FOOL'S GOLD

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Chapter Eight

FOOL'S GOLD The history of paper money without preciousmetal backing forced on the public by government decree; the emergence of our present-day fractional-reserve banking system based on the issuance of a greater amount of receipts for gold than the bank has in gold to back them up.

We previously have broken down the concept of money into four categories: commodity, receipt, fiat, and fractional. In the last chapter we examined commodity and receipt money in some detail. In doing so, we also established certain monetary principles which apply regardless of their form. We shall now turn to the remaining two categories, both of which are represented by paper and which are at the root of almost all of modern man's economic woes. FIAT MONEY The American Heritage Dictionary defines fiat money

as "paper money decreed legal tender, not backed by gold or silver." The two characteristics of fiat money, therefore, are (1) it does not represent anything of intrinsic value and (2) it is decreed legal tender. Legal tender simply means that there is a law requiring everyone to accept the currency in commerce. The two always go together because, since the money really is worthless, it soon would be rejected by the public in favor of a more reliable medium of exchange, such as gold or silver coin. Thus, when governments issue fiat money, they always declare it to be legal tender under pain of fine or imprisonment. The only way a government can exchange its worthless paper money for tangible goods and services is to give its citizens no choice. The first notable use of this practice was recorded by Marco Polo during his travels to China in the thirteenth


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