Colonial Script: Fiat Money That Worked
Wednesday, April 28th, 2010 at
12:14 am
It is well known that the Continental, colonial script issued by congress, failed, it is less well known that the currency was undermined by British counterfeiters. It is also overlooked that the colonies successfully used colonial script (fiat money) togetehr with European money to boost teh money supply, promote economic activity, and reduce the tax burden. The Good Old Days of Gold and Silver home.comcast.net
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Tagged with: colonial • continental • Fiat • Gold • money • script • silver
Filed under: Fiat
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Money supply can be inflated by stamping to much silver into coin also and this has happened in history. Also, deflation from a contracting money supply, was a huge problem associated with gold and silver as money that neccessitated paper money.
Historically, usury, the borrowing and lending of money at interest, has been considered sinful and/or illegal.
Lawful lending (still usury) is and has historically been, a highly regulated practice. Requiring lenders to accept government issued money as payment for debts seems like just of many reasonable restrictions.
Historically, lots of bad ideas have been held. Interest is simply the price one pays for the deferred consumption of another person. Nothing sinful about it. And nullifying contracts en masse is not “reasonable”, nor a way to ensure a stable economy.
…contractions in real output have been associated with inflation. And in a free market, where the government doesn’t set an exchange rate between gold and silver, more silver entering circulation needn’t result in inflation.
The problem with expecting private currencies to “compete” with a legal tender currency is that people can be compelled to accept inferior currency when such laws are in place. Gresham’s Law holds in all such cases, and the competing currencies would eventually be driven out of circulation.
If it was only that simple? I’m sure that you realize the money being lent is being created for the purpose of lending it? And I don’t really care if the money is created by a jounal entry, a printing press or a coin mill. It is brought into existence and becomes money and is burdened with interest. There are certain math problems associated with creating principle and burdening the principle with interest. It is a scheme that guarentees wealth to flow from the working class to the owner class.
Amen! Yes, a contraction in real output of goods and services without a corresponding contraction in money creates inflation.
If gold and silver float as money, each stands to suffer the consequences of inflation and deflation in value independent of the other.
If the commodity value of either exceeds its monetary value the money supply will shrink as coins are melted for metal. Paper doesn’t have that problem, but it does have other problems.
In a fractional-reserve system, money is indeed created through debt. It is also unsustainable, as the scheme eventually breaks down. Which is why before the National Banking Act of 1862, which worked primarily to prop up the system, and the Federal Reserve Act, in which the feds formalized the system, there was a trend towards full-reserve banking. But there’s no reason why a commodity currency would necessarily enter circulation to be lent out at interest. For example, if a gold mine were…
…to mine gold, mint it into coins, and then use them to cover its operating expenses while paying out the rest to its investors, no new debt would be created.
To the extent that I do have concerns about a commodity currency, it’s actually that it might be diverted from its commodity use to be used as currency, as most of the value of that commodity is derived from its currency status. The scenario you mentioned, where the commodity value exceeds the monetary value, only happens when the government sets a fixed exchange ratio between different commodities or coins. For example, in England under the Tudors, a fixed exchange rate was established between
…the newer, debased metal coins and old coins, causing the value of coin overall to decrease until the older coins were more valuable for their metal content than their face value. But this can only occur with legal tender laws that compel people to accept debased currency.
I frequently have these back and forths with gold and silver enthusiasts and I just can’t persuade any of you in these 500 charachter replies and maybe never to actually reevaluate what you think you know about money and money history. You and others like you are smart … I mean it! … really smart. That’s why you are confident and NOT checking to see if you’re missing something. Please take that as a complement and a sincere expression of my frustration with my own ability to communicate.
Whyd didn’t the early colonists have coins? What did they have to do to get coins? Why couldn’t they just stamp their own?
I’ve already done this, but I think it is a math expirement you have to do yourself to understand. Go find out how much godl and silver holdings there are in the U.S., then figure out how much money that would make for each person if it where all coined. Figure out how much the coins would be worth in US FRNs based on current commodity values. Take into account the fact that without fractional reserves, much of this would be needed for retirements/savings, cash registered, business, etc.
“Why didn’t the early colonists have coins? Why couldn’t they just stamp their own?”
Well, for one, it was illegal.
First of all, I’m not arguing that gold and silver would be the only money that existed in a free market. I think many people would prefer them because they’re difficult to replicate and thus less vulnerable to inflation, but that doesn’t mean people couldn’t use other commodities or exchange methods for currency. Secondly, as long as one’s money is easily subdividable, there’s no minimum amount needed to carry on commerce. The value of whatever people used as money would rise until the amount
…in circulation had a total value roughly equal to the goods available for sale in said currency or currencies. Retirement and savings would only drain money from the economy if people stuffed the money under their mattresses, rather than investing it in stocks or bonds, and even then it wouldn’t be a problem, because then the value of the remaining money in the economy would simply rise. The actual resources it represented would still exist.
I think you are dancing now! The money itself is a token of value, whether it is gold, paper or a journal entry. The money represents the value of goods and services. The value of the money itself, is that it is a token. Part of it’s value is that it iw worth the same amount over time. If it’s value flexuates a lot, up or down, it looses its money value and becomes more like a commodity or a security to be bartered and traded.
Another think that makes a token useful and therefor valuable as a token is divisibility. If you have two few tokens, you can’t divide them between vendors to get the goods and services that you want.
I magine that you have one gold coin the size of a smashed BB. It’s worth $5000 and you need to pay rent, buy groceries, fill the gas tank and buy a pair of shoes. How do you do that with one really valuable coin?
I’ve added a link in the description for an article that I just wrote called The Good Old Days of Gold and Silver. Please read. Let me know if my math is off.
Zrthusrtra is absolute correct. Colonial Scrip was the most successful form of money ever devised, but it is risky because it relies on competent and honet ppl to control the quantity. But doesn’t our current system require the same; and the gold standard for that matter?
In the 1000s, England had specie, but the goldsmiths could increase and decrease supply at will. So it too was manipulated. It’s not the medium, but those who control its quantity that matter.
Zarathustra, please refer your opponents to Bill Still’s movie, The Secret of Oz. It outlines in great detail how gold is the easiest way to manipulate the economy. I was a goldbug, but that movie changed my world view. Although it doesn’t mean that I’m dumping my gold – due to current circumstances, but I do recognize that gold is not the best system.
Benjamin Franklin and Abraham Lincoln’s fiat currencies were infinitely better than the gold standard.
One more thing. The bank of North Dakota is, at present, following this Benjamin Franklin banking system. Fiat currency backed by land.
While America has an unemployment rate over 10%, North Dakota’s is 4.2%, have almost no foreclosures, business loans abound and ND pays zero % interest on its loans because they loan the money to themselves. 2009 produced the largest budget surplus in ND ever.
The State Bank of ND was founded in 1919. The system’s track record is extraordinary.
Fiat money works it worked for 3800 times before it failed.
I’m not saying we should never use fiat, but its not a permanent solution to monetary issues, like you have none. lol.
“Fiat currency backed by land.”
but that would mean its not Fiat, wouldn’t it? afterall, woudn’t it make the paper tender a proxy for the land value? pardon me for my ignorance if I am mistaken.
but in my opinion-that is a BRILLIANT idea. I’m going to have to move to ND in the future; are there good diggings for dinosaurs?