When Government Money Monopolies Fail
It is true that governments try to establish money monopolies to the exclusion of gold and silver because gold and silver impose a discipline (limit) on government spending. However, if governments don’t act responsibly with their currencies, their currencies will be shunned in the long run, and other better currencies will be used instead. This brings us to gold and silver, the most enduring monies throughout history.
Some people believe that gold and silver have been de-monetized and are therefore in lesser demand than paper currencies. What they are overlooking is the simple fact that silver and gold were used as money long before governments got into the money business. In other words, it is not up to governments (within their power) to de-monetize anything. Money was not a government invention. They simply seized temporary control of it.
Of course, governments don’t want to lose control of their money monopolies and therefore will do many things to maintain their users’ confidence in their fiat currencies. They might:
- Stop publishing data on the money supply to keep users ignorant of the rate at which they (the governments) are inflating their currencies;
- Alter the calculation of their inflation indicators (CPI) to give the appearance of a stable currency;
- Encourage other governments (that are in the same boat with their own fiat currencies) to help bail their currency out by inflating theirs just as much;
- Impose wage and price controls to make it look as though the people/businesses who are raising their prices in response to government-created inflation are the ones to blame;
- Encourage economic theories (like inflationomics) that declare that some inflation is good because it stimulates the economy, nay, is necessary, thereby justifying the existence of their fiat currencies and continued spending;
- Suggest that government spending can stimulate an economy out of a recession or depression;
- Promise one course of action while pursuing another (promising to balance the budget while spending trillions they don’t have);
- Pressuring their financial accounting standards board to alter its standards so that corporations (banks) can hide the extent of their securities losses and make their balance sheets, and consequently the economy, look better than it really is;
- Claim that their central bank is “independent” from the government and therefore is acting in the best interests of the people, not the government;
- Tell their biggest creditors that they (the debtors) are a safe investment, while monetizing their (the debtor government's) debt (another term for inflating one's currency);
- Lease their gold holdings to bullion banks who, in turn, sell the gold and invest in government bonds, thus depressing gold prices and supporting the government and its currency;
- Threaten to sell gold and/or silver in the markets to depress metals’ prices and bolster their fiat money prices relative to gold.
But in the long run, the bottom line question is: What is the best money (medium of exchange) for the people? A fiat currency (a government-granted monopoly forcibly imposed), or something that requires much effort and expense to produce and is chosen by consumers/users as the most reliable and most difficult money to manipulate (inflate)?
In Zimbabwe, where the currency has been ravaged by hyper-inflation, the government could no longer force its people to use Zimbabwean dollars. Instead, they have turned to money that is beyond the local government's control. “Better” currencies are now used; i.e., U.S. Dollars, South African Rands, and gold are used to conduct business.
And if the world's reserve currency (the U.S. Dollar) were to fall prey to hyper-inflation, what then? Would the world use Euros, South African Rands, a basket of currencies proposed by the IMF, gold, or all four?
I find it interesting that Zimbabwe is showing the way to monetary freedom. Zimbabweans now have the choice to use South African Rands, U.S. dollars, or gold. But then, we still have a long way to go before things become as desperate as they have been in Zimbabwe and we resort to freedom (of money), again.
In the meantime, it wouldn't be a bad idea to have some gold (or silver)—you could even buy food in Zimbabwe with it!
Robert Jackson Smith