(Un)happy Birthday, Fiat Money

An excerpt from the stellar Ludwig von Mises Institute:

Forty years ago today, on the morning of Sunday, August 15, 1971, the US president, Richard Nixon, declared the inconvertibility of the dollar into gold.[1] The 20,000 tons of the yellow metal deposited in Fort Knox in 1944 had decreased substantially due to the high military costs of the Vietnam War. The United States — the leading global economic power — could not honor its financial commitments.

As a result, the Bretton Woods systemofficially ended, and the dollar became a fully fiat currency, backed not by gold but by the promise of the government.

The central banks can now print any amount of money. The dollar, which functions (so far) as the international currency, acquires real goods without offering anything in return. Of course, some holders of dollars are hard workers who, integrated within the structure of production, contribute to society with the provision of real goods and services. But there are also the politicians and bureaucrats — a completely different class of people.

This parasitic class weakens the productive class (and also manipulates production through public spending). At the moment, the European Central Bank is monetizing the debt of the peripheral European countries, diverting real resources from entrepreneurs in order to finance the wasteful activities of governments. It’s totally outrageous, morally unjust, and economically ruinous. It’s just one more road to serfdom.

Please do read on at Mises.


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Filed under Austrian Economics, Federal Reserve

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