Jekyll_text

Chapter Eight
FOOL'S GOLD
The history of paper money without preciousmetal
backingforced 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 century. The
famous explorer gives us this account: