times as the Bible condemns the practice on numerous occasions.

Proverbs 11:1 — “Dishonest scales are an abomination to the Lord, but a just weight is His delight.”

Proverbs 20:10 — “Diverse weights and diverse measures, they are both alike, an abomination to the Lord.”

In Leviticus 19:35–36, the Bible instructs the Israelites that all of their economic transactions (buying and selling) should be conducted with honest weights. “You shall do no wrong in judgment, in measurement of weight, or capacity. You shall have just balances, just weights . . .” (NASB).

Obviously, the Bible expressly forbids the unscrupulous practice of using “unjust weights” and “false balances.” In our highly advanced modern economy, we may be tempted to think that unjust weights and balances are an irrelevant practice of the past that no longer applies to us. But is this true? And if not, what would an example of this practice in our modern world look like?

I would suggest to you that fiat currencies perfectly fit the biblical definition of an “unjust weight” and a “false balance.” But before I explain how, let’s consider some other modern examples that are easier to grasp, using automobiles.

One example of a “false balance” would be if an automotive mechanic were to charge you for installing a new part on your vehicle but secretly installed an old used part. That would be considered a “false balance” by biblical definition.

Here’s another example: Imagine that an auto dealer secretly manipulated the odometers on their vehicles so that they would display fewer miles than the engine actually had in order to charge a higher price. This would clearly be an example of an unjust weight and balance.

Likewise, a “false balance” would include our current fiat-based monetary system where the currency is backed by nothing but debt and can be printed at will. In fact, each one of the cases of hyperinflation discussed in this chapter provides a classic example of a biblical “false balance.” The governments of each of these countries violated biblical principles regarding just weights and balances when they began destroying the purchasing power and life savings of their citizens.

A fiat currency system, in which the currency is backed by nothing and its value can be manipulated at will, is by definition an unjust weight. And so therefore, by biblical definition, fiat currency systems are clearly unjust systems.

What a tragedy it is that Christianity de-emphasizes economic literacy among the faithful, thus allowing its billions of adherents to misunderstand one of the most basic of biblical principles. This economic ignorance on the part of Christians is even more pronounced when one realizes that they are the ones insisting that the absurd statement, “In God We Trust,” remain upon the nation’s fiat currency. Based upon a proper biblical understanding of fiat currencies, I would say that it is highly unlikely that the God of the Bible is interested in having His name plastered on such an “abomination” as the fiat U.S. dollar. How the faith-based community fails to comprehend this is beyond me.

To further understand America’s currency system of “unjust weights and balances,” consider these two very different dollar bills.

1923 One Dollar Bill (Silver Certificate)

Notice what the 1923 U.S. dollar says at the top of the bill: Silver Certificate: This certifies that there has been deposited in the treasury of the United States of America.

Then notice toward the bottom of the bill it states: One silver dollar payable to the bearer on demand.

What does this mean? It simply means that the owner of this dollar bill could trade it in at any time for one dollar’s worth of silver. This is because in 1923, the dollar was a form of receipt money which could be redeemed in a fixed rate for gold or silver.

Compare the above language to a modern U.S. dollar as seen below. Notice that the language on the front of this U.S. dollar bill has changed. At the top, it simply states: Federal Reserve Note. And at the bottom, the language has changed from One Silver Dollar payable to the bearer on demand to simply One Dollar.

Modern U.S. Dollar Bill (Federal Reserve Note)

Did You Know?

On April 2, 1792, the United States Congress passed the Coinage Act. This act established the United States Mint and regulated coinage of the United States. President George Washington and the Congress strongly detested paper currencies and therefore made special provisions within the act to ensure that anyone who attempted to debase the currency would be put to death. Ironically, today George Washington’s face is plastered on the front of the fiat U.S. one dollar bill — the same kind of currency that would have brought the death penalty just two short centuries ago.

