Originally Posted by derby_dude
Originally Posted by Barak
Lemme ask it this way.

If I were to hand you a dollar, how would you tell whether it was worth a dollar or not?


Okay, I get you now I think. Dollar is only worth a dollar because the government says it's worth a dollar. If the dollar was only legal tender to pay taxes that would give the dollar worth.

Look up the Isle of Mann or New York State before the state ratified the Constitution. Both use paper money as legal tender to pay taxes only. Both have or had in that of NY a viable paper currency that had value.

I realize Barak, under anarchy there would be no money other than gold/silver but the reality is that most people want a paper currency guaranteed by a government. I know that's stupid but its reality.
Theoretically a paper fiat currency can work if it's volume is maintained at a constant level, and assuming that government taxes and services must be paid in it, but like many things that are possible in theory, it's not possible in practice, since the folks who administer it will suffer from far too great a temptation to print and print, which is what invariably happens. This is also what happens when banks are permitted to engage in fractional reserve banking, and even reduces the value of real gold and silver when they engage in it. This is no different from counterfeiting. In a society where counterfeiting (including fractional reserve banking) is seriously punished (since it reduces the purchasing power even of everyone's real gold and silver while transferring that lost value into the possession of the counterfeiter), money cannot be printed into existence. Nothing stops banks, however, from issuing good notes backed 100% by real gold and silver in their vaults.