Fiat Currency

Money backed by nothing but government force and the requirement that citizens accept it as payment.

What Is Fiat Currency?

Fiat = "Let it be done" in Latin - money that exists because the government says so.

Key characteristics:

• No intrinsic value - worthless paper/digital entries
• No backing - not redeemable for gold, silver, or anything of value
• Legal tender laws - must be accepted by law
• Unlimited supply - government can create infinite amounts
• Value by decree - worth something only because force compels acceptance

The Historical Progression

1. Commodity Money (Natural)

• Gold, silver emerged as money through market process
• Intrinsic value, limited supply, durable
• No government needed

2. Representative Money (Honest)

• Paper notes redeemable for gold/silver
• Convenient but honest - backed by real assets
• Government promise to convert on demand

3. Fractional Reserve (Fraud)

• More notes issued than gold/silver backing
• Fractional Reserve Banking begins the debasement
• Periodic crises when people demand redemption

4. Fiat Currency (Pure Theft)

• All backing removed
• Money creation unlimited
• Value maintained only through force

The Nixon Shock: August 15, 1971

The Day Money Died:

• Nixon "temporarily" suspended gold convertibility
• Ended Bretton Woods system
• Made all world currencies pure fiat
• "Temporary" measure still in effect 50+ years later

The Excuse: Defending the dollar from "speculators" (people wanting actual money for paper)

The Reality: US had printed more dollars than it had gold to redeem

How Fiat Works

The Coercion Mechanism

1. Legal tender laws - must accept or face penalties
2. Tax obligations - must pay taxes in fiat currency
3. Government spending - creates initial demand
4. Banking regulations - force use through financial system
5. Violence - ultimately backed by police/military

The Debasement Process

1. Government needs funding beyond taxation
2. Creates new currency units from nothing
3. Spends into economy at current prices
4. Increased money supply drives up prices
5. Your savings lose purchasing power
6. Repeat infinitely

Why Governments Love Fiat

Unlimited Funding

• No constraint on government spending
• Can fund wars without direct taxation
• Hidden tax through Inflation
• Borrowing costs artificially low

Economic Control

• Manipulate interest rates
• Control credit allocation
• Bail out politically connected entities
• Create boom-bust cycles for crisis management

Wealth Transfer

• From savers to debtors
• From productive to political class
• From present to future (debt monetization)
• From citizens to government

The Austrian Critique

Fiat currency violates core economic principles:

Economic Calculation Problem

• Distorted price signals prevent rational calculation
• Artificial interest rates cause malinvestment
• Business cycles created by credit expansion

Property Rights Violation

• Inflating currency steals from existing holders
• No consent required to debase savings
• Forced acceptance violates voluntary exchange

Knowledge Problem

• Central planners cannot know optimal money supply
• Market-determined money supply would reflect real preferences
• Government monopoly prevents monetary innovation

The Inevitable Collapse

All fiat currencies in history have eventually failed:

• Roman Denarius - debased from silver to worthless
• Continental - "not worth a continental"
• Weimar Mark - hyperinflation destroyed middle class
• Zimbabwe Dollar - 231 million percent inflation

Average lifespan: 37 years for pure fiat currencies

Signs of Fiat Failure

Early Stage

• Persistent Inflation
• Wage-price spirals
• Asset bubbles in stocks/real estate

Advanced Stage

• Currency volatility
• Capital flight
• Black market gold/foreign exchange

Terminal Stage

• Hyperinflation
• Barter systems emerge
• Government desperate measures (price controls, capital controls)
• Social unrest

The Solution: Sound Money

Characteristics of honest money:

• Market chosen - emerges naturally, not imposed
• Limited supply - cannot be created arbitrarily
• Intrinsic value - useful for non-monetary purposes
• Divisible - can make change
• Portable - easy to transport
• Durable - doesn't deteriorate

Historical examples: Gold, silver
Modern example: Bitcoin

Why Fiat Persists

Despite inevitable failure, fiat survives through:

1. Network effects - everyone uses it because everyone uses it
2. Government force - legal tender laws and taxation
3. Ignorance - most people don't understand money
4. Gradualism - slow debasement hides the theft
5. Keynesian economics - academic justification for the scam
6. Central bank mythology - "experts" managing the economy

The Real Purpose

Fiat currency isn't about economics - it's about power:

• Enables unlimited government growth
• Funds wars without voter consent
• Creates dependency on government spending
• Transfers wealth to political elites
• Makes population dependent on government-controlled money

Escape Routes

Individual protection:

• Physical assets - real estate, commodities, precious metals
• Bitcoin - decentralized, limited supply, censorship resistant
• Foreign currencies - temporary hedge (all are fiat)
• Productive assets - stocks, businesses, skills
• Barter networks - direct exchange systems

The ultimate solution is ending the government monopoly on money and allowing free market competition in currencies. Until then, every fiat currency is a slow-motion collapse waiting to accelerate.