The difference between these two dollar bills is a visual representation of America’s shift from receipt money to fiat money. You should try taking these modern “Federal Reserve Notes” into your local bank and asking the bank teller for some silver in exchange. You will either be laughed out, or thrown out, of the bank.

In summary, today’s U.S. dollar is a completely worthless piece of paper that derives its value through the faith of the public and the policies dictated in Washington. Isn’t it amazing that after all of the fiat failures throughout history, here we are standing at the same cliff of disaster yet again?

Quick Summary

1. Fiat currencies require an enormous amount of faith and trust in the monetary authorities by the public.

2. Inflation is defined as an increase in a nation’s money supply.

3. Hyperinflation occurs when a nation’s money supply becomes out of control.

4. Every fiat currency devised throughout history has faced the same embarrassing and miserable death: utter collapse by overproduction.

5. While the landscape of world history is littered with failed fiat currencies, history is also replete with warnings from our ancestors regarding the inherent dangers of fiat currencies.

6. Biblically speaking, fiat currencies are modern versions of “unjust weights” and “false balances.”

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Endnotes

1. John Maynard Keynes, The Economic Consequences of the Peace (Charleston, SC: BiblioBazaar, LLC, 2008), p. 168.

2. Mark Watterson, Don’t Weep for Me, America: How Democracy in America Became the Prince (Pittsburgh, PA: Dorrance Publishing, 2008), p. 68.

3. George Selgin, “Adaptive Learning and the Transition to Fiat Money,” The Economic Journal 113 (484) (2002): 147–65.

4. Scientific Market Analysis, The Nightmare German Inflation (Princeton, NJ: Scientific Market Analysis, 1970).

5. Saturday Review, editorial, April 15, 1978.

6. Bob Davis, Whatever Happened to High School History? (Ontario: James Lorimer & Company, 1995).

7. “Roman Currency of the Principate,” Tulane University, http://www.tulane. edu/~august/handouts/601cprin.htm.

8. Addison Wiggin, The Demise of the Dollar — And Why It’s Even Better for Your Investments, Chuck Butler, contributor (England: John Wiley and Sons, 2008), p. 59.

9. Dave Ramsden, “A Very Short History of Chinese Paper Money,” June 17, 2004, http://www.financialsense.com/fsu/editorials/ramsden/2004/0617.html.

10. Richard M. Ebeling, The Great Austrian Inflation, http://www.fee.org/pdf/thefreeman/0604RMEbeling.pdf.

11. Moriah Saul, Plantation Earth: The Cross of Iron and the Chains of Debt (Canada: Trafford Publishing, 2003), p. 24.

12. Herbert G. Grubel, World Monetary Reform: Plans and Issues (Stanford, CA: Stanford University Press, 1963), p. 333.

13. Ludwig von Mises, Percy L. Greaves, trans., On the Manipulation of Money and Credit (Dobbs Ferry, NY: Free Market Books, 1978), p. 279.

14. Michael Foot and Isaac Kramnick, editors, Thomas Paine Reader (New York: Penguin Classics, 1987), p. 197.

15. Ludwig von Mises, Economic Policy: Thoughts for Today and Tomorrow (Auburn, AL: Ludwig von Mises Institute, 2006), p. 66.

16. The Works of Daniel Webster (Boston, MA: Little, Brown, 1890), p. 413.

17. Ludwig von Mises, Human Action: A Treatise on Economics (Chicago, IL: Contemporary Books, 1949), p. 448.

18. Forrest Capie, Major Inflations in History (Brookfield, VT: E. Elgar Pub., 1991), p. 304.

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About the author

Featured on WorldNetDaily’s popular website each week, Jerry Robinson is an economist, serial entrepreneur, international speaker, and radio host of Follow the Money Weekly, appearing on numerous TV and radio programs, including Fox News, and being quoted by USA Today and other news agencies on the topic of the economy, with columns appearing in publications such as Townhall and Financial Sense.

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