Posted Jun 24, 2013 by Martin Armstrong
QUESTION: Hello Mr. Armstrong,
In a recent post you write, “HYPERINFLATION takes place not because of any threshold in the quantity of money that has been crossed. It is a matter of confidence.”
Is there any historical precedence for a people losing confidence in a currency, where it is being restricted, i.e., not printed in vast amounts?
In other words – Has a population lost confidence in fiat, that then leads to hyperinflation, where there is no monetary expansion?
Your thoughts would be appreciated.
ANSWER: All money is fiat if you define it incorrectly as intangible money rather than An arbitrary order or decree. As long as money floats in value and it is legal tender meaning government accepts it in return for taxes, then it is not fiat in real terms. The idea that money must be tangible also has no basis in fact. Money has been many things to many people. The entire basis of money is you will accept something as money as long as you have CONFIDENCE that in turn someone else will accept it from you.
This idea that somehow gold coin is not fiat has been so misleading. Here is a Roman tax collector gold bar because the government minted gold coins cheating in quality but refused to accept them in return for taxes. Thus, taxes were imposed based upon weight – not coins! Therefore, the gold coins of the day were not trusted and even government had no CONFIDENCE in them, which is why they were NOT legal tender (acceptable for taxes).
Before “coins” money was always various things in different areas depending upon what people valued. It has been primarily grain, precious metals (mainly silver as noted in the Bible and Babylonian law tablets), and bronze. Pictured above is Roman bronze that traded by weight in lumps before 300BC.
Many have claimed unless gold is money, then we will see a rampage of inflation. I do not understand even the logic of this argument. We had Bretton Woods with gold as money between nations. Yet, inflation was out of control for politicians then refused to revise the “fixed value” of gold when they continued to print money for they would have to make a public admission that they were a bunch of idiots. So “tangible” money did nothing to prevent the increase in money supply. If you want to do something, deal with the issue. Do not fine your wife because the guy next door forgot to take the trash out. Eliminate borrowing and convert our republican representative forms of government to a real democracy where people must vote on every expenditure and then you will deal with the issue. Stop the nonsense that somehow “fiat” is the problem. That is like saying don’t eat carrots because everyone that ever did eventually died.
Money value historically fluctuates with supply and demand and always has – it cannot be fixed. Early attempts at wage and prices controls always failed from Babylonian times right up to the Wage & Price Controls of Diocletian (284-305AD) who attempted to restore silver coinage AFTER the Great Monetary collapse. It did not matter that coinage was restored. CONFIDENCE still collapsed and the coinage was rapidly hoarded and vanished from circulation. So yes, even when the money is of full value, it still will not circulate if people do not BELIEVE government. Indeed, there was still another war and finally Constantine (309-337AD) emerged as Emperor after defeating all rivals. He enjoyed some success but had to abandon Rome and created a new Capital Constantinople and revised the monetary system again. That lasted for some time and once more you find silver vanishing from circulation.
HYPERINFLATION has ONLY taken place in minor peripheral economies. It has NEVER taken place in a major economy. All major economies implode from deflation because as they need money, they attack their citizens destroying their own economies as we are doing right now. So while you wait for HYPERINFLATION, your taxes will rise, your rights will vanish, and you will see tanks on your streets before $30,000 gold that will still be the cost of a men’s suit. Forget this H