Bankruptcy of Our Nation (Revised and Expanded). Jerry Robinson
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.
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.
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. 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.