“The farther backward you look, the farther forward you are likely to see.”
- Winston Churchill
People think currency, such as the U.S. Dollar, is money. It is not. Historically money has an intrinsic value within itself. Think of gold and silver and other precious metals – they are money. Our paper and coins are fiat currency. A fiat currency is an arbitrary order, given by a body, typically a government, which has the power to enforce it. All currencies today are fiat currencies.
Here’s a dirty little secret: Fiat currency is designed to lose value. Its very purpose is to confiscate your wealth and transfer it to the government. Government monetary policy as implemented with our fiat currency – the U.S. Dollar – is a “hidden tax” on all of us. Consider this: every time the government prints a new dollar and spends it, the government gets the full purchasing power of that dollar. Where did that purchasing power come from. It was taken from the dollars you hold in your wallet, savings or investments. As each new dollar enters circulation it devalues all the dollars in existence because they are now more dollars chasing the same amount of goods and services. This causes prices to rise. This is the insidious stealth tax of inflation.
Throughout history fiat currencies have been used in place of gold and silver as “money” and the outcome has always been the same. It is a pattern that has repeated itself since the first great fiat currency crash in Athens, Greece in the 5th century BC.
Athens was the worlds first democracy. The Greeks had the worlds first free market economy and the first working tax system. For many years Athens shone brightly. They are considered one of the great civilizations of all time. Those amazing architectural public works, such as the Parthenon, attest to that. But as we know their civilization fell long ago. What happened? Why did such a great and powerful civilization fall? The answer lies in a pattern we see time and time again throughout history: too much greed leading to too much war.
Athens flourished for many years. Then they became involved in a war that turned out to be longer and more costly than they anticipated (sound familiar?). After 22 years of war, their resources waning and their money spent, the Athenians came up with a clever way to continue funding the war. They began to debase their currency. In a stroke of (what probably seemed like) genius the Athenians discovered that if you take in 1,000 coins in taxes and mix 50 percent copper in with your gold and silver then you can spend 2,000 coins! The coins no longer had their intrinsic value in gold or silver but possessed a new value set and backed by the government. By government order Greek citizens were compelled to accept the new currency. Does this sound familiar? It should, it’s called deficit spending and our government does it every second of every day.
Because of this currency manipulation for the first time a “fiat” currency was born – a currency that was not comprised entirely of gold and silver. Over the following years the Greeks continued to debase their currency and eventually it became nearly worthless. Within a few years the war that had started the whole process was lost. Athens never again enjoyed the glory or prosperity they once knew, and they eventually became nothing more than a province of the next great power – Rome.