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Monetary Reform: Fiat vs. Market

Written by Gary North on April 16, 2016

What is fiat money? It comes from “fiat,” which means a formal authorization or proposition or a decree. Synonyms are these: edict, order, command, commandment, injunction, proclamation, mandate, dictum, diktat. It is an arbitrary order.

The phrase “fiat lux” comes from Genesis 1:2: “Let there be light.”

Fiat money is the money issued by a self-proclaimed divine state. It rests on the premise of divine right: no higher appeal. It is the court of final appeal. In short, it is divine.

A free market money system is an operational system to which people can appeal to because it is not statist money. People use gold coins or silver coins to buy what they want. Or they use legal claims to such coins. The state is not in the “money business.”

No nation-state ever allows this. Every nation-state wants to be the highest court of appeal, especially in monetary affairs. Every nation-state claims legal sovereignty over money.

Any gold standard in which civil government is the defining agency is a pseudo-gold standard. It is a counterfeit. When you think “government-guaranteed gold standard,” think “counterfeit.”


In times of great crisis, money dies. The things that money could buy in normal times are not available at any price close to that which prevailed in normal times.

The Bible’s most famous example was the famine in Egypt under Joseph’s administration. We read that the money failed (Gen. 47:15). But there was another case.

And there was a great famine in Samaria: and, behold, they besieged it, until an ass’s head was sold for fourscore pieces of silver, and the fourth part of a cab of doves’ dung for five pieces of silver (II Kings 6:25).

So revelatory are prices of the underlying social conditions that Elisha prophesied the end of a siege by forecasting a dramatic fall in prices: “Then Elisha said. Hear ye the word of the LORD; Thus saith the LORD, Tomorrow about this time shall a measure of tine flour be sold for a shekel, and two measures of barley for a shekel, in the gate of Samaria” (II Ki. 7:1). Before it ended, silver did not count for much. Or put differently, they had to count out a lot of silver to buy anything worth owning. What was worth owning was food.

Normal pricing reveals normal times. When prices today are close to what they were yesterday, we can be confident that society tomorrow will be pretty much what it IS today unless something totally unforeseen happens. Rarely does it happen.

Money prices are indicators of broad social trends. Gold reached its highest price, denominated in U.S. dollars, the week before Gettysburg. On July 3. 1863, Lee’s army was defeated. On July 4, Vicksburg fell to Grant’s forces. The dollar price of gold fell the following business day and did not reach these heights for a century. The world believed that the Union would win the war, no matter what the South’s politicians and generals said in public.

What was the South’s leadership to say? “Well, that does it. It’s all over but the shouting. The North’s shouting. We might as well surrender now. Why continue this bloodbath? The Yankee dollar is up. Gold is down. Gold says we’re beaten. We might as well face it.” Had any politician said this, he would not have served out his term. Yet this was exactly what the South’s leaders should have said. They continued the bloodbath, yet the outcome was what the price of gold had projected.

All of this is to say that the price of gold, back in the days when governments tied their currencies to it, was a better indicator of social conditions than the speeches of politicians.

No matter what politicians want people to believe, if they preach good times while the price of gold is rising, the public would be wise to discount the politicians words. Free men make evaluations of the state of the world, and the price of gold reflects their judgment. So do interest rates. They can be wrong in their forecasts, but their forecasts are best reflected in these two market prices.


Why should gold be the focus of attention, the ultimate indicator? One reason is because it usually has been. When gold is not widely used as currency, silver has served the same function. These two precious metals are the most familiar indicators of underlying economic trends. People have learned after millennia that the purchasing power of gold and silver also reveals a great deal about social stability. When the price of either or both keeps rising, the world is alerted to a nations underlying crisis. When the prices of basic commodities rise faster than the price of gold and silver, that society is becoming desperate.

(For the rest of my article, click the link.)

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